Part One of Seven: Housing, Homeownership, and the Responsibility to Understand Before We Vote
The general election is coming much faster than I anticipated. November 3 is almost here, and thank God I vote by mail because I need the ballot sitting in front of me, the Official Voter Information Guide beside it, and a computer nearby. I need time to stop, read something again, look something up, question what I just read, and occasionally discover that what I thought I understood the first time was not quite right.
That happened almost immediately. I was moving through the propositions, saw Proposition 45, and for a moment thought, forty-five propositions? I had simply lost count. There are fourteen statewide propositions on California’s November 3, 2026 ballot, not forty-five. Five were placed on the ballot by the Legislature and nine qualified through the initiative process. California’s numbering system added to my confusion because proposition numbers are not restarted at one for every election.
I am glad I checked, but the experience bothered me for a larger reason. Fourteen statewide propositions are still a great deal to ask voters to understand when they are also being asked to evaluate candidates, judges, local measures and everything else appearing on their ballot. California is an expensive place to live. Many households are surviving on two incomes because one is simply not enough. People are working, commuting, raising children, caring for parents, operating businesses and trying to keep their financial lives together. Somewhere inside of all of that, democracy asks them to become amateur lawyers, economists, budget analysts and policy researchers long enough to understand what government is asking them to approve.
Where do people find the time—not merely to read the voter guide, but to understand it?
Reading what a proposition says it will do is not the same thing as determining whether it can do it. Understanding requires us to ask whether the assumptions are reasonable, who benefits, who pays, what happens if the assumptions are wrong, what happened when similar ideas were tried before, and whether the proposed solution actually addresses the problem its proponents say they are trying to solve. Increasingly, politics has become a collection of soundbites. We hear a phrase, a promise, an accusation or a slogan and are expected to make a decision from it. Even an official voter guide, as necessary and valuable as it is, cannot perform every piece of economic and policy analysis a serious voter may reasonably want before giving government permission to act.
I will admit that there were periods in my life when I did not do this level of work. I had far less time than I have today. I was working, raising a family, building businesses, serving on boards, dealing with clients, making payroll, paying bills and living the same kind of busy life millions of Californians are living now. There were propositions I did not fully understand, and when I could not determine what government was asking me to authorize—particularly when taxes, borrowing or bonds were involved—my instinct was caution. Sometimes I voted no because I did not understand enough to vote yes.
That may not be the ideal way to make public-policy decisions, but it says something important about democracy. Voting is a right, but an informed vote requires time, attention and knowledge that we cannot assume every citizen possesses. If government or the proponents of a measure want the consent of the people, then I believe they have an obligation to make their case clearly enough that an ordinary voter can determine what he or she is actually consenting to.
The privilege of voting is one of the things I cherish about being an American citizen. We are celebrating 250 years of this extraordinary and imperfect experiment in self-government. The ballot is not ceremonial. It is not a public-opinion survey. It is an instrument through which citizens exercise authority, and authority should not be exercised casually. That is why, as I work through these propositions, I am going to write about them. I am not approaching them as a party operative. I want to read what the State says, examine the underlying law, test the economics, distinguish promises from evidence, and explain what I find in language that ordinary people can understand. Agreement is not the price of admission. The objective is to give the reader enough information to think independently.
Because I have spent much of my professional life in mortgage banking, real estate, finance and housing, Proposition 37 was the obvious place to begin.
A Housing Proposal That Sounds Reasonable Until the Numbers Begin
My first reaction to Proposition 37 was favorable because California unquestionably needs more housing and more pathways to sustainable homeownership. We need a market in which teachers, nurses, firefighters, government employees, tradespeople, professionals and working families are not required to become extraordinarily wealthy merely to purchase a home reasonably close to where they live and work. I also know from experience that getting someone into a house is not the same thing as creating sustainable homeownership. I have watched borrowers qualify for payments that later became burdens. I have lived through housing booms, mortgage crises, foreclosure waves, refinancing booms and periods when entire financing models disappeared. Whenever someone tells me a financial product will make housing affordable, I have learned not to begin with the assistance. I begin with the price of the house, then the income of the household, then the cost of the debt.
Proposition 37 would authorize the California Housing Finance Agency, CalHFA, to issue up to $25 billion in revenue bonds. The proceeds could finance secondary mortgages covering up to 17 percent of the price of a qualifying newly constructed home. The buyer would contribute at least 3 percent, while a first mortgage would finance the remainder. Borrowers would have to satisfy residency and owner-occupancy requirements and generally could not earn more than 200 percent of the area median income, adjusted for household size. The bonds are not general obligations of the State; they are intended to be repaid from homeowner loan payments.
