California Taxpayers Are Buying Homes—for Other People

There used to be a saying: "As goes California, so goes the nation." Bear in mind that the first time I remember hearing that the Governor of California was a man named Ronald Reagan, you may have heard of him. These days, we should be terrified at the very idea of California taking its fiscal train-wreck policies on the road. Under the current governor, the impeccably coiffed Gavin Newsom, California has gone from a state with a budget surplus to facing almost $70 billion in debt. Yes, that's "billion" with a "B."

That isn't stopping the state of California from coming up with a new scheme to help finance homes for the impoverished; in this latest bit of Left Coast lunacy, the once-and-former Golden State is proposing to give people "loans" of up to $150,000 each, to be initially funded by those generous California taxpayers, to help them buy houses. Now, it's not as bad as it seems on the surface; these are loans, not grants - but this is far and beyond the legitimate role of government, and the money to be disbursed in these loans must come from the state's budget - in other words, the taxpayers. But there are problems, and these problems aren't hard to foresee.

The program will provide a loan of up to 20% of the purchase price of a home or a maximum amount of up to $150,000. The money can be used to help finance a down payment, closing costs or a first-time mortgage.
For example, if you bought a $500,000 home, you’d receive 20%, or $100,000, to help with your down payment and closing costs.
If you sell the home in the future, you’ll be required to pay back the 20% loan, plus 20% of the home’s appreciation.
For example, if the $500,000 home sells for $700,000, there is a $200,000 appreciation. You would owe 20% of that — or $40,000 — in addition to the original loan.

Ultimately, it's hard to see how this is a gain for a would-be home buyer. If this is indeed a loan that must be paid back - to the state - then the only conceivable gain would be for high-risk borrowers who have no down payments, who cannot obtain financing for 100% of the purchase, and who are not good prospects for repayment. In other words, California proposes to put the taxpayer's thumb on the scale to help people buy houses who can't do so on their own merits.

We've heard the term before: Subprime mortgages.

Government only has two legitimate purposes: To protect the liberty and property of the citizens. California, in this scheme and many others just like it, are doing just the opposite. This indirect subsidy for housing will, as subsidies always do, raise, not lower, the cost of housing. The state here proposes to dump a bunch of money into their already massively inflated housing market while doing little or nothing about the supply of housing; this can only raise prices, which the leftist state government will only see as a reason for more intervention, and more subsidies, and more inflation. And what do you suppose will happen if, inevitably, people start defaulting on these loans, as some surely will? You guessed it - California taxpayers will be left holding the bag.

Bear in mind, though, that this is a state that effectively decriminalized shoplifting, leaving small businesses and retailers twisting in the breeze.

Previously on RedState:

99 Cent Only Stores Shuttering All Locations, Citing Crime and Inflation As Key Factors

California 99 Cents Only Stores May Be Saved—Investors Hearken Back to a 'Treasure Hunt' Form of Shopping

California is a state that sure seems determined to drive itself into ruin. The Golden State has fallen off a fiscal cliff; productive citizens are fleeing, in increasing numbers, to places like Texas and Florida. It's a shame. In my previous career, I did a lot of work in California and, on a couple of occasions, maintained a second residence there while on long-term projects. California is a gorgeous place with varied scenery, beautiful weather, and lots of history. But bad policies like this are ruining it.

California needs to get out of the housing market and stay out. The one thing the state could do that would make sense would be to reform zoning laws to allow for more multi-level housing; otherwise, stay out of the way and let the markets decide. Markets, as I keep saying, aren't perfect, but when left alone, they usually get things right in the end.

And they need to stop handing out the taxpayer's money willy-nilly.

One of California's most famous home-grown musical groups, The Grateful Dead (I'm a huge fan, their politics notwithstanding) in their 1970 song "New Speedway Boogie" sang: