Affording a home is no easy feat in California, where houses cost twice the national average. And for a lucky few, a state program aiming to help first-time homebuyers has reduced this American rite to a matter of winning a lottery.
About 18,000 people last year applied for California Dream for All, a state-funded loan that pays all or most of a down payment on a home. Borrowers pay it back when they sell.
Only about 2,000 families won the loans last year, averaging $117,000 each, and about 2,100 got them the year before. The 2-year-old program is costing taxpayers more than $500 million.
The very existence of a down payment assistance program is a symbol of California’s failure to preserve economic mobility for younger generations. It begs the question: Is this a worthwhile way to help more Californians buy a home?
Gov. Gavin Newsom didn’t include any new funding for the loans in his initial state budget proposal in January. And lawmakers just gutted a bill that would have paid for Dream for All with a new tax on vacant commercial properties. Several dozen business and real estate groups slammed the new tax idea.
If state leaders and even real estate interests won’t prioritize the down payment program, it’s fair to question whether more tax dollars should be used. But once you consider the consequences, the state must remain in the business of encouraging homeownership, especially if it helps retain California’s cost-burdened middle class.
Homeownership is still one of the best vehicles for narrowing the wealth gap between demographic groups, while stabilizing neighborhoods. And it could temper the growing divide between the very rich and the rest of us, while stemming the flood of people leaving California for more affordable housing elsewhere, which is endangering the state’s long-term outlook.
Today only 15% of California families can afford a median-priced home, which was $884,000 in March. Only 24% can manage a median-priced condo or townhome at $680,000.
Paychecks just aren’t keeping up. Since 2014, the state has lost more than 700,000 adults who specifically cited housing as the primary reason. Half bought homes in their new state.
California can’t afford to lose so many young families. With them goes a future tax base, as well as potential businesses, productivity and innovation. And schools lose because they are funded by the number of students in seats.
A shrinking population also means fewer Congressional seats. California lost a seat after the 2020 census; think tanks predict it’ll lose four or five more after the next one if trends continue.
Dream for All initially wooed first-time buyers in the middle who make up to 150% of the median income of their county. In Sacramento County, that means about $170,850 for a family of four, and $147,300 in Los Angeles.
Other programs target lower income families, but ignore the middle range.
“Teachers and nurses are stuck; they make too much for any government programs,” said Roxanne Mariok Girardo, a San Diego-area builder of homes in the $680,000 to $705,000 range. “The government gets in its own way when it makes up its rules. The middle income (class) usually makes too much, but not enough, to buy a house.”
Inheriting $84 trillion in wealth
Upper-class homebuyers have a generational advantage. Their parents help with down payments and pass on homes and other assets as they die or age, a trend that’s only accelerating. By some estimates, $84 trillion in wealth will be passed down from older Americans to millennial and Gen X heirs by the end of 2045, including $16 trillion just in the next decade.
Such disparities will be even more glaring between races. Dream for All can play a small but important role in counteracting that.
It began as a first-come, first-served loan program, but the money was gone in 11 days. Many of its first recipients were white Sacramentans, prompting a flurry of changes to the program in the second year to produce a more diverse pool of recipients — racially and geographically.
Now applicants have to be the first person in their family to ever own a home. And their income has to be under lower thresholds, closer to the median for each county. Even so, after last year’s lottery, the program had 4,500 qualifying families still on waiting lists for loans.
Also this time, 70% of loan voucher recipients are people of color, up from 55% last year, state officials said, citing preliminary statistics.
“If the state doesn’t stay in the game, the housing crisis is going to get worse.”
Al Abdallah, president of the Urban League of San Diego County
Latino families snapped up 39% of loan vouchers, far above their 30% share of California households, while Asian American and Pacific Islander families garnered 29% of vouchers when they’re 15% of the state’s households.
Black homebuyers received 8% of the vouchers though they’re 6% of the population. That’s an improvement over last year’s 4% loan accumulation, but it’s nothing to crow about.
It’s nowhere near enough to begin closing one of California’s most shameful wealth gaps: The Black homeownership rate in California is 32% compared to whites’ rate of 56%. There are many forces at play, including decades of redlining, where banks and federal government-backed lenders refused to write mortgages in some neighborhoods, and restrictive covenants, which outlawed home sales to non-whites in some neighborhoods.
Discriminatory lending still occurs, and there are more loan denials, fewer bank branches and more payday lenders in Black and Latino neighborhoods than in other areas.
The Trump administration likely won’t reverse that. The White House has instead slashed programs that try to counteract these barriers to financing. That’s why Dream for All is so important: Other sources of home-buying assistance are at risk.
One of the Urban League’s down payment programs that helped people of color was “paused” recently because a national nonprofit with federal contracts felt pressured by President Donald Trump’s DEI policies.
“If the state doesn’t stay in the game, the housing crisis is going to get worse. They have an obligation to,” said Al Abdallah, president of the Urban League of San Diego County, which counsels families on homeownership.
“When you have a mortgage you have rent control,” he said. “You’re building equity. You’re sending your kids to college … If homeownership is spread, equity builds in the hands of more than just a select few.”
Locked out of the housing market
State officials say they stand behind Dream for All, even though they’re not making plans to fund it.
Originally it was pitched as a bigger and bolder program. When Toni Atkins was Senate President Pro Tem, she said Dream for All would lend $1 billion to 4,000 families a year, for 10 years. Instead it got about quarter of the annual funding she wanted and helped half the expected number of families.
Atkins, now running for governor, declined an interview but in a written statement said she understands why people need down payment assistance, having grown up in a rental home with no running water.
“Too many families are still locked out of the housing market,” she said, adding that solving the housing crisis takes “bold action, focused leadership and relentless determination.”
Newsom’s staff said he won’t comment on his budget plans. They did, however, note that when people repay their down payment loans, that money will go toward new loans, ensuring the program’s future.
Read More: Abundance meets resistance: Are Democrats finally ready to go all in on building housing?
But that seems too small, and could take years.
If the program survives, it should expand and be more flexible, so more people qualify and more homes in high-priced places like San Diego and Los Angeles can be included.
There shouldn’t be questions or qualifiers about who is most worthy of the loans — first-time homebuyers or first-generation homebuyers should qualify, as should families who can prove they or their ancestors were discriminated against.
Dream for All kept its promise for a few thousand people. For tens of thousands of others it was just a pipe dream. It could be so much more.
This post was originally authored and published by Denise Amos from Cal Matters via RSS Feed. Join today to get your news feed on Nationwide Report®.
