Most housing ballot measures are written for buyers and renters. California's Proposition 37 only works if somebody builds new homes, which puts contractors and builders right in the middle of it.
Voters will decide the measure Nov. 3. Ben Christopher, who covers housing for CalMatters, wrote a plain-English explainer on Prop. 37 that calls it the "plainly weird" proposition on this year's ballot. Here's the jobsite view.
How the money would work
If it passes, the California Housing Finance Agency could sell up to $25 billion in revenue bonds and use the money to make what the state calls "middle-class homeownership loans." These are second mortgages meant to cover most of a down payment, up to 17% of a home's price. According to the Legislative Analyst's Office, buyers would still have to put down at least 3% themselves.
Buyers would still get a regular first mortgage. Homeowners' payments on the second loan would repay the bond investors. The analyst's office says the measure would have no direct state or local costs. Private investors, not taxpayers, would carry the risk if borrowers default, according to the measure's text, though CalMatters notes some analysts doubt lawmakers could resist pressure to step in during a wave of defaults.
Anyone earning less than double their county's typical income would qualify, and a Public Policy Institute of California analysis cited by CalMatters found that covers roughly 90% of renters.
Only new homes count
This is the part that matters most for builders. The buyer has to be the first purchaser of the home. That means new construction or a building newly converted to housing, with no resales. Supporters say limiting the loans to new units means new demand gets matched with new supply instead of just bidding up existing houses.
There's a price cap too. CalMatters puts it at roughly $1 million in inland California and up to $1.5 million in Los Angeles, Orange County and the Bay Area.
The "qualified builder" option
Under Prop. 37, any developer could build homes that qualify for the loans, according to the analyst's office. Developers could also choose to sign up for a "qualified builder option." Those builders would have to meet higher labor standards, such as using workers with certain training on certain types of projects. In exchange, they'd fall under different construction defect rules that generally give developers more flexibility.
CalMatters adds some detail. Qualified builders would agree to the price cap, build inside existing cities and accept legal responsibility for violating basic labor requirements. In return, they could shield themselves from defect lawsuits if they fix a mistake to the homeowner's satisfaction, and legal fees would be capped when disputes end up in court anyway.
Dan Dunmoyer, president of the California Building Industry Association, told CalMatters the program would probably make the most business sense where prices are lower and middle-income buyers are plentiful, likely places like the Inland Empire and the Central Valley.
The big unknowns
An analysis commissioned by the Yes on 37 campaign says the program could lead to as many as 190,000 homes, though its author concedes that's the high end. The analyst's office lists three things nobody knows yet: whether investors will buy the bonds, how much the loans will cost buyers compared with other down payment help, and whether the program actually leads to more construction and home buying.
Cost is the sticking point. Second mortgages are riskier for investors, so rates could be high. CalMatters reports that even at 7%, the second loan could add about $1,000 to a buyer's monthly payment, depending on the price of the home. Former legislative leader Bob Hertzberg, the measure's author, hopes philanthropic investors might buy the bonds at below-market rates, but he hasn't named any.
Chris Hoene of the California Budget & Policy Center, a skeptic, summed it up this way: "It could still work, and if it doesn't work, the state's not really on the hook."
Why it matters for Contractors
Prop. 37 is aimed squarely at new construction. If it passes and investors show up, it could bring a new pool of buyers for homes built inside cities and priced under the caps, and that's work for contractors on entry-level and mid-priced homes. Builders will also face a business decision: whether the qualified builder option's tougher labor standards are worth the different defect rules and capped legal fees. With the vote set for Nov. 3, now's the time to read the measure and talk it over with your builder clients.