SPUR REPORTHOUSING

APRIL 2021

How much housing does the region need to build to keep income inequality from getting worse?

What It Will Really Take to Create an Affordable Bay Area

Thanks to: Tim Cornwell and Jordan LaMarche of The Concord Group for providing the housing data analysis in this report

Stephen Levy of the Continuing Center for the Study of the California Economy for providing population and job projections as detailed in his report High and Low Projections of Jobs and Population for the Bay Area to 2070 — Projection Framework, Specific Assumption and Results (November 2019)

California Housing Partnership and the Urban Displacement Project for sharing their data with us

Issi Romem for his review and comments

Sarah Jo Szambelan and Nick Josefowitz of SPUR for their contributions to this report

Justin Fung for data visualization support

Primary Author: Sarah KarlinskyCo-author: Kristy Wang

Acknowledgements

Housing the Region Task ForceWe thank the following task forcemembers for sharing their time andexpertise with us. The findings andrecommendations in this report areSPUR’s and do not necessarily reflectthe views of those listed below. Anyerrors are the authors’ alone.Ruby BolariaWayne ChenSarah Dennis-PhillipsRebecca FosterDavid GarciaKate HartleyJoe KirchoferLillian Lew-HailerTomiquia MossAdhi NagrajDenise PinkstonGeeta RaoCarl ShannonDoug ShoemakerAnn SilverbergKelly SniderLydia TanJudson TrueLou Vasquez

Edited by Karen Steen Designed by Shawn Hazen Copyedited by Becky Ohlsen Cover photo by Sergio Ruiz

Thank you to the funders of the SPUR Regional Strategy: Chan Zuckerberg Initiative Clarence E. Heller Charitable Foundation Curtis Infrastructure Initiative Dignity Health Facebook Genentech John S. and James L. Knight Foundation Marin Community Foundation George Miller Sage Foundation Silicon Valley Community Foundation Stanford University

Further support from AECOM, Fund for the Environment and Urban Life, Hellman Foundation, Microsoft and the Seed Fund

Additional funding for housing policy provided by Stripe and Wells Fargo

This report is a component of the SPUR Regional Strategy, a vision for the future of the San Francisco Bay Areaspur.org/regionalstrategy

A previous version of this report was published in March 2020. The SPUR Executive Board adopted this updated version on December 1, 2020.

Contents

Introduction 4

Chapter 1: 8

WhyishousingsoexpensiveintheBayArea?

Chapter 2: 15

HowmuchhousingdoestheBayAreaneedtobuild

inordertomaketheregionaffordable?

Conclusion 19

Appendix 20

Introduction

ThehighcostofhousinghascometodefinetheSanFranciscoBayArea.Itdictateswhogetstolivehere,which

inturndictateswhogetstoparticipateintheregion’sboomingeconomyandpoliticalprocess.Yearafteryear,

theBayAreatopsnationallistsofthemostexpensiveplacestolive.1Yearafteryear,thenumberofpeople

withouthomesgrowslarger.2Andtheproblemneverseemstogetbetter.Infact,despitethebesteffortsof

thosewhoworkonhousingpolicy,itonlygetsworse—adynamicthathasnowbeeninplayfordecades.

Thisreport,thefirstinaseries,aimstodeterminewhyhousingpriceshaveescalatedsodramaticallyinthe

BayAreaoverthepastseveraldecades,whattheimpactsofthoseescalatinghousingcostshavebeenonBay

Arearesidentsandwhohasbornethebruntofthoseimpacts.3Thethreeotherreportsinthisseries—Housing

as Infrastructure: Creating a Bay Area Housing Delivery System That Works for Everyone,Meeting the Need: The

Path to 2.2 Million Homes in the Bay Area by 2070andRooted and Growing: SPUR’s Anti-Displacement Agenda

—offerasetoflong-rangepolicysolutionstoaddressthiscrisisandenabletheBayAreatobecomeamore

affordableregion.

1 NationalLowIncomeHousingCoalition,“OutofReach”2020,page17,https://reports.nlihc.org/sites/default/files/oor/OOR_BOOK_2020.pdf,accessedJuly16,2020.Sixofthe

10mostexpensivemetropolitanareasareinCalifornia.

