Proposition 37, a ballot measure appearing on the November 3 ballot, proposes a $25 billion down payment assistance program aimed at middle-class households across California. The measure seeks to address the significant financial hurdles to homeownership, particularly evident in Orange County where the median price for a single-family home is $1.5 million, requiring a $300,000 down payment based on a 20% cash contribution.
If approved by voters, Proposition 37 would enable qualified prospective homebuyers to borrow up to 17% of a new home's sales price, with borrowers contributing a mandatory 3% from their own funds. This program is designed to be self-funding, with the state issuing revenue bonds to investors. The interest charged to borrowers on these down payment loans, which function as second mortgages, would repay investors, meaning the program would not be funded by taxpayers. The California Housing Finance Agency (CalHFA) would be responsible for determining the specific terms, interest rates, and payback periods of these loans, as well as the total amount and period for bond issuance.
To qualify for assistance under Proposition 37, borrowers must have resided in California for at least one year and earn no more than 200% of the local median income. Unlike many existing down payment aid programs, it does not restrict eligibility to first-time homebuyers, though recipients would be required to live in the purchased home. A crucial aspect of Proposition 37 is its limitation: funds can only be used for the purchase of new construction homes. This can include newly built condos or townhomes, or existing commercial buildings converted into residential units. The program would also restrict the price of qualifying homes, generally limiting them to between $1 million and $1.5 million, depending on the county. This price cap is particularly relevant in Orange County, where the median home price already reaches $1.5 million.
Former Senate Majority Leader Bob Hertzberg, the architect of the proposal, stated his intention for Proposition 37 to stimulate new construction, noting, "The problem is we have to increase supply." He cited statewide housing shortages estimated between 840,000 and 3 million homes. By increasing demand for new homes, the measure aims to encourage builders to accelerate construction. The proposition has garnered broad support, including from Gov. Gavin Newsom, statewide unions, and various mayors, with Newsom highlighting its potential to expand homeownership opportunities for working families without cost or risk to taxpayers.
Despite widespread support, the measure faces scrutiny. The League of Women Voters opposes Proposition 37, expressing concerns that it could burden residents with excessive debt and that the terms of the loans are not fully transparent, with details to be finalized only after voter approval. Critics also question whether there will be sufficient investor interest in purchasing the state-issued revenue bonds, which are generally considered riskier than other government bonds. This could potentially lead to higher interest rates for borrowers. Matthew Lewis, director of communications for California YIMBY, suggested that while the concept is good, the measure might inadvertently increase competition for an already limited supply of new homes without addressing the fundamental cost of building. Paul Schon, an L.A. County developer, characterized Proposition 37 as "minor," asserting that streamlining permitting processes and reducing regulatory burdens would have a more significant impact on increasing housing supply. Homebuilders have also expressed uncertainty about whether the measure, even with an offered "qualified builder" option that provides some protection from defect lawsuits, would substantially boost construction.
Proposition 37 represents a substantial proposed investment compared to existing programs; for instance, the California Dream For All program launched with $500 million, just 2% of Proposition 37's proposed funding. While down payment assistance programs are not new, Proposition 37's specific focus on new construction and its self-funding model with interest-bearing loans distinguish it. Voters will decide on Proposition 37 on November 3.
