Proposition 37: California Second Mortgage Homebuyer Program and Revenue Bond Initiative

Prop 37 will help restart condo construction, which has fallen to just 3% of new multifamily construction (https://www.spur.org/news/2025-10-16/condos-provide-affordable-homeownership-so-why-doesnt-california-build-more-them). Condos are the starter homes families can actually afford, and a critical problem stopped their construction: construction defect liability. Insuring a condo project costs three to four times what a rental costs (https://ternercenter.berkeley.edu/research-and-policy/the-financial-impacts-of-construction-defect-liability-on-housing-development-in-california/), so builders build rentals instead.

Prop 37 fixes this for homes in its program. Builders who join get a reformed defect process (https://growsf.org/voter-guide/san-francisco-voter-guide-november-2026-election/measures/prop-37/legal-text/#prop-37-right-to-repair): they can repair problems directly and get a signed release when repairs are done, instead of spending years in court. The down payment loans then supply buyers for the new starter homes.

We are normally skeptical of down payment subsidies because helping buyers bid on a fixed stock of homes simply raises prices for everyone. But Prop 37's loans work only on new construction, so the demand lands where supply can respond.

We would have preferred this fix by legislation in Sacramento, and it almost got there. AB 1903 passed the Assembly 68 to 0 (https://calmatters.digitaldemocracy.org/bills/ca_202520260ab1903) and cleared the Senate, then died when the session ended (https://cayimby.org/legislation/ab-1903/) before a final vote. Until Sacramento tries again, Prop 37 is the only relief available.

It's an experiment, and the Legislative Analyst's Office cannot say (https://lao.ca.gov/ballot/2026/prop37-110326.pdf) whether it will spur construction. But borrowers repay the loans, and if the program fails, taxpayers won't owe anything. Let's give it a shot and see if it works.

Source (https://growsf.org/voter-guide/san-francisco-voter-guide-november-2026-election#prop-37)

SPUR's Recommendation

SPUR supports the creation of new tools and financing to promote homeownership, and these revenue bonds would have no impact on the state’s General Fund. The focus on new construction will increase the supply of for-sale homes in the state and allow homebuyers to build generational wealth through home equity. While Prop. 37 could have focused more specifically on supporting populations that face barriers to homeownership, we believe its contribution to overall homeownership rates makes it worthy of support.

What Prop. 37 Would Do

Proposition 37 would authorize revenue bonds for fixed-rate second mortgages for buyers of newly built homes, helping them afford a 20% down payment. Home loan borrowers would have to repay the bonds and administrative costs. The California Housing Finance Agency would offer eligible buyers fixed-rate mortgages for up to 17% of the purchase price of a newly constructed home. The bonds could not be used for existing homes. Other requirements:

• Homebuyers would have to make a minimum 3% down payment.
• Second-mortgage loans would be limited to 17% of a home’s purchase price.
• Homebuyers would put down 20% equity at purchase to eliminate the need for private mortgage insurance.
• The maximum sales price for a qualified new home could not exceed 125% of the Federal Housing Finance Agency conforming loan limit for that county. (For example, the 2026 limit for San Francisco is $1,249,125; 125% of that limit would be $1,561,406).
• Homebuyers would have to be California residents for at least one year and would agree to occupy the home as a primary residence.
• Family income could not exceed 200% of the area median income (AMI) in the county or metropolitan statistical area where the new home is located.

The Backstory

The cost of housing in California has made homeownership increasingly challenging for many households, especially for Black and Latinx families who have experienced housing discrimination and have less inherited wealth, according to the Public Policy Institute of California.

This second-mortgage program would be available to households earning up to 200% of AMI, or $401,600 for a family of four in San Francisco.

Homeownership assistance has been a priority for former State Senator Bob Hertzberg. In 2022, he attempted to get a measure similar to Prop. 37 on the ballot through the state Legislature, but it failed. Former State Senator Anthony Portantino picked up the effort after Hertzberg was termed out of office, but he couldn't move legislation either. Hertzberg, now a private citizen, pivoted to a signature-gathering campaign and submitted more than 900,000 signatures this year to qualify Prop. 37 for the ballot. It requires a simple majority (50% plus one vote) to pass.

Equity Impacts

The racial equity impacts of Prop. 37 are unclear. While the Bay Area Equity Atlas found that the overall homeownership rate in the Bay Area is lower for Black (37%), Latinx (42%), and Native American (42%) households, this measure’s high cap of households earning up to 200% of AMI may disproportionately benefit Asian and white households, who have higher incomes and can more easily afford homeownership. In the Bay Area, the median income of Black and Latinx households is below 80% of AMI, according to U.S. Census data.