2 http://www.bayareaeconomy.org/report/bay-area-homelessness/

3 Apreviousversionofthisreport,publishedinMarchof2020,includedinitialpolicyideasforaddressingthesechanges.Theseideashavesincebeendevelopedintothe

additionalreportsinthisseries.

AFFORDABLEBAYAREA 4

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AFFORDABLEBAYAREA 5

ThisreportispartofSPUR’sRegionalStrategy,a50-yearvisionforthefutureoftheBayArea.Focusingona

five-decadetimehorizonenablesustothinkaboutsolutionstoentrenchedproblemsatthescalethat’srequired

tomeetthechallenge,allowingustoconsiderthequestion:“Whatinterventionswouldactuallybesufficient

toturnthetideonthehousingcrisis?”Makingthesechangesmeansupendingcurrentstructuralsystems.This

willrequireustothinkdifferentlyaboutwhereandhowwelive.Butthealternative,whichistocontinueonthe

currentpath,willonlyleadtogreaterhousingunaffordability,greateranxietyabouthowtoaffordtheexpenseof

lifeinthisregion,moreovercrowding,continueddisplacementoffamiliesfromtheirhomesandneighborhoods,

andmorepeoplelivingonthestreetswhentheyhavenowhereelsetogo.

Theseramifications,extremeintheirownright,havespillovereffectsintootheraspectsofBayArealife.

Somepeoplewillbeforcedintomuchlongercarcommutesinsearchofmoreaffordablehousingattheedge

oftheregion,increasingtheamountofcarbonintheairandexacerbatingglobalwarming,whichinturnfuels

wildfiresandotherformsofecologicaldestruction.Theregionwillbecomelessraciallydiverse,underminingthe

BayArea’scultureandreinforcingsegregation,leadingtoamorebrittledemocracy.TheeconomyoftheBay

Areawillbecomelesscompetitiverelativetootherregionsthroughoutthecountrybecausecompanieswillwant

togrowinplaceswheretheirworkerscanlivemoreaffordablyandputdownroots.

Wedon’thavetolivethisway.Ifwebelievethathousingisahumanrightandactaccordingly,wecanlive

inaregionwhereeveryoneishousedandthecostofthathousingisnotwildlyoutofstepwithpeople’sability

topayforit.Aregionwherepeopledon’thavetodrivetwohourstoworkinordertoaffordhousingfortheir

families.Aregionwherefamiliesaren’tforcedtoliveinunhealthyorovercrowdedconditions.Aregionwherethe

relationshipsthatpeopleformintheirneighborhoodsaresustainedthroughstabilizinghousingpolicies.Aregion

whereallpeople,notjustthewealthy,gettoflourishandthrive.Othersocietieshavefiguredouthowtohouse

peopleandkeephousingaffordablewhilemaintainingastrongeconomy.Wecanlearnfromthem.

Changingthewaywethinkabouthousingwillrequireattention,focusandresources.Itwillnotbeeasyto

reversecourseonthepolicies,practicesandbeliefsthathaveledustothecurrenthousingcrisis.Butitiswork

wemustdoifwewanttocreateamoreequitable,sustainableandprosperousregion.

>

Housing the Region: A 50-Year Vision to Solve the Bay Area’s Affordability Crisis

SPUR’svisionfortheBayAreaisonewhereallcommunitiescanthrive.Housingisthe

bedrockofahealthyregion.By2070,wewanttocreateaBayAreawhereeveryonehasa

safe,decent,affordableplacetolive.

Howdoestheregionachievethisvision?Inordertoanswerthisquestion,SPURhas

developedfourreportsonhousingaspartofourRegionalStrategyinitiative.Thereisno

onesilverbullettoaddressthehousingcrisis.Instead,asustained,multifacetedapproachis

needed.

What It Will Really Take to Create an Affordable Bay AreaHow much housing does the region need to build to

keep income inequality from getting worse?

Thisreportdescribesthefactorsthathaveledtothe

housingcrisis,changesinincomeandwealththatstem

inpartfromthehousingshortageandtheimpacts

thesechangeshavehadontheregion.Itquantifiesthe

housingshortageofthepast20yearsandtheamount

ofhousingtheregionwillneedtobuildoverthenext

50yearstopreventincomeinequalityfromgetting

worse:approximately2.2millionhomes,orroughly

45,000homesayearfor50years.

