California must invest in new home ownership
Think California has a housing crisis?
Here’s what the real thing looks like: 16 million people, all suddenly out of work, all needing places to stay and ways to gain a foothold in the American economy. This was the situation in 1944 and it was a crisis.
The millions were the men and women serving in World War II. Just two weeks after the D-Day fight to take Omaha Beach, and in anticipation of soldiers returning home, FDR signed the first GI Bill, which gave legions of returning veterans a chance to borrow the money for a home.
More than four million vets took advantage of the offer. Within a decade, they borrowed $33 billion and bought one of every five new homes built after the war. In the process, many turned our San Fernando Valley into the fastest growing suburban area in the country.
To be sure, the GI Bill was not flawless. Nevertheless, it was a bold, and in many ways deeply flawed, solution to housing, jobs and a looming economic crisis, and lifted many Americans into the middleclass.
Current housing problems somewhat resemble those we wrestled with back then — insufficient supply.
Where the GI Bill focused on home ownership, the centerpiece of current housing assistance is subsidized rental housing either through a voucher system, or more typically, through projects where belowmarket rent levels are achieved through a complex array of government entitlement bonuses, grants, tax-credits, and low-cost financing.
These programs are important and there is a need for temporary rental shelter, and such programs deserve more resources, but an exclusive reliance on rental assistance is not a long-term fix to wealth inequality.
Why? Because it fails to make home ownership available to lower income families— one of the best avenues out of poverty and into the middle class.
Often, these families monthly rent equals a monthly mortgage payment, but they can’t qualify for a loan because they can’t come up with the down payment or need another form of mortgage assistance.
Instead, our current approach largely benefits landlords, who use the rent they receive to pay down their mortgages further exacerbating the wealth divide.
Landlord’s real estate assets increase in value over time, and for the tenant, well, the rent goes up. When the subsidized lease is up, both the renter and we taxpayers get bupkis.
It is time to flip the script and focus on turning renters into homeowners, who can build their own wealth over the long term. To have real, lasting impact, we need to think big — a $25 billion dollar bond fund — with money from investors and not taxpayers.
Such a fund would provide long-term financing to help community investment and assist families to buy newly built homes, live in them, and share in the profits with the bond holders over time.
Families would build wealth, and our state’s building industry would create better-paying jobs for our skilled and trained workforce in the process. And this time around, our new homes must be built in an environmentally sensitive manner as “in-fill” sustainable community strategy projects with significant community benefit, rather than create more 1950’s style sprawl.
Moreover, unlike 1944, we will ensure that it benefits people of all races, ethnicities, creeds and sexual orientations.
Taking advantage of the below-market financing costs available to the state of California, we can leverage private funding for down-payment and other mortgage assistance through “silent second” mortgages — which would be repaid when homes are resold. And this approach would protect against the corruption we saw with the mortgage crisis of 2008.
A silent second mortgage is one where the bond fund loans all or most of the down payment to the borrower and records a second deed of trust to secure repayment, with no monthly payment on the loan. This is not pie in the sky. Many of the nation’s largest universities have used silent seconds for years to help attract and retain faculty and staff.
Using this approach allows for wealth creation and will likely result in the construction of more than 250,000 new homes in California.
The sooner we refocus on home ownership, the better. Home prices have been rising much faster than incomes, with the gulf between the two widening to record levels in our major cities.
The minimum income required to afford a median priced home in California has more than doubled in the last eight years, from $56,000 in 2012 to more than $125,000 in 2020.
The time to act is now. The California Dream of homeownership should not die with the baby boomer generation.