The Statewide Housing Plan (SHP) focuses on first-time homebuyers and homeownership disparities

Calif. Health and Safety Code §50426

Amended to add subsection (c) by AB 1508

Effective date: January 1, 2024

Bill text: AB 1508

Homeownership over a long time is one method for wealth accumulation.

When initially comparing the balance sheet of homeowners and renters, homeowner households have a “median wealth” of $305,000 while renter households have a median wealth of just $4,084, according to the Bill’s Analysis for AB 1508.

However, this compares all tenants to all homeowners — a daft and meaningless comparison without far more analysis.

The Bill’s Analysis further observes the median wealth held by California households – tenants and homeowners – presents a racial disparity:

white households have a median wealth of $187,300;
Hispanic/Latino households have a median wealth of $31,700; and
Black households have $14,100.

California policymakers seek to assist tenants to attain homeownership — for the first time, as part of our state housing policy. The objective is to effectively reduce disparities in new homeownership among different levels of society through the Statewide Housing Plan (SHP).

The Department of Housing and Community Development (HCD) prepares and delivers an SHP report to the state legislature laying out strategies for managing California housing needs every four years. In the presentation, the HCD presents the housing needs presently experienced in California, and provides actionable guidance for state and local governments to address these needs.

Beginning January 1, 2024, California policymakers expanded the SHP report to include:

an analysis of policies, goals and objectives for first-time homebuyers;
recommendations for actions which increase homeownership; and
an evaluation of disparities in attaining homeownership within the population. [Calif. Health and Safety Code §50426 (c)(1))]

Demographic disparities in homeownership on which the HCD will report include:

race;
ethnicity;
household size;
household income;
disability status;
age; and
any other demographic disparity in homeownership. [Health & S C §50426 (c)(1)(C)]

To update the SHP every four years, the HCD consults with:

the California Housing Finance Agency (CalHFA); and
other state agencies relevant to forming the plan. [Health & S C §50426 (c)(2)]

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Difficulties for first-time homebuyers

Tenants who have never owned a home currently face the harsh reality of insufficient residential construction and overpriced for-sale inventory. The result is a major supply-and-demand imbalance –insufficient low-tier priced inventory, and seller asking prices unsupported by mortgage funding.

First-time homebuyers, with exception, have an income which only supports acquisition of low- and mid-tier priced housing. Thus, with extremely low inventories — except for high-tier housing — the competition among most first-time homebuyers is fierce.

Nationally, the average length of time tenants need to save up for a 20% down payment on a home at current prices is 36 years. In California, it’s far longer. Thus, the lower income portions of California’s population are unable to make a down payment large enough in amount to avoid the nearly 1% premium for mortgage default insurance (PMI/MIP), in addition to a slightly higher interest rate charged when they make only a minimum down payment.

The top four U.S. cities requiring the longest average time to save for a down payment are all in California:

73 years in San Diego;
72 years in Los Angeles Metro Area;
70 years in San Francisco, and
52 years in Riverside, according to Zillow

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Only a slim chance of saving up for a down payment exists when rents exceed 33% of a household’s income. Presently, rent accounts for approximately 50% of household income in California. This level of expenditure on housing destroys the standard of living everyone expects – and makes it nearly impossible for tenants to save.

Therefore, people needing housing make concessions. These concessions frequently take the form of co-habitation, with an increased number of occupants comprised of family members, both vertical and horizontal in age, who move in together. Co-habitation also comes in the form of multiple two-member families residing in the same housing unit with multiple bedrooms and bathrooms.

The solution? More housing is needed which will reduce pricing of resale homes and permit employed tenants to finally borrow and buy. These tenants are here, and very willing to buy, but are blocked by pricing which the addition of housing units by construction will help moderate.

Further at stake is the livelihood of California real estate professionals. Without the turnover of tenants into first-time homebuyers, clientele are few and sales agent income suffers.

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Racial disparities in homeownership

Racial disparities in homeownership are significant in California, as homebuyers are:

88% white (compared to 35% of the state’s population);
8% Hispanic/Latino (compared with 40% of the population);
3% Black (compared to 7% of the population); and
2% Asian American (compared to 16% of the population), according to the Bill’s Analysis and U.S. Census Data.

Similarly, a disparity in the denial of mortgage applications exists in California. Mortgage loan originators (MLOs) deny mortgage applications for:

10% of white applicants;
10% of Asian applicants;
13% of Hispanic/Latino applicants; and
16% of Black applicants, according to data collected through the 2020 Home Mortgage Disclosure Act (HMDA).

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Racial disparities in access and use of government housing assistance programs permeate California as well. For example, two-thirds of initial California Dream For All program participants were white, according to the Bill’s Analysis.

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These disparities contribute to the racial homeownership gap. In the long term, without the compulsory savings which result from the buildup of wealth by mortgage amortization and property appreciation, the disparities simply perpetuate and the homeownership gap widens. As of 2022, the average white household had:

five times the wealth of the average Hispanic/Latino household; and
six times the wealth of the average Black household, according to the Federal Reserve.

Thus, the state’s enhancement of our housing policy by updating the SHP is most welcome — but only when local agencies get out of the way of implementation. When they do not, sheriffs as the long arm of the courts are activated.

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