Housing as Infrastructure Creating a Bay Area housing delivery system that

works for everyone

SPURbelievesthathousingisahumanright.Ifwe

treathousingasessentialforhumanstothrive,then

thegovernmentmustplayamorecriticalrolein

providingit.Forexample,thepublicsectordoesnot

waitfortheopenmarkettoprovidewatertohomes

andbusinesses:Inmostcommunities,itactively

intervenestoensurethatthishappens.

Thisreportdescribeshowtheroleofgovernment

mustchangeinordertoproduceenoughhousing

atallincomelevels,includingchangesinfunding,

therolesandresponsibilitiesofdifferentinstitutions,

reformsinpropertytaxationandmechanismsto

supporttheindustrializationofhousingconstruction.

AFFORDABLEBAYAREA 6

Meeting the NeedThe path to 2.2 million new homes

in the Bay Area by 2070

Theregionneedstoproduce2.2millionnewhomes

atallincomelevelsoverthenext50years.Thisreport

detailswherethesehomesshouldgo:inareasthat

arewellservedbytransit,incommercialcorridorsand

historicdowntowns,inareaswithgreatschools,jobs

andamenities,andintheregion’sexistingsuburbs.

Thereportalsooutlineshowtherulesgoverning

theplanningandpermittingofhousingwillneed

tochange.Thisincludesbothrequirementsand

incentivesforlocalgovernmentstochangetheir

zoningcodestoallowformuchmorehousing.

Rooted and Growing SPUR’s anti-displacement agenda for the Bay Area

Tocreateanequitable,sustainableandprosperous

BayAreaof2070,weneedtoradicallychangenot

onlyhowmuchhousingwebuildbutalsohowwe

builditandwherewebuiltit.Wemustalsoensure

thatthebenefitsofnewinfilldevelopmentareshared

bylow-incomecommunitiesandcommunitiesofcolor,

whohavehistoricallybeenleftoutoftheregion’s

growingeconomy.

Thisreportfocusesonthestepsneededto

supportbothpeopleandneighborhoods.Local

jurisdictionswillneedtoactivelyplantoreduce

oreliminatedisplacementimpacts.Local,regional

andstategovernmentshouldaligntaxpoliciesand

incentivestoreducespeculationinthehousing

market.Citiesacrosstheregionmuststrengthen

tenantprotections.Andgovernmentatalllevels

shouldfosterthecreationofplaceswherepeopleof

differentraces,incomesandlifeexperiencesallfeel

liketheybelong.

Theideasinthesereportsareinterdependent.Itisnotsufficientjusttobuildenoughhousing;wemust

alsoprotecttenantsfromdisplacementandeviction.Itisnotenoughtoreducespeculationinthemarket;

wemustalsomaketaxstructuresfairerandsupportaffordablehousingproduction.Itisnotenoughtofund

affordablehousing;wemustalsomakeitfasterandlessexpensivetobuildhousing.SPURviewstheideasin

thesereportsasmutuallyreinforcingandinvitesreaderstoengagewitheachreport.Asummaryoftheentire

project—HousingtheRegion:A50-YearVisiontoAddresstheBayArea’sHousingCrisis—canbefoundat

spur.org/housingtheregion.

AFFORDABLEBAYAREA 7

AFFORDABLE BAY AREA 8

Chapter 1:

Why is housing so expensive in the Bay Area? HousingcostsintheBayAreaincreased128%between1997and2018.4Atthetimeofpublication,duetothe

COVID-19pandemicandrelatedrecession,theaveragecostofhousingintheBayAreaislikelytoremainhigh

unlessdecisionmakerstakethenecessarypolicystepstoproduceasufficientamountofhousing.

Therearetwointerrelatedfactorsdrivingupthepriceofhousing:afailuretobuildenoughhousingforallthe

peoplewholiveandworkhere,andincreasesinbothincomesandthenumberofpeoplewithhigherincomes.

Thehousingshortagecreatescompetitionforscarcehousingresources,enablingthosewithmoremoneyto

outcompeteeveryoneelse.

