By Senator Rosilicie Ochoa Bogh, 23rd Senate District
Buying a home is widely considered a milestone, a sign of success and, for many, a realization of the American Dream. But purchasing a home in our great state is impossible for many hardworking Californians. California routinely ranks as the toughest in the nation for one group in particular, first-time homebuyers.
Due to the high cost of housing—with the median home price breaking the $800,000 mark for first time in history—the historic housing shortage, particularly for affordable entry-level homes, and the struggle that young Californians face in saving for a down payment, buying a home in California can be an unattainable dream.
Who are first-time homebuyers? In 2018, California’s typical homebuyer was aged 25-34 and numbered just over 6 million, according to the online real estate journal “firsttuesday.” And according to the National Association of REALTORS, first-time homebuyers represented one-third of all homebuyers in 2020. The hurdles to homeownership for this group are steep.
Adding to the difficulty of obtaining a loan and accumulating a down payment for first-time buyers, the severely limited housing supply and rock-bottom low mortgage rates have contributed to yield-chasing investors like private-equity firms and pension funds snapping up single-family homes to rent out or flip.
In California’s extremely competitive market, cash buyers—usually the wealthy or institutional investors—have a decisive edge, because sellers do not have to wait for the buyer to obtain a loan. According to ATTOM Data Solutions, 26.6% of sales were all cash in 2020.
As real estate consultant John Burns recently told the Wall Street Journal, “You now have permanent capital competing with a young couple trying to buy a house.” Burns further estimated that “in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in, [which is] going to make U.S. housing permanently more expensive.”
All this adds up to a great need for helping first-time buyers, by creating an equal opportunity in the competition and a chance at homeownership. It is why I have introduced Senate Bill 601, the First-Time Home Buyer Opportunity Act, which would incentivize homeowners looking to sell their homes to consider first-time buyers by increasing the capital gains exclusion on homes sold to first-time buyers.
Specifically, SB 601 would grant homeowners who sell their homes to a first-time homebuyer the ability to exclude from their gross income capital gains of $300,000 for single filers instead of the current $250,000 maximum, and $600,000 for joint filers instead of the current $500,000 maximum. For the seller, the increase in the capital gains exclusion could sweeten the first-time buyers’ offer enough to make them competitive with the moneyed real estate investors.
Affordable housing in our great state is unfortunately out of reach for many Californians. It is time to remove barriers to homeownership and help hardworking families looking to buy their first home.
While only a first step, SB 601 would help level the playing field for first-time homebuyers in California. It would help more Californians achieve the American Dream of homeownership.