How’s the market? How can legislators support responsible homeownership? – The daily newspaper Ukiah

Numerous studies demonstrate the link between home ownership and the accumulation of wealth, for the current generation and for generations to come. Unfortunately, with the current trajectory of the economy (rising interest rates and increasing inflation), it is becoming increasingly difficult to buy a home.

With that in mind, the state treasurer’s office and an advocacy group called California Forward (CaFwd) recently released a report titled California Dream for All, in which they recommend a split-appreciation loan investment model to facilitate first-time home buying by first-time home buyers. lodge. Let me tell you why this model might work in the private sector, but not in the public sector.

When it comes to investing, there’s something called the risk-reward trade-off: basically, the higher the risk, the more you should be compensated for taking that risk. Your compensation is the reward.

A shared appreciation lending model is one in which the investor (or lender) and borrower share the reward; that is, they share in the financial benefits of any appreciation in property value. To have the opportunity to benefit from the appreciation of the property, the investor/lender offers favorable loan conditions.

The CaFwd website states, “The California Dream For All program uses a shared appreciation model that gives the state the ability to invest its budget surplus in a revolving investment fund, called the CA Dream Fund. The Fund would allow the state to invest in loans alongside first-time buyers to help them buy a home in any area of ​​California.

This all sounds good until you realize that for the public sector to commit to this model taxpayers’ money has to be invested, and I’m afraid that’s not a good investment. If the expected return from this program was high enough to account for the risk, then the private market would do it, and the government wouldn’t need to do it.

Most people forget that housing prices don’t always go up. In 2008, when the housing bubble burst, home prices fell dramatically and split-assessment investors lost their shirts.

I understand why the government wants to help first-time home buyers. In 2021, a 20% down payment on a median-priced home was around $100,000, which is about twice the average annual household income in Ukiah. If you earn less than the average income, this down payment is even more out of reach.

The California Forward website said: “While it does not on its own solve the problem of accessibility and supply of housing in all regions, the California Dream For All program model could be linked to d ‘other reforms to increase the supply of housing.’

In fact, this program will exacerbate the problem. Over the past few years, the government has taken the position that everyone needs a place to live, and to make that happen, we will subsidize rents, interest rates, down payments, and more.

The sad truth is that they work on the wrong side of the supply and demand curve. If they increased the number of homes, inflation-adjusted prices would fall. Increasing supply would make homes more affordable for everyone without using taxpayer dollars to subsidize people’s ability to buy homes that already exist.

Even if the government wanted to give everyone a place to call home, it couldn’t. There just aren’t enough for everyone. So while helping some people buy homes with grants is a nice gesture, it’s just a big game of musical chairs where more and more people are being left behind.

If the government really wanted to fix the problem, it should support more housing by: 1. changing zoning laws, 2. no longer preventing new construction with ridiculous requirements and fees, and 3. reducing the time and risks associated with subdivision. approval. Otherwise, the housing shortage will continue to worsen.

Currently in the Ukiah Valley, a development of more than five units takes years to get approval and hundreds of thousands of dollars in administrative expenses with no guarantee of success. While developers wait for approval, they have to consider maintenance costs – time is money. And they must be reimbursed for their risk. Can you imagine spending that kind of money with a decent chance of project failure?

Going back to the split assessment proposition, if house prices were still going up, there would be no risk. But that’s not the real world. Free market investors expect a return on investment commensurate with the risk they take. Taxpayers deserve no less. If the government cannot create a program that any self-respecting investor would consider, it should not be allowed to use our taxpayers’ money to fund it.

If you have any questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. To view previous articles, visit and click on “How’s the Market Going”.

Dick Selzer is a real estate broker who has been in the business for over 45 years.

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