Well-Intentioned Program May Actually Saddle Low-Income Families with Overwhelming Debt

Local government ordinances in California often require that a portion of homes in new housing projects be made available to low-income buyers. One program in a Southern California city may not only fail to help low-income buyers, but it may actually harm already disadvantaged buyers.

Collett Crossings is a small single-family new housing development of 34 homes in the city of Riverside. Recently, the city of Riverside’s Instagram page announced that 8 lucky low-income, first-time home buyers would be given the opportunity to buy one of the homes. The price of the homes would start in the mid-500’s. A vague statement informed prospective buyers of “$200,000 in assistance available”, which would be provided by the city of Riverside.

Just a week later, the offering changed from 8 individuals to 7 individuals who would be able to qualify for one of the homes – which now started in the high $500’s instead of in the mid-500’s.

Many of the comments ridiculed the post “you must be kidding! Low income and starting at high $500,000 lol.” Others pointed out that the nearly-$600,000 homes resided in a dangerous part of town. Several individuals warned the others: after attempting to apply themselves, they realized that the program is deceptive, and may be a scam.

Applicants to the program are directed to the chart below. To qualify as low-income, the gross household income must be below the maximum amount listed in the chart. For example, a family of four can make no more than $63,200 to be able to qualify for a home that normally costs nearly 10x their yearly income.

Furthermore, the program requires that the buyers must have $29,000 – $32,000 available in savings to go towards the down-payment and closing costs of the home. With pandemic-ravaged California having the highest poverty rate in the nation and 56% of low-income Californians paying half their paychecks to rent, it is unlikely low-income buyers would have such funds tucked away. According to the Federal Reserve, for individuals making between $40,000 to $60,000, the median savings in their bank accounts was just $4,000.

At this point you may be wondering, what about the $200,000 of assistance provided by the city of Riverside? Surely, the city’s assistance could make the home purchase feasible…right?

Naturally, it raises many questions.  Would the funds be used toward mortgage payments or the down payment? Would it be divided between the seven applicants or go to each one? Were there strings attached?

After scouring the Instagram post, the city of Riverside’s website, and the link about the program on Neighborhood Partnership Housing Services’ website (the non-profit which is partnering with the city to administer the project), I could find no information about how the money would be used to help the applicants purchase the typically out-of-reach homes. I tried calling around different departments but to no avail.

Finally, answers came when one disgruntled applicant sent the application documents to me.

The fine print shows the $200,000 “assistance” is a second loan, with 3% interest compounded yearly.

The loan, provided by the Housing Authority of the City of Riverside, requires no payment for 45 years. However, the loan is not forgivable and must be repaid in full at the end. When accounting for interest, if no payments were made during the 45-year period, $756,319 would be due at the end of the term.

The family can only sell the home to another buyer who resides at or below 80% of the median income of the county.

To be fair, the program is ostensibly a well-intentioned one that does provide an opportunity for families to live in a large and new home.

But the implied purpose of the program is to help families own a home, to build wealth through property ownership. The fine print of the Riverside program shows it would likely achieve exactly the opposite. Instead, by saddling the 7 families with overwhelming debt, the program functions more like an elaborate long-term rent scheme.

McKenzie Richards is a Pacific Research Institute development associate.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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