Driver 1: The Bay Area has not built enough housing.Althoughdemandforhousinghasincreaseddramaticallyovertheyears—mostnotablyduetoarapidly

expandingregionaleconomy—theamountofhousingproducedannuallyinthenine-countyBayAreahas

decreasedinrecentdecades.Throughthe1980s,theregionproducedasignificantamountofhousingonan

annualbasis,thoughmuchofitwasbuiltinlowerdensitydevelopmentpatterns,includingsingle-familyhousing,

masterplannedcommunitiesandgarden-styleapartments.Inrecentyears,housinghasincreasinglybeen

concentratedinfewerlocationsathigherdensities,5andthenumberofunitsproducedannuallyhasdecreased.

Thistrendhasmultiplecauses.Theregionhasdoneabetterjobofprotectingopenspaceandseekingto

concentrategrowthinplacesthathavealreadyexperienceddevelopment.Meanwhilelocalgovernmentshave

addedrequirementstothedevelopmentprocess,makingitharderandhardertobuildhousinginalready-

developedareas.RealestateinvestorsconcernedbytheGreatRecession(andthesubprimelendingthat

exacerbatedit)movedcapitaltowardlessriskyinvestmentsinhigh-endurbandevelopment.Asthepandemic

pushesthecountryintoarecession,thenumberofunitsproducedwillcontinuetodecline.

4 MTCVitalSigns.Adjustedforinflation.Accessed9/22/20:https://www.vitalsigns.mtc.ca.gov/home-prices.

5 Romem,Issi,“America’sNewMetropolitanLandscape:PocketsofDenseConstructioninaDormantSuburbanInterior,”February1,2018,https://www.buildzoom.com/blog/

pockets-of-dense-construction-in-a-dormant-suburban-interior

AFFORDABLE BAY AREA 9

FIGURE 1

The amount of housing produced in the Bay Area has declined since the 1980s.ResidentialBuildingPermitsIssuedintheBayArea,1980–2018

Whilehousingproductiondeclined,theBayAreaaddedasignificantnumberofjobs.From2011to2017,the

regionadded658,000jobsand140,000housingunits,or4.7jobsforeveryhousingunit.Inmanypartsofthe

region,particularlythoseareasclosesttotheexplosionintechjobs,theratiowassignificantlyhigher.

FIGURE 2

In the most recent boom, the Bay Area added many more jobs than housing units.RatioofJobstoHousinginBayAreaCounties

Theregion’snewjobshaveattractednewresidents.Since2000,theBayArea’spopulationhasincreased

by15%orroughly1millionpeople.Addingmorepeoplewithoutsufficientlyexpandingtheamountofavailable

housinghasexacerbatedthehousingshortageanddrivenupthecostofhousing.Manyofthenewjobspayhigh

salaries,sowealthierpeoplearecompetingforscarcehousingunits,therebyincreasinghousingcosts.

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AFFORDABLE BAY AREA 10

Driver 2: Income inequality in the Bay Area is getting worse.

TheBayAreaisbecomingincreasinglywealthy.Just20yearsago,incomesweredistributedinabellcurve,

meaningmoremiddle-incomepeoplelivedintheregionthaneitherlow-incomepeopleorwealthypeople.Over

thepasttwodecades,thatdistributionhasshiftedtofavorwealthierhouseholds.Since1999,theBayAreahas

seenadecreaseof300,000inhouseholdsmakinglessthan$100,000andanincreaseof625,000inhouseholds

makingmorethan$100,000.6

FIGURE 3

Incomes have shifted in the Bay Area to include many more wealthy people and fewer lower income people.ChangeinBayAreaHouseholdIncomeDistribution,1999–2018

PreviousSPURresearchprovidestwokeyexplanationsfortheshiftsinhouseholdincome.7Thefirstisthat

wagesinhigh-wageoccupationshavegrownmuchfasterthanwagesinlow-andmiddle-wageoccupations.

