California voters are considering Proposition 37, a statewide ballot measure that aims to tackle the challenge of homeownership affordability by providing down payment assistance. Described by supporters as an "elegant" solution and by detractors as a complex "gimmick," the proposition has raised numerous questions regarding its mechanics and potential impact on communities like Tracy.
If approved, Proposition 37 would enable the state to borrow up to $25 billion to establish a new loan program. This program is designed to help individuals secure down payments for new home purchases. Unlike typical bonds repaid by tax dollars, this measure intends for the state to function as a loan broker. The California Housing Finance Agency would borrow funds from private lenders by selling bonds and then re-lend that money to homebuyers. Homebuyers would repay these loans with interest, with funds returning directly to the bondholders. The measure's text states that if homebuyers default on payments, private lenders, not state taxpayers, would be "left holding the bag." However, some analysts have expressed skepticism that state lawmakers could avoid political pressure to assist homebuyers in a widespread default scenario.
Prospective buyers would still need to obtain a traditional mortgage to cover the majority of a home's price. The down payment assistance program would address the significant upfront cost often prohibitive for many. With the median down payment in California at 20%, an $800,000 home requires $160,000. Under Proposition 37, these second loans could cover up to 17% of a home's value, reducing that example down payment to $24,000.
Advocates argue that despite the high monthly mortgage payments across much of California, the sheer size of the down payment is often the primary barrier to homeownership for many middle-class residents. California has one of the lowest homeownership rates in the nation. Bob Hertzberg, former Speaker of the state Assembly and a key proponent of Proposition 37, has been instrumental in developing this concept, which he calls an admittedly unusual but "elegant" solution. He notes that for many families, saving enough for a down payment is like asking them to “travel to the moon in a cardboard rocket ship.” The California Association of Realtors also supports the initiative.
Eligibility for these loans would be broad, covering a significant portion of the population. Anyone earning less than double their county’s typical income would qualify, a range that varies across the state but generally includes about 90% of all renters, according to an analysis by the Public Policy Institute of California. Supporters, including Hertzberg, favor this broad eligibility, arguing it helps a wide swath of the middle class and minimizes bureaucratic hurdles. Conversely, opponents, such as the League of Women Voters of California, express concern that such broad access might disproportionately benefit those with existing wealth or other financial resources, potentially exacerbating existing economic and racial disparities.
Strict conditions would apply to eligible homes. There would be a price cap, set at approximately $1 million in inland California regions, including the Central Valley, and up to $1.5 million in higher-cost areas like Los Angeles and the Bay Area. Additionally, the home must be newly built or newly converted into housing, meaning the borrower must be the first occupant. The home must also be constructed by a “qualified builder” who agrees to abide by the price cap, build within existing cities, accept legal responsibility for labor requirements, and receive certain protections against construction defect lawsuits. Dan Dunmoyer, president of the California Building Industry Association, suggests the program would be most attractive to builders in areas with lower home prices and a strong middle-income borrower base, such as cities in the Central Valley.
By focusing exclusively on new construction, the measure aims to address a common criticism of down payment assistance programs, which often only shift existing housing demand without increasing overall supply. This approach is intended to ensure that new housing supply grows to meet the demand generated by the loans, leading to a net increase in homes and homeowners across California. An analysis commissioned by the Yes on 37 campaign estimates the program could facilitate the construction of up to 190,000 homes, although the author of the analysis acknowledges this is a high-end projection dependent on various factors.
The nonpartisan Legislative Analyst’s Office has highlighted uncertainties, including whether investors would actually purchase the bonds needed to fund the program.