It used to be said: “As California goes, so goes the Nation.” Remember that you might have heard about Ronald Reagan before I did. We should be horrified at the thought of California bringing its fiscal disaster policies to the streets. California, under the governorship of the impeccably-coiffed Gavin Newsom, has gone from having a surplus in its budget to being almost $70 billion deep in debt. It’s “billion,” with a capital “B.”
California is still coming up with new schemes to help the poor buy homes. In this latest Left Coast lunacy the Golden State proposes to give “loans” up to $150,000 to each person, initially funded by the generous California taxpayers. It’s not quite as bad as you might think. These are not grants, but they’re still beyond the government’s legitimate role. The money for these loans will come from taxpayers. Some problems are easy to predict.
The program provides a loan of up to 20% of a home’s purchase price or up to a maximum of $150,000. This money can be used for a downpayment, closing costs, or to finance your first mortgage.
If you purchased a home worth $500,000, for example, you would receive 20% or $100,000 to help you with the down payment and your closing costs.
You will be required to repay the loan plus 20% of home appreciation if you decide to sell your home.
If, for example, the $500,000 house sells at $700,000. There is an appreciation of $200,000 Then you would be liable for 20%, or $40,000. This is in addition to your original loan.
It’s difficult to see the benefit of this for an aspiring home buyer. If the loan is state-backed, then it would only be beneficial to high-risk borrowers with no down payment, who could not obtain 100% financing and had poor repayment prospects. California wants to use taxpayers’ money to help people who cannot afford to buy a house on their own.
Subprime mortgages are a term we’ve all heard before.
The government has only two legitimate purposes. To protect liberty and property for citizens. California is doing the exact opposite in this scheme, and others like it. As with all subsidies, this indirect subsidy will raise the price of housing, not decrease it. This state wants to pour money into an already massively inflated housing market while doing nothing or very little about the housing supply. This will only increase prices, which the leftist government will see as justification for further intervention, more subsidies, and inflation. What will happen when, as is inevitable, some people default on their loans? California taxpayers are going to be the ones left holding all of the bags.
Remember that the state has effectively decriminalized theft, leaving small retailers and businesses in a tangle.
California seems to be a state determined to ruin itself. The Golden State is on a fiscal cliff. Productive citizens are moving in greater numbers to Texas and Florida. It’s a pity. I used to work a lot in California during my former career and on several occasions maintained a second home there while working on long-term jobs. California has a beautiful landscape, great weather, and a lot of history. This is a bad policy that’s ruining the state.
California must get out of housing and stay out. California could reform its zoning laws to allow more multi-level homes. Otherwise, it should stay out of the market and let the markets make the decisions. As I always say, markets aren’t perfect but they do get it right when left to their own devices.
They need to stop giving away the money of taxpayers at random.
In their 1970 song, “New Speedway Boogie”, one of California’s best-known homegrown musical groups The Grateful Dead sang:
Now I don’t know but I been told
It’s hard to run with the weight of gold
Other hand I have heard it said
It’s just as hard with the weight of lead
California’s government is struggling to keep up with its weight. They will find it hard.