Story by C. Douglas Golden
Of all the measures that passed on Tuesday, one that flew mostly under the radar has many saying that the state of California could be creating a second housing crisis by encouraging the conditions that led to the meltdown of 2008 — only this time, with a taxpayer-funded bond initiative.
On its face, Proposition 37 is supposed to address the state’s long-standing housing crisis. It would offer middle-income homebuyers an option to put 3 percent down for a newly built home instead of the usual 20 percent.
The other 17 percent would come in the form of a fixed-rate mortgage offered by the government through a $25 billion bond issuance program, CBS News reported.
With 71 percent of the vote in as of Saturday morning, 61.9 percent of voters had approved the measure, while 38.1 percent voted against it.
Prop 37 is meant to address one of California’s most persistent problems: housing costs, which are among the highest in the nation.
The median price for a single-family home in the state in the third quarter of 2026 was $894,630, with prices in Southern California and the Bay Area topping $1 million.
Official opposition was mild and did not raise the moral hazard the program might create by guaranteeing new loans.
“In the state’s official voter guide, opponents of the measure did not submit an argument against Prop. 37. The League of Women Voters has issued a statement against Prop. 37, saying the loan program could reinforce racial and economic gaps and that there is no requirement that the homes are near jobs, transit, schools or services,” CBS News noted.
However, as KQED-TV noted, those who took positions against the proposal believed it “provides taxpayer-funded subsidies to developers without reforming costly mandates that make housing expensive” and “makes the state of California one of the biggest mortgage lenders in America overnight — and taxpayers are left holding the bag.”
More pointed opposition was found online, where many users posted the iconic image of Christian Bale as Michael Burry — the investor who successfully bet against the housing market before the collapse of 2008 — in Adam McKay’s movie “The Big Short.”
The particulars of the program differ from the scenario that played out in “The Big Short,” which chronicled the investors who realized that adjustable-rate mortgages offered without income or credit score verification and packaged into bonds that were misleadingly rated as high-quality securities would eventually crash.
However, there are similarities, particularly in the moral hazard of the most populous state in the nation becoming one of the largest mortgage providers in the nation, too — particularly since it creates incentives to issue mortgages not on borrower merit but on political expediency.
In addition, it allows buyers to purchase homes with almost no money down, increasing the risk of default and therefore putting the financial onus on the state government.
Furthermore, California’s state government has other structural financial issues that could create a 2008-like crisis that metastasizes from the state if the subsidized loan program goes bad and borrowers begin defaulting.
In 2025, the Reason Foundation reported that California’s public pension plans had unfunded liabilities of over $265 billion — $6,000 for every resident of California. The California Public Employees’ Retirement System, or CalPERS, had $166 billion in unfunded liabilities alone.
While California’s budget has been buoyed in the past by the success of the tech industry — along with former Gov. Jerry Brown, unique among his Democratic brethren, being something of a budget hawk — Gov. Gavin Newsom has repeatedly run deficits during his eight-year tenure.
The Santa Monica Daily Press reported that incoming governor Xavier Becerra faces a $29 billion “wall of debt” left by Newsom when he enters office in January.
A separate proposition meant to address the shortfall by increasing taxes on the wealthy — Proposition 40, the so-called “billionaire tax” — was defeated by a 54-46 margin.
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