Thesecondisthatmiddle-wagejobsdidnotgrowduringthepastdecadeandareprojectedtogrowmore

slowlythanhigh-andlow-wagejobsinthefuture.Someotherreasonsforshiftsinincomecouldinclude

changesinhouseholdformation(whenpeoplemarryormoveinwithroommatesorfamilymembers)andwage

increasesovertimeassomepeoplehavemovedupthejobladder.Thenetresultisthatasmorehigher-income

householdscompeteforalimitednumberofavailablehomesonthemarket,theybiduprentsandpurchase

pricesacrosstheboard.Thisparticularlyaffectsnewentrantsintothehousingmarket,makingfindingafirst-

timehomeexpensive—ifnotimpossible—foreveryonebutthehighearners.

ThechangeintheBayArea’sincomedistributionisepitomizedbyasignificantshiftinmedianincomes:The

medianBayAreahouseholdhasa50%higherincomenowthan20yearsago,withmedianincomerisingfrom

$60,000to$90,000peryear.8

6 AnalysisbyTheConcordGroup.Notethatincomefiguresarenotinflationadjustedbecausetypicalinflationadjustmentsusehousingasamajorcomponentofongoing

ConsumerPriceIndexcalculations.Ifincomeisinflationadjustedtoincludehousingcosts,theenormousimpactthathousinghasonincomedistributionwouldbeeliminated

fromtheanalysis.

7 SPUR,“HowtheRetirementWaveWillImpactBayAreaJobsandWorkers,”2019,https://www.spur.org/news/2019-01-17/how-retirement-wave-will-impact-bay-area-jobs-and-

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8 AnalysisbyTheConcordGroup.Notethatincomefiguresarenotinflationadjusted,asexplainedinfootnote6. So

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AFFORDABLE BAY AREA 11

FIGURE 4

Incomes have risen by 50% over the past 20 years.ChangeinBayAreaMedianHouseholdIncome,1997–2016

TheseshiftshaveenormousimplicationsnotjustfortheBayAreabutforthe21-countyNorthernCalifornia

megaregion,ageographythatstretchesfromSantaCruztoSacramento.Asmorepeoplemovedoutof

theBayAreatoseekaffordablehousing,theincomedistributionofthemegaregionhasalsoshifted,albeit

lessdramaticallyinthe12outerregioncountiesthaninthenine-countyBayArea.9The12outercounties—

Mendocino,Lake,Colusa,Yolo,Sacramento,Placer,SanJoaquin,Stanislaus,Merced,SanBenito,Montereyand

SantaCruz—sawgrowthinhouseholdsmaking$50,000to$75,000butstillsawlossesinhouseholdsmaking

lessthan$50,000.

FIGURE 5

In the larger megaregion, the share of higher-income households has grown over the past 20 years.ChangeinOuter-RegionalHouseholdIncomeDistribution,1999–2018

Unsurprisingly,housingpricesinthemegaregionduringthissametimeperiodhaveincreasedaswell,

althoughthestarkestincreaseshaveoccurredmainlywithinthenine-countyBayArea.

9 AnalysisbyTheConcordGroup.Notethatincomefiguresarenotinflationadjusted,asexplainedinfootnote6. So

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AFFORDABLE BAY AREA 12

FIGURE 6

Rents have increased throughout the Northern California megaregion, with the highest rents found in the inner Bay Area.ChangeinNorthernCaliforniaMegaregionMedianRents,1999–2017

Highhousingcostsimpactpeopleofcolor10moreseverelythanwhitehouseholdsandupperincome

households.Peopleofcoloraremorelikelytorenttheirhomeratherthanowntheirhome.Thisislargelydue

totheracialsegregationimposedonBlackpeopleandpeopleofcolorintheformofracialcovenants,zoning

manipulation,mortgageredliningandemploymentdiscriminationthatwassanctionedintheBayAreauntilthe

1970s.ThesecombinedracistpolicieshaveresultedinBlackfamiliesandfamiliesofcolorhavingfewerresources

topurchasehomesoraffordlargerentincreases.Thesefamiliesarealsomorelikelytobecostburdened(paying

morethan30%ofincometowardsrent)andseverelycostburdened(payingmorethan50%ofincometowards

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10 Peopleofcoloraredefinedasthosewhoarenot“whitealone,”includingHispanicofanyrace,Black,Asian,PacificIslander,NativeAmerican,Otherandtwoormoreraces.

