My parents were in the RE business back in the 70s and 80s, and it was pretty much a given that there was a 20% down-payment requirement for conventional financing on an owner-occupied home. I believe there was a 25% down-payment requirement for investment properties (and more for raw land), IIRC.
One angle on the “investor” problem in low-income area (and it is a real problem, as they can cash-flow at 20%, while the low-income person cannot save the 20% down)…would go like this:
1. Eliminate Prop 13 protection on all non owner-occupied housing, with the exception of multi-family buildings, and SFHs where the LL agrees to be bound by strict rent control laws.
This would cause taxes to rise with prices, and during cycle tops, would put more inventory on the market (because LLs could not cash flow with the high taxes, they would sell high, take profits, and put more inventory on the market exactly when we need it), helping to stabilize the housing market.
While I firmly support Prop 13 for primary residences, the goal should be to keep granny in her house, not create a tremendous profit spread for landlords who got in early. After all, it is a subsidy paid by those who buy at cycle tops.
Opponents to this plan would claim that rents would rise as LLs try to cover their expenses, but I disagree. We’ve just witnessed how rents are more dependent on local wages, not what LLs want.
2. Eliminate all first-time buyer programs, including low down-payment and mortgage credit certificates, grants, etc. (except veterans, who earned VA loans, IMHO).
First-time and low-income buying programs actually serve to inflate prices in low-income areas, creating LESS affordable housing. The goal should be to keep debt-to-income levels as low as possible via low prices. Keeping this extra money from entering the market (and requiring 20% down) would bring prices down to a level that new buyers could afford.
3. Eliminate mortgage interest deductions for investment properties (same exemptions as above). This (along with lack of Prop 13 protection) would help keep investors out of the lower-end SFH areas.
We have to decide if home ownership really should be a goal for our society. I’d argue it should be, but should be done via lower prices, not more debt with gimmicky terms and interest rates, and not with govt money that only makes housing less affordable.
