It's also setting up terrible incentives for the state to continue to see houses appreciate instead of making them more affordable. This makes wholesale housing reform even less likely than it already is, the state government is just getting its beak wet.
Instead of you know, building more houses so that houses can be affordable instead of a good investment.
Wanting housing to be both affordable and a good investment is a fantastic example of 'no take only throw' economics.
> Can't pass rent control, but can pass giveaways to landlords.
Rent controls do nothing to make houses more affordable at the limit, since prices reset to market any time someone leaves. They just make the market less efficient. Only adding more houses makes houses cheaper.
Tons of the world's least affordable markets are already rent controled. Rent controled apartments in SF aren't cheaper. Neither are ones in Ontario. I can't really find any evidence they work at all.
[edit] Here's a study I found on the effects of rent control in SF.
> Leveraging new data tracking individuals’
migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. [1]
Not exactly, because it only helps them make their down payment. The magnitude of their loan continues to be primarily defined by their income, which this program does not change. But yes, it will make houses more expensive. Not 20%, but some quantity by increasing the pool of competitors for the same fixed supply.
Sounds like throwing gasoline into the fire. Housing prices are high because of supply and demand... so CA wants to use taxpayer money to increase demand?
Seriously. I'm a much bigger fan of government intervention in markets than, I think, most on this site, but this program just seems insane. "House prices are too high—let's raise demand rather than address supply!" LOLWUT?
> "I thought the program was genius," said Scott Evans, executive vice president of Cross Country Mortgage, describing what he thought when he first heard about the new loan program.
Mortgage dude likes having more clients. Shocking.
> “When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.
Wow. This gets even weirder. At least I guess this means they'll likely make money on the whole thing, but I'm not sure I love a state government being an outright investor in private homes.
Help To Buy Equity Loan did this with new houses (the buyer technically had to provide 5%, but that was often given by the developer) 10 years ago, it's only just finished. The government part was 40% in London due to the insane prices there.
The idea behind it is quite reasonable. People couldn't afford to save up for a deposit because all their money went in rent, which was higher than the cost of an equivalent mortgage + home maintenance.
Certainly helped me break out of the earn->rent cycle.
CA will make money if home prices increase from current highs due to supply constraints and if owners sell triggering the capture IIRC. CA now has a +$300m financial stake in that outcome. $300m is probably peanuts compared to the upside of addressing the CA housing crisis and enabling more CA GDP growth but it's also not nothing.
Since increasing homeownership is a good thing, subsidizing homeownership is a good thing, amirite?
Reminds me of Heinlein's Friday, in which the heroine visits a future California. The government, having found that those with college degrees earn more money, promptly issues every citizen a bachelor's degree to correct this inequitable situation.
Doesn't seem to be stopping people from trying lol. A week after this article posted, and requests to the CA housing agency's website [1] are still timing out both in my browser and via `ping`.
But yeah, as others have said, this is throwing fuel on a fire. The problem to solve for is a lack of affordable supply, not a lack of money on the demand side. But throwing money at voters is never a bad move politically, so it's understandable how we ended up where we are.
Unfortunately, the way financialization works, we should expect this to lead to a bump in home prices that roughly perfectly offsets the increased buying power created by this financial instrument. The only long-term solution to affordable housing is abundant supply.
Pumping government money into private markets always works this way.
A good example of this is the TV digital converter boxes, when we switched the airwaves from analog to digital. Those boxes were only 10 or 15 bucks or so. But then the government gave everyone vouchers for 40 bucks for a converter box. So, guess what? All the converter boxes were 40 bucks, or more. Because they could be. It was free money. The money would've been far better used by the government just giving the converter boxes directly.
>Evans said the new loan program has a shared equity program. “When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.
This seems suspect no? I agree the amount you need to out down is too much right now (floating 100k plus for a down payment), but making it essentially require 0 down sounds like you seriously run the risk of 08 part two, where it will be very easy to lend to people who actually can't afford it, or aren't financially responsible enough to handle it.
Lending half of a down payment or some other percentage would sound much safer.
I appreciate this as an anti-inequality measure, but it feels like in California low/med income buyers are being outpriced by a lot more than 20% of a down payment.
"We can fit 18 million groups into 14 million units of housing, as long as we pay 20% of the cost" feels like a really last ditch housing policy.
This is throwing fuel on the fire, not only by increasing demand in an already supply-constrained environment, but by the government of california committing $300M to fairly-directly invest in residential real estate.
It's also not entirely clear what happens to the state's "20% cut of appreciation" if the home value drops. I suspect the state isn't going to take a haircut off their initial loan amount.
Isn't this a prefect recipe for a super-bubble?
When you help people with the down payment this much, wouldn't basically everyone try to apply to enjoy appreciating property values, driving demand and prices ever higher, and even worse - with relatively little commitment to follow through if the economy gets choppy? With the down payment, at least you have some skin in the game, but with this program, for the first 5-10 years you would probably see your mortgage mostly as a rent alternative...
Heh. So, we did a similar two loan structure back in 2004. It got us into the house, but paying both loans at once was stressful for several years until the family income finally caught up enough to provide a comfortable margin of safety.
I wonder what would happen if instead the state spent the 300m on building houses and selling them, say, 10% below market price or sth.
Well I guess you can build a fair few houses for that money. In this programme it was funding 20% of the house rather than 100%, but the 100% also includes the markups of the various business doing the building.
Meanwhile, not only do you end up with more houses, diluting the price down, but also neighbouring sellers / developers need to compete with the state cheapo houses, bringing prices further still.
Of course the other thing that happens is that because housing is a localized Ponzi scheme, local residents are aghast (understandably to me) because after years of saving to buy a house, the state devalues their property.
Though maybe if you spread out the housing... Now I'm just thinking aloud.
