Really Dumb Idea: San Francisco Loaning Money To First Time Homebuyers

When I heard about San Francisco’s Downpayment Assistance Loan Program yesterday morning I couldn’t believe it – and apparently this program has been around for a while, albeit in a less generous form. The Mayor’s Office Of Housing And Community Development will begin “loaning” up to $200,000 for down payment assistance to qualified first time homebuyers  who don’t have to make any payments on the loan while they live in the home – up to 30 years.
You can find out a lot more about the San Francisco program details behind the link above but here are some of the major requirements of the program in a nutshell, with emphasis on the nut part:

  • First time homebuyers only
  • Homebuyers can earn up to 120% of the median income in some areas – $116,500 for a family of 4
  • Qualifying households can have up to $200,000 in liquid assets prior to purchase and $60,000 after purchase
  • Homebuyers can get by with as little as 3% down, provided they get another 2% in grant or gift money
  • Homebuyers have to attend a new homebuyer education program. I wonder if they cover why you shouldn’t trash the home if you lose it.
  • In lieu of interest the loan is repaid upon transfer or leasing of the property with a share of the appreciation equal to the share of the purchase price financed through the Downpayment Assistance Loan Program – because housing prices only go up, right?

So let’s review San Francisco’s attempts to operate a command and control housing market. First, they restrict housing development so there’s a supply shortage. Then they impose rent control, which simultaneously creates a supply shortage and increases demand. Then they come up with this downpayment assistance loan program, which increases demand. How many ways can they come up with to screw with the market? And where do they come up with the money to do this? And making it easy for people to buy homes without putting in enough of their own money…isn’t that how we got into the current mess we’re still digging out of? Ditto for assuming that there will be home price appreciation to help pay off the loans.
In reality this program seems to be more of a political ploy than anything – an opportunity for politicians to say that they are doing something about the San Francisco housing affordability “crisis”. They’ve only loaned out about $1 MM per year for the last 15 years, though that amount will soon double under this program expansion.
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