California Senate Democrats proposed a program to subsidize up to 45% of the cost of new homes.
It would apply to first-time homebuyers and is designed to save families more than $12,000 a year.
Home prices have skyrocketed during the pandemic, putting homeownership out of reach for many.
To ensure more equitable access to homeownership, California Senate Democrats included a program in the budget they unveiled last week that would subsidize the cost of buying a new home.
The California Dream for All program, which the Democrats first outlined in April in their Build Back Boldly budget plan, would pay for - and own - up to 45% of a home for a first-time homebuyer, cutting the purchase price nearly in half. The plan said the program would allow Californians to buy their first home with a "silent partner," significantly reducing the cost and helping close the racial wealth gap.
"Generation after generation, those with wealth get wealthier, and those without fall further behind," the budget plan said. "As has been the case so often throughout the nation's history, this has been made worse by racist barriers constructed to hold communities back - and the impacts of those barriers are still evident today. The first step to reaching the California dream of thriving in the middle class and building family wealth starts with homeownership."
The plan said this program would:
Save families more than $12,000 a year through the subsidized costs;
Establish the California Dream Fund, "which would be infused with a one-time deposit of available state or federal funds";
Allow first-time homebuyers to partner with the fund, which would own a minority share of up to 45% of the house;
Target outreach to "underrepresented homeownership communities" and "those with high student debts."
Eligibility for the program would be based on income level, and home eligibility would be based on price, the plan said. It added that eligibility requirements would differ by region "to reflect the reality that incomes and home prices differ dramatically throughout California." It didn't disclose further eligibility criteria.
In a March survey of Californians by the Public Policy Institute of California, nine out of 10 respondents said they considered housing affordability a problem, and nearly one in three said they were considering leaving the state because of it.
Home prices have skyrocketed across the country during the pandemic for various reasons, including a surge in demand fueled by work-from-home policies and an increase in the price of new builds due to expensive lumber. Some homebuilders have slowed construction because they can't keep up with demand and prices.
Goldman Sachs said last month that the housing shortage could last for years. It cited projections that millennials would remain interested in buying, that starts would be limited to an insufficient level of 1.5 million a year, and that foreclosures wouldn't meaningfully affect supply. In other words, house prices could continue to go up.
The rising prices have concerned housing experts like Daryl Fairweather, the chief economist at Redfin.
"When the pandemic is over, purchasing a home is going to cost much more than ever before, putting homeownership much further out of reach for many Americans," Fairweather said in a statement. "That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society."
The California program is meant to put homeownership within reach for many residents. The lawmakers are set to negotiate the budget, including the program, with Gov. Gavin Newsom next week.
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