From the policing of an automobile’s tailpipe emissions to workplace rights for independent contractors, California has a track record of putting once marginal ideas into the American mainstream. It may do the same for government-subsidized homeownership.
Last week, the Democratic-dominated California state legislature unveiled a $267 billion spending plan for the upcoming fiscal year. Of that enormous pie is an unspecified sliver toward “California Dream for All,” in which the state would pay for up to 45% of a home purchase’s cost for a first-time homebuyer.
“California Dream for All” is controversial and potentially complex, an unusual fish in the policy sea of homebuyer tax credits and federal loan programs. Never before has California, or it would appear any other state, proposed a direct cash subsidy to first-time homebuyers, said Gary Painter, a professor at the USC Price School of Public Policy.
The legislation is specifically targeted to boost home ownership among racial minorities, explained Toni Atkins, a San Diego Democrat and California Senate President pro tempore, “communities that have been historically shut out of home ownership.”
The home ownership rate among Black California residents was 41% in 2019, according to the California Housing Finance Agency, and it was 49% for Latino residents.
That’s significantly lower than the 68% home ownership rate for white California residents. It’s also lower than prior home ownership rates, as Golden State housing prices surged in the last 15 years. In 2004, the California Black homeownership rate was 51% and the Latino homeownership rate was 56%.
Nationally, the Black home ownership rate is 41%, the Latino home ownership rate is 49%, and white homeownership stands at a 75% rate.
“The current challenges of homeownership compound the generations of barriers that have kept minority groups from home ownership and the middle class and generational wealth benefits that come with it,” Atkins said.
Indeed, the legislation dovetails with a state task force “to study and develop reparations proposals for African Americans” that first met last week. The task force’s inaugural meeting dealt extensively with the idea of using housing as a reparation for slavery.
“Members of that committee have started to look at housing as a key part of discriminatory practices,” noted Christopher Martin, policy director of Housing California.
But it’s not clear what tangible result may emerge from the reparations task force, or the mechanics of a direct cash subsidy for homebuyers.
The nine-member task force has an ambitious mandate to “help unearth the legacy of slavery” and it will hold periodic meetings over the next two years. Besides meetings, nothing is statutorily required of the task force until a report to be released next summer.
As for “California Dream for All,” the state treasury department will first spell out the bill’s details, Atkin explained, and there will not be a legislative vote on the matter until 2022.
How the legislation is currently envisaged (as spelled out in the California Senate Democrat’s legislative wish list) is that prospective homebuyers would receive a one-time cash payment from the state. That money in hand, the homebuyer would be solely responsible for the ins and outs of home ownership, from taking out a mortgage to maintaining the property.
The state would try to sell off their equity stake of the property to investors, who, in theory, would receive a return when they cash out or the property is sold.
Painter of USC said he has seen such arrangements pay off in community land trust programs.
“I like the shared equity idea,” Painter said. “The biggest challenge for first time homebuyers is the down payment constraint. White families usually get help from their parents, while less than 25% of Black families receive such help.”
But other observers warn of a well-intentioned policy that may go awry.
The libertarian publication Reason weighed in that California Dream for All will only lead to further home price inflation, “exacerbating the racial wealth gaps the program is intended to eliminate.”
“This program would produce no improvement in housing affordability, and potentially make the problem worse for those who don’t end up qualifying for subsidies,” the publication stated.
There are added measures proposed in the California budget toward home ownership including $200 million in assistance. There’s also an extraordinary amount toward housing generally, including $8.5 billion in homeless services and $1.75 billion to address a backlog in affordable housing construction.
“The state is absolutely spending more money on housing than it did before,” Painter said. “What the state has yet to do is create a mechanism so that the market can provide housing at a lower cost.”