Davis, CA – One of the biggest focuses by the city of Davis on affordable housing is a down payment assistance program. This week at the council meeting, an ordinance will be introduced to add a down payment assistance framework to the Municipal Code.
This does not in fact create a down payment assistance program. As the staff report notes, “The Ordinance itself does not provide funding for a down payment assistance program.”
Instead, “Funds to implement a program will need to come from grants and/or specific allocations approved by the City Council during the budget process.”
Council will be asked to request the fiscal subcommittee, consisting of Mayor Bapu Vaitla and Councilmember Donna Neville to “work with staff to include review of a down payment assistance program in the discussions about budget priorities as the City prepares the upcoming biennial budget with recommendations to return to the City Council for consideration.”
The cost of affordable housing is prohibitive. A recent discussion on rental assistance noted it costs in excess of $600,000 to build each affordable unit—and in that case, it’s a rental unit.
The city also wishes to provide “a spectrum of housing opportunities at multiple affordability levels, including ownership opportunities for income-qualified households.”
But the cost barriers are remain a huge problem.
Staff notes that “one of the barriers to ownership is the ability for a prospective buyer to be able to save enough for a down payment, particularly in high cost areas.”
Therefore, they believe, “Providing down payment assistance to an income-qualified household may allow that household to enter the housing marketplace to purchase a unit, which can provide a degree of stability and control over future housing costs that renting does not and which has the potential to build equity for the buyer.”
This is not something that the city currently provides.
“Although the City in the past has provided down payment assistance when it has secured state grants specific for this purpose, it does not currently have an active down payment assistance program,” staff writes.
The ordinance would not create the funding mechanism, but it does create several general parameters of the program:
- Eligible households must be income-qualified at the low to moderate income level, to meet the definition of first-time homebuyer.
- Buyer must enter into a loan agreement with the City that will provide specifics on loan terms and repayment (no interest during term of loan, with repayment upon sale of property). Loan will be recorded.
- Council will adopt via Resolution the allowable amounts/percentages for loans and other program administration guidelines.
Staff believes that the “program can increase homeownership rates, specifically to low and moderate income households, which can in turn provide stability both for the household and the City.”
It can also help the local economy, creating a mechanism for households to invest in their properties.
Finally, they note, “because owning property also provides an opportunity to gain equity in the property, homeownership can build wealth and reduce income inequality for participating households.”
At the same time, a down payment assistance program is not without risks and downsides, staff concedes.
“Low and moderate income households may stretch themselves too thin with homeownership, where unexpected maintenance, taxes or other costs make it difficult for them to make mortgage payments,” staff writes. “For the City, this translates to a risk of the property going into foreclosure, with the likelihood that the City’s investment will not be returned.”
Still staff is recommending that the council introduce this ordinance to set the framework for this program.
Meanwhile, staff will look into funding including grant opportunities to fund the program while the council will determine via the budget process its priorities for funding the program as well as other affordable housing plans.
If the down payment assistance is structured as no-interest loan without equity sharing, the program loses money. (At 2% inflation, if the owner sells after 36 years the city gets back half of its loan principal in real dollars. At 5% inflation the halfway point is only about 14 years.) A small equity share upon sale would keep the program in the black.