Had he signed it, the legislation would have forbidden applicants seeking financial aid for home purchases through the state’s housing purchase assistance program, created by a previous bill, from being “disqualified solely based on the applicant’s immigration status.”
But as the governor said in his veto message, funding for the program is “finite,” and expanding program eligibility to the undocumented “must be carefully considered within the broader context of the annual state budget to ensure we manage our resources effectively.”
Let’s get this straight from the start. Handing out financial assistance to anyone from the public fisc does not make housing more affordable. For housing to be more affordable, the supply needs to increase dramatically. Helping buyers with down payments and other financial aid will not increase supply. They are more likely to boost prices because they will drive up demand.
On another level, taxpayer-funded assistance increases the likelihood of loan default.
“Borrowers who provide down payments from their own resources have significantly lower default propensities than do borrowers whose down payments come from relatives, government agencies, or non-profits,” says a report published in the Journal of Housing Research. The problem is the borrowers don’t have enough “skin in the game.”
“The idea that equity is important in the homeowner’s decision to default is longstanding in the academic literature. Estimates of the relationship between equity and default go at least as far back as” 1970, while “a firm theoretical underpinning for the decision to default was provided” by research from three decades ago.
Furthermore, buyers who use down payment-assistance can find themselves overextended because they bought a home that’s more expensive than they otherwise could have afforded.
Despite these obvious risks, lawmakers decided to make matters worse with AB 1840. “This policy is not only unfair but also sends a dangerous message: ‘Come to California, whether legally or illegally, and claim your $150,000 home loan,’” says Brian Jones, the Senate Republican leader from San Diego.
There are roughly 1.8 million illegal immigrants in California, nearly 5% of the state’s total population. One group, the Federation for American Immigration Reform, reckons that public expenditures on undocumented immigrants is nearly $31 billion a year. This includes health care costs, education, and “housing and nutrition assistance.”
While it might seem humanitarian to open the borders and take in those who are refugees from severe poverty and violence in other countries, there is a moral hazard in doing so. As long as this country is an outlet for the casualties of failing states and shady regimes, the political leaders in those nations have no incentive to liberalize their economies and scrub their governments of corruption.
As Newsom noted, but not in the exact same words, the housing assistance program is broke. (Curiously, the original textof AB 1840 referred to the Dream for All program, which the governor was bragging rather recently about, but the final version instead referenced the Home Purchase Assistance Fund, which is apparently a rebranding.)
Others have said illegal immigrants won’t qualify anyway, since they can’t meet the standards “imposed on the agency in administering the program by the Federal National Mortgage Association, a government-sponsored enterprise, a loan servicer, an investor, or a guarantor” that must be met.
So, what was the point of AB 1840?
The California Legislature has become a producer of low-quality sausage that too often is all filler and no meat. Genuine attempts to solve real problems are brushed aside by lawmakers. Their focus is on bills that signal their commitment to the progressive agenda, the woke narrative, the idols of diversity, equity and inclusion. That’s the point of not only AB 1840, but nearly every piece of legislation that makes it to the governor’s desk.
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute and co-author of the PRI book, The California Left Coast Survivor’s Guide.
