All too often there is a proposal for a government plan that just makes one stare in disbelief at the proposing legislator’s gross ignorance. When you then see that the business community is complicit with said ridiculously stupid plan, it becomes obvious why many people no longer trust big organizations. Following is such a situation.
We have a housing crisis in California. It is not unlike what is going on across America. It is estimated there is a shortage of approximately 1.5 million units. Development has slowed down since the housing crisis that occurred of 2007-08. In California, the housing crisis has driven up prices and caused an exodus of many businesses along with the middle-class. The only reason the population has not gone into free fall is the growth of two groups – illegal immigrants and homeless. The government is taking tax dollars and developing homeless units for $500,000 and up – per unit.
Instead of resolving the underlying problems costs burdened by the government and restricting development of new units created by the government, as usual there is a new proposal. It does not address those problems but manages to create a solution so amazingly brainless that you just must stand there with your mouth agape.
Senator Toni Atkins is a powerful member of the California State Legislature. She was formerly the Speaker of the Assembly and is now head of the Senate. People listen when she makes a proposal.
She now has a proposal for a 10-year, $10 billion revolving fund where an individual or family may receive a down payment to purchase a home. The program allocates state funds to provide first-time homebuyers with an interest-free loan of 17% of the purchase price. The money must be repaid when the home is refinanced or sold and only then. As always, it sounds nice on its face, but let us look at the facts.
I understand how difficult it is to gather the down payment for your first home. The Beautiful Wife and I experienced that ourselves in 1987 when acquiring our first home. It has become even more challenging as the price of housing in California has soared. Times have changed and this is where this plan becomes dangerous.
The further you get away from an event the more people forget the pain that was inflicted. We had a housing collapse in 2007-08 that nearly brought our economy to its knees. The government, as always, blamed business for bad policies, but concurrent with the events of the time I documented that the root cause was federal government housing and loan policies.
People were simply walking away from their homes or rental properties because they had put little or none of their own funds into the property, per the government’s policy. That caused the collapse. With the decline of housing values, they were “underwater” and just gave the property to the lender with its government insured loan.
I wrote at the time that some in our federal government had wanted to further expand the acquisition of homes by people with no “skin in the game.” Maxine Waters, one of our most “esteemed” members of Congress is now chair of the House Financial Services Committee. Ms. Waters stated just prior to the collapse that “If you can afford rent, you can afford a mortgage,” a statement so amazingly ignorant it still fascinates and especially now since she is in such a prominent position regarding the nation’s financial affairs.
Ms. Atkins wants to further Congresswoman Waters’ dream of having people with no skin in the game acquire a home. It is not hard to see these same people walk away once things again go bad. They have invested nothing so why should they care? In a repeat housing collapse these loans would just exacerbate the collapse.
Ms. Atkins’ ignorance is understandable. She has zero experience in the real estate market. However, she does excel at taking our money and redirecting it somewhere whether it makes no economic sense.
The ignorance of real estate people is inexcusable. That did not stop the California Association of Realtors (C.A.R.) from endorsing this dangerous plan. Their board supports this plan. Otto Catrina, C.A.R.’s president, stated “Many Californians can afford a monthly payment but need assistance with the down payment and closing costs, we are pleased to support a plan that provides an opportunity for financial security and housing stability so all Californians can realize the economic and societal benefits homeownership provides.”
After being a licensed real estate broker for 35 years and having a CPA practice with a substantial focus on real estate, it is obvious why I have not joined this organization.
When I contacted the organization, I asked their spokesperson whether the board had forgotten about the last housing crisis. She refused to answer the question. I then asked the second reason that makes this plan so amazingly egregious. I stated I would expect Senator Atkins not to know that the problem with the housing market is an issue of supply; not demand. Did the board not know this when they endorsed the proposal?
Every home sale in California becomes an auction. There are multiple bidders on each home driving the price up as they try to be the winning bidder. There is a severe lack of supply with demand far exceeding the supply. Why anyone would create a program to further increase demand staggers the imagination. Why C.A.R. would not counsel Senator Atkins on this defines how big business goes along with government programs only to feather their own nests.
When I asked the spokesperson why the C.A.R. endorsed this plan in the face of the severe supply shortage, she asked “Don’t you support people owning their own homes, the American dream?” I answered I believe every American should be able to own a 4,000 sq. ft. home (true). She scoffed at that.
It is understandable why Senator Atkins would make this proposal. Her understanding of the housing market is a millimeter thick. It is the obligation of a big trade organization to educate the legislators on the facts. The history of no money down home acquisitions and the upside-down supply and demand issues in the market make this plan outrageously ill-advised, yet the C.A.R. has gone along with it.
It is no wonder Californians and people across America no longer trust government and big business, and believe they are simply lining each other’s pockets.