Pros

• Prop. 37 would potentially create more homeownership opportunities in a state that, at 55.8%, has one of the lowest homeownership rates in the nation.
• The measure focuses on new construction to increase housing supply rather than increasing demand for existing housing stock.
• It would require the California Housing Finance Agency to conduct an independent annual audit of the program to ensure that bond proceeds are used in a manner consistent with the requirements.

Cons

• Prop. 37 is not limited to first-time homebuyers and may therefore benefit Californians who could enter the market without its support.
• The program is not targeted to low- or moderate-income households, allowing households with earnings of up to 200% of AMI to qualify. The maximum sales price may go up to 125% of the Federal Housing Finance Agency conforming loan limit.

Source (https://www.spur.org/voter-guide/2026-11/ca-prop-37-homeowner-loans)

Creates a California Housing Finance Agency program offering qualifying middle-income buyers assistance of up to 17% of the purchase price of certain newly constructed homes, financed through as much as $25 billion in revenue bonds. CADC supports Prop. 37 because it can expand homeownership for middle-income families while encouraging construction of additional housing. Unlike ordinary General Obligation bonds, the bonds are intended to be repaid through the homebuyers' loans rather than directly from the state General Fund, which was an important factor in the committee's support.

CADC 認為此計劃既可協助中等收入家庭置業及鼓勵興建新房屋，而且債券主要由購屋者的貸款償還而非州政府一般基金負擔，因此支持提案 37。

Source (https://www.sfcadc.org/11_2026_propositions)

No on Prop 37: Borrows $25 Billion for Costly Housing Projects

Provides taxpayer-funded subsidies to developers without reforming costly mandates that make housing so expensive. Worse, Prop 37 makes the State of California one of the biggest mortgage lenders in America overnight – and taxpayers are left holding the bag for any losses. Many of the boondoggle projects supported by this bond will cost more than $1M per unit! Campaign contributors to politicians also get special contracts under Prop 37.

Source (https://www.reformcalifornia.org/voter-guides/san-diego)

Prop 37 - Loan Programs for Middle-Income Buyers

Endorsement: Vote NO on Proposition 37

While this sounds great, when you actually read the law, it is a bad idea. California should not be in the banking business! Our state government needs to focus on the basics and eliminate channels that create additional bloat and leave room for potential grift.

Vote NO on Proposition 37

Source (https://www.connectedsf.com/2026-voter-guide#prop-37)

$25 billion bond for subsidized mortgages for new housing

Source (https://www.sfgreenparty.org/endorsements/123-november-2026-endorsements)

Endorsement: Vote NO on Proposition 37

While this sounds great, when you actually read the law, it is a bad idea. California should not be in the banking business! Our state government needs to focus on the basics and eliminate channels that create additional bloat and leave room for potential grift.

Vote NO on Proposition 37

LOAN PROGRAM FOR MIDDLE-INCOME BUYERS OF NEW HOMES

California must build more homes and make homeownership possible for more families. The League of Women Voters of California has worked toward those goals for decades and supports Prop 1, which would provide $10 billion for affordable housing and homeownership programs and $1.25 billion for veterans’ home loans.

Prop 37 addresses a real barrier: the down payment. But it does so by adding a second mortgage that buyers generally would repay every month.

• Prop 37 could help a family buy a home without making it affordable to keep. Buyers generally would repay the Prop 37 loan each month in addition to their first mortgage, property taxes, insurance, repairs, and other costs. Voters would not know the interest rate, loan term, or monthly payment before approving the program.
• The program could reinforce racial and economic gaps instead of targeting families facing the greatest barriers. Generations of housing discrimination have left many Black and Latino families with less wealth to draw on, but Prop 37 gives no priority to first-time or first-generation buyers and does not exclude current or former homeowners. Households earning up to twice the area median income could qualify, including some earning more than $300,000 a year, while buyers would still have to provide at least 3 percent of the home price.
• The program is not tied to good planning. Assistance could be used only for newly built or newly converted homes, with no requirement that they be near jobs, transit, schools, or services or avoid areas with high transportation, insurance, or natural-hazard costs.
• Too much remains undecided. The Legislative Analyst says it is uncertain whether investors would buy the bonds, how the loans would compare in cost with other assistance, or whether the program would result in more homes being built or purchased. The interest rate and repayment terms would be set after the election.

California needs homeownership programs that lower families’ total costs, confront racial barriers to building wealth, and support strong communities. Prop 37 does not meet that test.