Ah yes, because clearly the way to fix a housing crisis from outsized demand and insufficient supply is to give even more people access to cheap debt. This is so unbelievably stupid, I can't help but wonder if this is actually on purpose to make the problem worse.
This type of thing makes me think of a corollary to Hanlon's Razor: given enough time to try to solve a problem, sufficiently stupid people are indistinguishable from evil.
This madness in the US is feeding property speculation. The responsible thing to do is to use this money to build more housing, so prices will fall or at least remain at the same level.
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[ 3.0 ms ] story [ 144 ms ] threadThat could be a lot of money someday if you stay in the house long enough.
Instead of you know, building more houses so that houses can be affordable instead of a good investment.
Wanting housing to be both affordable and a good investment is a fantastic example of 'no take only throw' economics.
CA is now a REIT.
Can't pass rent control, but can pass giveaways to landlords.
Rent controls do nothing to make houses more affordable at the limit, since prices reset to market any time someone leaves. They just make the market less efficient. Only adding more houses makes houses cheaper.
Tons of the world's least affordable markets are already rent controled. Rent controled apartments in SF aren't cheaper. Neither are ones in Ontario. I can't really find any evidence they work at all.
[edit] Here's a study I found on the effects of rent control in SF.
> Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. [1]
[1] https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.20181289
It does make montreal the most affordable large city of NA.
So in theory I'm sure you are right, in practice it's not what is observed.
No, because its not available to all buyers, its income-limited, and funding limited.
The problem needs to be solved on the supply side not demand side.
> "I thought the program was genius," said Scott Evans, executive vice president of Cross Country Mortgage, describing what he thought when he first heard about the new loan program.
Mortgage dude likes having more clients. Shocking.
> “When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.
Wow. This gets even weirder. At least I guess this means they'll likely make money on the whole thing, but I'm not sure I love a state government being an outright investor in private homes.
Help To Buy Equity Loan did this with new houses (the buyer technically had to provide 5%, but that was often given by the developer) 10 years ago, it's only just finished. The government part was 40% in London due to the insane prices there.
https://en.wikipedia.org/wiki/Help_to_Buy
The idea behind it is quite reasonable. People couldn't afford to save up for a deposit because all their money went in rent, which was higher than the cost of an equivalent mortgage + home maintenance.
Certainly helped me break out of the earn->rent cycle.
Wouldn’t CA also make money by allowing more housing to be built instead of playing finance shell games ?
A fair portion of this is that things are so out-of-whack that no one has any plan but to keep the bubble going.
Reminds me of Heinlein's Friday, in which the heroine visits a future California. The government, having found that those with college degrees earn more money, promptly issues every citizen a bachelor's degree to correct this inequitable situation.
Municipalities need to be active participants in increasing supply. Not dumping free money and increasing demand.
Also, no need to picture soul crushing tower blocks. e.g. HUD's projects of the last few decades are always pretty respectable.
But yeah, as others have said, this is throwing fuel on a fire. The problem to solve for is a lack of affordable supply, not a lack of money on the demand side. But throwing money at voters is never a bad move politically, so it's understandable how we ended up where we are.
1. https://www.calhfa.ca.gov/
Edit: While I appreciate the downvotes, can someone tell me why my thinking is wrong?
Jan 2023 "After 2 years of massive surplus, California is facing a $24B budget deficit" - https://www.capradio.org/articles/2022/11/16/after-2-years-o...
> 'Unprecedented' demand: $300 million set aside for home loan assistance program gone in 11 days
https://www.msn.com/en-us/money/realestate/unprecedented-dem...
It's a mystery for the ages.
https://www.calhfa.ca.gov/homeownership/bulletins/2023/2023-...
People that were already closing on a home and in that agencies system were first in queue to flip over to this programme
Everyone else will have no time to identify a place, sign up etc
This is just madness, house prices are guaranteed to go up and affordability is likely to increase zero.
A good example of this is the TV digital converter boxes, when we switched the airwaves from analog to digital. Those boxes were only 10 or 15 bucks or so. But then the government gave everyone vouchers for 40 bucks for a converter box. So, guess what? All the converter boxes were 40 bucks, or more. Because they could be. It was free money. The money would've been far better used by the government just giving the converter boxes directly.
>Evans said the new loan program has a shared equity program. “When you sell the property or refinance the loan, they take up to 20% of the appreciation. The homeowner gets to keep 80%," he said.
Lending half of a down payment or some other percentage would sound much safer.
I appreciate this as an anti-inequality measure, but it feels like in California low/med income buyers are being outpriced by a lot more than 20% of a down payment.
"We can fit 18 million groups into 14 million units of housing, as long as we pay 20% of the cost" feels like a really last ditch housing policy.
It's also not entirely clear what happens to the state's "20% cut of appreciation" if the home value drops. I suspect the state isn't going to take a haircut off their initial loan amount.
When people couldn't afford to actually use health insurance due to high deductibles, what did the gov't do? Come up with HSA and HRA programs.
This is yet another giveaway to landlords and ways to prop up housing market that is one a decline.
Well I guess you can build a fair few houses for that money. In this programme it was funding 20% of the house rather than 100%, but the 100% also includes the markups of the various business doing the building.
Meanwhile, not only do you end up with more houses, diluting the price down, but also neighbouring sellers / developers need to compete with the state cheapo houses, bringing prices further still.
Of course the other thing that happens is that because housing is a localized Ponzi scheme, local residents are aghast (understandably to me) because after years of saving to buy a house, the state devalues their property.
Though maybe if you spread out the housing... Now I'm just thinking aloud.
This type of thing makes me think of a corollary to Hanlon's Razor: given enough time to try to solve a problem, sufficiently stupid people are indistinguishable from evil.
What happens if it goes down from 500 to 400k?