On the surface, the concept is appealing. The official argument supporting Proposition 37 says that many teachers, nurses, veterans, firefighters and other working Californians can afford monthly mortgage payments but cannot accumulate the down payment necessary to buy. It further argues that restricting the financing to qualifying new construction will not only help purchasers but also encourage builders to produce more homes.
Those are serious claims because they are testable. If California contains a large population of middle-income households that can sustainably carry the monthly cost of a newly constructed home and are prevented from buying primarily because they lack cash at closing, then a program addressing that liquidity constraint could have a meaningful effect. But if the principal barrier is the relationship between household income and the price of the house, financing another 17 percent does not necessarily make the home affordable. It may simply move debt from one column to another.
A $100,000 obligation does not stop being a $100,000 obligation because we call it down-payment assistance.
I also had to correct one of my own assumptions. When I first saw a $25 billion state bond authorization, I instinctively associated it with California borrowing money that taxpayers would ultimately repay through the General Fund. That is not what Proposition 37 proposes. These are revenue bonds. The intended repayment stream is the payments made by borrowers receiving the subordinate mortgages. That correction matters because accuracy matters. But it does not end the financial inquiry. Revenue bonds still must be repaid, and private investors purchase bonds because they expect principal and interest to be paid under defined economic terms.
Once I understood that borrower payments are the engine supporting the financing, the mortgage banker in me immediately wanted to know the payment.
That is where Proposition 37 becomes difficult to evaluate. The initiative does not establish the final interest rate, amortization schedule, principal-repayment structure, prepayment provisions or other payment terms of the 17 percent second mortgage. Those decisions are delegated to CalHFA. There are legitimate reasons for flexibility: mortgage rates change, bond markets change and no responsible agency can lock every future market variable into a ballot measure. But a fifteen-year amortizing second, a thirty-year amortizing second, an interest-only second and a largely deferred second create materially different monthly payments. Those payments affect the debt-to-income ratio, qualification, residual household cash flow and ultimately the number of people who can use the program.
That is more than an administrative detail. It goes directly to whether the proposed solution can reach the population it is supposed to help.
The Housing Problem Is Also a Supply and Mobility Problem
The measure’s restriction to new construction raises a second question. California unquestionably needs more construction. The Great Financial Crisis devastated the state’s housing-production system. California authorized roughly 200,000 residential units annually near the mid-2000s peak, but permits collapsed to roughly 35,000 units in 2009. Production remained depressed for years. HCD later estimated that California needed roughly 180,000 additional homes annually during a period when actual production was far below that level. The cumulative result was not simply a bad year or two; it was a long period of underproduction that helped deepen the housing shortage.
That history makes the builder argument behind Proposition 37 worth taking seriously. A larger pool of financially capable buyers could improve the economics of new projects and encourage construction. But that possibility should be demonstrated, not assumed. Builders themselves are already responding to affordability constraints through price reductions, closing-cost incentives and mortgage-rate buydowns. I recently closed a transaction in San Bernardino County where the builder offered financing that reduced my buyer’s initial mortgage rate to 3.75 percent at no separate out-of-pocket cost to the buyer. Economically the incentive was not free; somebody absorbed the cost. But from the buyer’s perspective, the most important number was the monthly payment.
That experience led me to another question: if California is contemplating housing-finance capacity on the scale of $25 billion because housing is unaffordable, why was the principal mechanism chosen to be a second mortgage instead of directly reducing the cost of the first mortgage? CalHFA already recognizes temporary and permanent rate buydowns as financing tools. A permanent rate subsidy has a real cost and may or may not prove more efficient than a subordinate mortgage, but that is precisely the point. The alternatives should be compared economically before we conclude that a 17 percent second on new construction is the best use of the financing capacity.
The new-construction restriction also excludes the far larger stock of existing homes. New homes may offer warranties, contemporary designs, energy efficiency and the appeal of being the first occupant, but they often carry a premium. There is nothing wrong with paying for that preference when a household can afford it. The policy question is whether the household struggling to become a homeowner is best served by directing assistance only toward the more limited new-construction segment rather than considering the entire housing stock.
That question becomes more important when we look at older homeowners. California has a large population of Baby Boomers living in homes purchased years or decades ago. Many raised families in those houses and no longer need three or four bedrooms, large yards or the same amount of space. Under normal life-cycle patterns, some would sell, convert accumulated equity into retirement resources, move into smaller homes or senior communities, and release larger family homes back into the market.
