AB 1406 (Ward)
HOME sponsors: California YIMBY (more TBD)
Latest update: AB 1406 passed out of the Assembly in January, and will be heard in committee in the Senate in late spring
The Problem
California is building rental homes, but new ownership homes for middle- and working-class residents remain limited. Condominiums offer a viable path to homeownership, but condo production faces significant financing challenges, making construction less feasible.
A key factor is access to affordable construction financing. Current California law limits the portion of a buyer's deposit that developers can retain if the buyer defaults to 3% of the purchase price. When buyers put down 20%, but developers can retain only 3% upon default, lenders view this as a higher financial risk.
So, they either don’t lend for these projects, or lend at higher interest, increasing costs for both developer and buyer.
The Solution
AB 1406 addresses this by increasing the deposit retention limit to 6%. Higher deposits demonstrate buyer commitment to lenders, providing them with confidence to offer lower-cost financing.
This adjustment aligns California with practices in other states and countries, where higher deposit allowances support for-sale housing markets. By accessing lower-interest construction loans, builders can reduce costs and expand homeownership opportunities for first-time and working-class Californians.
Contact for questions: Muhammad Alameldin, California YIMBY, muhammad@cayimby.org