Source (https://lwvc.org/ballot-recommendations)

Proposition 37 on the November ballot is a peculiar mix of philanthropy, tort reform, housing construction, worker protection and Wall Street bond underwriting fees. Presented to voters as a solution to the lack of affordable homes for willing buyers, Prop. 37 aims to encourage developers to build “middle-class” housing and help “middle-class” families buy them without taxpayer assistance.

For builders, the program offers some protection from construction defect litigation and high attorney fees if they agree to be “qualified builders” (accepting liability for labor violations by contractors and subcontractors) and build “qualified new homes” (new construction or conversion with a price cap on each unit that does not exceed 125% of the conforming loan limit for that county, approximately $1 million to $1.5 million).

For buyers, the program offers fixed-rate second mortgages for 17% of the purchase price, no need for private mortgage insurance (PMI), and alternative “cash-flow underwriting” for buyers who otherwise might not qualify for a second mortgage. Borrowers are required to qualify for a first mortgage, and they must put down 3% of the purchase price from their own funds. To be eligible, borrowers must be California residents for at least one year and have a household income no higher than 200% of the area median income, adjusted for family size.

The program is financed with $25 billion in revenue bonds, issued by the state but repaid by adding the principal, interest and program administration costs to the payments made by the borrowers. Taxpayers have no direct risk.

The deceptive part of Proposition 37 is the representation, as stated in the ballot argument in favor of the measure, that “consumer benefits include below-market, fixed-rate loans.” Nothing in the measure guarantees that the second mortgages offered in the program will be less expensive for borrowers than loans available from private lenders.

The contention that the cost of the loans will be “below-market” rests on the assumption that foundations and non-profits will be willing to buy the bonds at a below-market interest rate of 3%. These are revenue bonds, and the interest is not tax-free. In addition, they are not without risk. In the event of foreclosure, these second mortgages sit behind the first mortgages, with no back-up or guarantee from taxpayers.

That’s the part of the program that depends on philanthropy. The idea is that tax-exempt organizations will buy these bonds out of the goodness of their hearts and forgo the higher interest rates available from other bonds they could buy instead.

If that doesn’t happen, the California Housing Finance Agency will sell the bonds in the market and pay market interest rates, potentially making the Prop. 37 second mortgage loans even more expensive for borrowers than loans offered by commercial lenders who don’t have to recoup the cost of administering this program.
Any developer can build price-capped “qualified new homes” eligible for the down payment assistance loans, but only “qualified builders” who accept the labor rules get the program’s protection from litigation and attorney fees. They lose the protection for an entire building, proponent Bob Hertzberg told our editorial board, if even one unit in it sells for above the capped price.

Home buyers should be aware that if a house or condominium sells for less than its fair market value, the county tax assessor will assess the property based on its fair market value, not on its purchase price.

Proposition 37 attempts to be a path through California’s minefield of regulations and liability in the housing sector, but it’s relying on the hope that non-profits will subsidize second mortgages so income-limited families who don’t have the money for a down payment can have two mortgage payments, not to mention the cost of homeowners insurance, HOA fees, property taxes and utility bills.

It sounds to us like it won’t have a good outcome. Vote no on Proposition 37.

Source (https://www.dailynews.com/2026/09/20/endorsement-no-on-proposition-37-a-risky-25-billion-housing-experiment/)

CA would “BORROW” up to $25 BILLION (w/a “B”) , and would turn around & “LOAN” these “BORROWED” funds to individuals in a Housing Down Payment Assistance program. While helping a homebuyer w/a down pmt is a “nice” idea, the Prop is INSANE and financially reckless for CA. CA has no business being a mortgage lender.

Per REFORM CALIFORNIA: “Provides taxpayer-funded subsidies to developers without reforming costly mandates that make housing so expensive. Worse, Prop 37 makes CA one of the biggest mortgage lenders in America overnight – and taxpayers are left holding the bag for any losses. Many of the boondoggle projects supported by this bond will cost more than $1M per unit! Campaign contributors to politicians also get special contracts under Prop 37.”

*A BOND means, CA will BORROW (here, $25 BILLION) to fund this effort. CA is already “swimming in debt”, currently over $124 BILLION. CA cannot afford MORE debt, and cannot afford interest on current debt. A bond is the most EXPENSIVE way to obtain funds DUE TO PAYING INTEREST. Just like you and me, CA “needs to live within our means”, and NOT BORROW. Our children, grands should NOT have to payoff this loan in 30 yrs for twice the amt borrowed. “NO” ON THIS BOND, and ALL BONDS.

Borrows $25 BILLION for Costly Housing Projects (BOND)