The following is a letter to the Davis City Council
There’s nothing intrinsically wrong with having the kind of housing downpayment assistance program proposed in Item 06 on your January 21, 2025, meeting agenda, at least in theory. It does make sense to use city resources to help address our affordable housing needs to the extent that the city taxpayers can afford to support such a program.
But there’s some very serious potential problems with this specific proposal. Accordingly, I recommend that the two action items listed on the agenda not be adopted. Instead, the council should (1) refer the proposal to the Finance Commission for vetting the important fiscal issues involved here and (2) send the proposal back to the Social Services Commission for a comprehensive review and recommendation regarding which specific items among the long list of housing proposals they favor should be targeted and prioritized for city funding. The council should not act until those tasks are done.
Among the specific issues I see here that should cause the council to change course:
— It makes little sense to put this program in the Municipal Code now when not a nickel of funding to support it has been identified. If it ends up being supported by outside grants, as proposed, there may be strings attached by grant agencies to their funding inconsistent with the framework that would be put now into city law. What’s the rush? There’s plenty of time for more thoughtful consideration of this idea under the process I propose above.
–The proposal to direct a council subcommittee to focus on this one housing proposal for funding in the 2025-27 budget effectively puts this idea at the head of the line for city funding. That’s contrary to the approach the council took a few weeks ago. In my view the city should prioritize the use of public funding for fixing city roads and bike paths and meeting the other obligations it has for supporting public safety services. If there is money also available after that to spend on housing initiatives, it should go the ones that a review shows would the most cost-effective and have the greatest impact on solving our local affordable housing shortage.
— There are multiple government downpayment assistance programs on the books. (See CHFA MyHome, Golden Opportunities, Dream for All, CalHERO, Firefighter Down Payment Assistance, and others.) These types of programs often experience a huge surge of demand when money becomes available and quickly run out of resources. The city could well experience the same problem. But the bigger issue is, what is the justification for duplicating what the state and other agencies are already doing? A wiser approach would be to devote city staff efforts to help link up local residents to the existing programs when they are available — programs that our taxpayers are already supporting through their federal and state taxes. A link to a real estate agency listing a number of these existing programs can be found below:
— The staff report does not provide any specific estimate of the one-time and ongoing costs for administering this new program and the provision of grants. Over time these costs could become very significant. Once the city creates these long-term commitments, the administrative burden associated with them would persist for decades. The city should not create a new program along these lines until these costs have been estimated and carefully reviewed to ensure such a program is cost-effective.
— The city should condition its approval of such an aid program by either (1) requiring the real estate agents involved in a transaction to accept half of the normal commission, or no more than a combined 3%, (2) ensuring that any program cannot commence until local realtors create a substantial fund of, let’s say, $100,000 or more that would be pledged by its members over time, or (3) adjusting the city business license taxes imposed on realtors to help support the program. Realtors will financially benefit from this program, and it’s only fair that they accept a lesser profit from real estate transactions assisted by the city using taxpayer funds or help support it in other ways up-front as well as with an ongoing source of funding. This proposal leaves them entirely off the hook.
— The proposed Municipal Code section does not limit this program to benefiting only residents of the City of Davis. Does it make sense for us to help people who don’t live here? I am not suggesting we exclude immigrants who need help with housing, but rather that we help immigrants and other persons who are residents of our city rather than outsiders.
— There is no guidance whatsoever in the proposed ordinance regarding how much of a share of a home purchase cost the taxpayers of the city of Davis would take on via downpayment assistance. The sky’s the limit under the existing language that would go into the Municipal Code. A fixed maximum share of the purchase cost that the city would contribute, or a flat dollar amount, should be set in ordinance as the maximum contribution allowed, and the amount that number can grow over time should be limited to growth in city General Fund revenues. A commitment by the city to provide to provide 5% downpayment assistance per transaction, for example, would result in more than $40,000 in downpayment assistance to buy an $850,000 Davis house. Most existing programs have much lower limits than that, but not this one.
— Leaving the dollar amount of downpayment assistance open to adjustment in the future by city resolution makes the program administratively easier to adjust over time. However, it also creates a greater risk that the costs of the program will spiral out of control. As home purchase costs continue to escalate–and they almost certainly will because we are not building much housing in our housing market–there would be inevitable and continuous political pressure for the city to up its downpayment assistance grants to keep up. The ordinance should specify that downpayment assistance grant adjustments should be adjusted no sooner than every few years, and only after a full evaluation of the performance of the program had been completed.
— When a homebuyer who purchased a unit with city assistance under this proposed program someday sells that home at a considerable profit, this ordinance does not require that the taxpayers share in that increase in equity. The city should get a cut of their profit that it could use to help offset program administrative costs and fund future downpayment assistance grants. The draft proposal now before you does not do that.
–This proposal would not produce a single unit of affordable housing that would count toward meeting the Regional Housing Need Allocation (RHNA) that the state is imposing on the City of Davis and all California cities. Nor would it produce a single unit of the type of affordable housing that can only be created with deep public subsidies – extremely low-income housing. This proposal focuses only on making for-sale market-rate housing affordable, a commendable idea but one that can be addressed in a different way not involving public money with the imposition of existing inclusionary housing requirements.
Instead of picking this one housing program out for potential funding and asking a council subcommittee to go and find money for it, the city should first develop a comprehensive plan that prioritizes the various ideas in the city Housing Element that would do the most good and that will help us meet the city’s RHNA mandate. Getting additional input from the Social Services Commission in prioritizing among housing programs, and getting the Finance Commission involved in looking at the important fiscal and budgeting issues involved here, is a better approach than rushing ahead without that discussion.
My personal belief is that it would make much more sense for the city to prioritize its finite resources to (1) zone more rental and for-sale housing for development, (2) if the budget allows, provide direct funding to subsidize the construction of additional affordable rental housing units, especially accessory dwelling units, or ADUs, that are much less expensive to build and subsidize, and (3) develop meaningful new sources of funding that would be earmarked for affordable housing and not put a strain on existing city funding commitments.
The steps I suggest are already specifically recognized in our official city Housing Element. (I helped put them there.) They would make housing more affordable and provide a permanent and ongoing addition to the city’s housing stock. Downpayment assistance helps only one buyer at a time, at least until such time as that beneficiary someday sells their home and (hopefully) the city recoups the money it originally contributed, possibly decades later. It’s just not the best way to address the complex and formidable housing shortage our community faces.
Dan Carson is a former Davis City Council member and city commissioner with a 45-year career in journalism and state and local government service.