That circulation has been disrupted by mortgage-rate lock-in. Millions of owners purchased or refinanced when mortgage rates were near historic lows. Freddie Mac has documented that a large share of outstanding mortgages remain below 4 percent, while FHFA research has shown that the widening gap between an owner’s existing rate and the current market rate materially reduces the probability that the homeowner will sell.
California has already addressed one piece of senior mobility through Proposition 19, which allows qualifying homeowners age 55 and older to transfer their property-tax base to a replacement principal residence under specified rules. But the mortgage-rate problem remains. Imagine a 68-year-old couple with substantial equity and a 3 percent mortgage on a four-bedroom home. They may want to downsize, but if the replacement property requires financing at a rate roughly twice what they currently pay, moving into less house does not necessarily produce the lower payment that once made downsizing economically sensible.
That is not irrational behavior. That is economics.
A senior who downsizes does not create a new housing unit, but that move can release a larger family home to another household, convert equity into retirement security, and potentially help children or grandchildren with their own housing. If California truly wants to improve housing accessibility, then it is reasonable to ask whether policy should examine both sides of the market: the household trying to enter ownership and the household whose inability or unwillingness to move constrains the circulation of existing inventory.
Perhaps a senior-mobility program would not outperform Proposition 37. Perhaps a permanent rate buydown would prove too expensive. Perhaps concentrating assistance on new construction really would produce enough additional units to justify the restriction. I am not assuming the answer. I am asking why voters have not been shown the comparative analysis.
That is increasingly the central concern for me. If the State is asking voters to authorize up to $25 billion of housing-finance capacity, I want to know why this mechanism was selected instead of the alternatives. I want to know why $25 billion is the appropriate ceiling, how many borrowers are expected to use the program, what the average subordinate loan is expected to be, what payment assumptions were used, how many additional homes builders are expected to produce, and how much of the benefit is expected to increase homeownership rather than simply direct more purchasing power toward a constrained segment of the market.
Those are not hostile questions. They are due-diligence questions. I would ask them if I were evaluating a bank proposal, a business plan or a mortgage product. Government should not receive a lower standard simply because the stated objective is noble.
Where Part Two Begins
The official case for Proposition 37 rests heavily on the idea that middle-income Californians can afford mortgage payments but cannot accumulate the down payment necessary to buy. That proposition can be tested. The real question is whether a sufficiently large population of households under the measure’s 200-percent-of-AMI ceiling earns enough to carry the full cost of the qualifying newly constructed home after the first mortgage, the 17 percent second mortgage, property taxes, insurance and other obligations are included.
A household may earn too little to afford the house while still satisfying Proposition 37’s income limit. Another household may earn enough to afford the house but exceed the program’s income ceiling. Between those two boundaries lies the actual economic market for the measure.
Part Two will calculate that market. We will begin with newly constructed housing in California’s ten largest counties and work backward from the home price. We will calculate the first mortgage, the 17 percent second mortgage, taxes, insurance and the household income required to support the payment. Because Proposition 37 does not establish the subordinate loan’s repayment structure, we will model both a thirty-year and a fifteen-year amortization and compare the required income with the applicable 200-percent-of-AMI ceiling.
Only after we know who can actually afford the qualifying home can Part Three determine how many households occupy that income window and how many of them represent realistic new demand.
Before California authorizes financing on this scale, the promise and the mathematics ought to belong in the same sentence.
Thank you for taking the time to read and reflect. I write to help people think clearly about money, business, real estate, and life, grounded in decades of lived experience and informed by research.
If you are navigating a financial decision, building a business, considering homeownership, or simply trying to make better use of your time and resources, I invite you to engage further.
Subscribe to The Power Is Now TV to connect with me live every weekday, Monday through Friday, from 10:00 AM to 11:00 AM PST, as we record television shows across the Power Is Now TV Network. As a subscriber, you can participate in live tapings, engage in real-time discussions, and connect directly with industry leaders.
Visit ThePowerIsNow.com to access real estate magazines, books, podcasts, television shows, and exclusive media content focused on homeownership, business, and wealth-building.
For personalized support, consulting, and advisory services in real estate, mortgages, business, and personal finance, visit EricFrazier.com to schedule a consultation and learn more about my work as your trusted advisor in business and wealth.
Eric Lawrence Frazier, MBA
Your Trusted Advisor in Business and Wealth
Real Estate Broker CA DRE 01143484 | Mortgage Originator NMLS 461807