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AFFORDABLE BAY AREA 13

FIGURE 7

People of color are more likely to rent and to struggle to pay their rent.PercentageofRentersWhoAreCostBurdened,2016

Peopleofcolorarealsomorelikelytomoveasaresultofrapidrentincreasesthantheirwhitecounterparts.

ArecentreportbytheUrbanDisplacementProjectandtheCaliforniaHousingPartnershipfoundthatbetween

2000and2015,a30%increaseinmedianrentinBayAreacensustractscorrelatedwitha28%decreasein

low-incomehouseholdsofcolor.11Butthenumberoflow-incomewhitehouseholdsdidnotseeanysignificant

decreaseassociatedwithrisingrents.

ThesamereportfoundthattheBayAreahasbecomeincreasinglysegregated.Overtheperiodbetween

2000and2015,low-incomeBlackandLatinxhouseholdsbecamemuchmorelikelytoliveinsegregatedhigh-

povertyneighborhoods,whilelow-incomewhiteandAsianhouseholdswereonlyslightlymorelikelytolivein

segregatedhigh-povertyneighborhoods.Atthesametime,roughlyone-fifthofthecensustractsthatwere

segregatedandhigh-povertyin2000hadlostthatdesignationby2015,likelytheresultofgentrification.12

FIGURE 8

The number of low-income Black and Latinx households living in segregated and high-poverty Bay Area neighborhoods has increased.ShareofLow-IncomeHouseholdsLivinginSegregatedHigh-PovertyTractsintheBayArea,2000and2015

In2015,whiteandAsianhouseholds’accessto“high-opportunityareas,”meaningplaceswithaccess

togoodschoolsandothertoolsforbuildingwealth,13wassignificantlyhigherthanthatofBlackandLatinx

11 “RisingHousingCostsandRe-SegregationintheSanFranciscoBayArea,”UrbanDisplacementProjectandCaliforniaHousingPartnership,2019,page3.

12 Ibid,page22.

13 High-opportunityareasaredefinedbytheCaliforniaStateTaxCreditAllocationCommittee,https://www.treasurer.ca.gov/ctcac/opportunity.asp,accessedonOctober15,2020.

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2.7M 1.2M 272k 78k

AFFORDABLE BAY AREA 14

households.Low-incomewhiteandAsianhouseholdsweremuchmorelikelytobelivinginhigh-opportunity

areasthantheirBlackandLatinxcounterparts.Atthesametime,moderateandhigh-incomeBlackandLatinx

householdsweremuchlesslikelythantheirwhiteandAsiancounterpartstobelivinginhigh-opportunityareas,

meaningtheyhavemuchlessaccesstotheeducationalandeconomicopportunitiesthatcomefromlivingin

theseplaces.

FIGURE 9

Black and Latinx households are less likely than their white and Asian counterparts to be living in higher-resource neighborhoods.LevelofNeighborhoodResourcesintheBayArea,byRaceandIncome,2015

ThisresearchshowsthatthehousingshortageimpactsBlackandLatinxhouseholdsdifferentlythanwhite

households,andspecificallythatBlackandLatinxhouseholdsaremorelikelytobeharmedbypoliciesthat

exacerbatethehousingshortageandincreasehousingunaffordability.ItalsosuggeststhatenablingBlack

andLatinxfamiliestoaccessgreatschools,employmentopportunitiesandnetworkswillrequiretwodifferent

typesofpolicies:thosethatstabilizeBlackandLatinxhouseholdsinneighborhoodsexperiencinggentrification

(throughhomeownershiporothermechanisms)andthosethatcreateopportunitiesformoreBlackandLatinx

householdstomovetohigh-opportunityneighborhoods.CreatinganequitableBayAreawilldependonboth

approaches.

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AFFORDABLE BAY AREA 15

Chapter 2:

How much housing does the Bay Area need to build in order to make the region affordable?

Escalatinghousingunaffordabilityhasbeenacontributingfactortohistoricincomedistributionchangessince

1999,increasingthenumberofevictions,displacinghistoricresidentsofBayAreacommunitiesandthreatening

thehealthandgrowthoftheregion.HowmuchhousingwouldtheBayAreahaveneededtobuildoverthelast

20yearstopreventincomeinequalityfromgettingworse?Andforwhatincomelevelsshouldthathousinghave

beenbuilt?14

WefoundthattheBayAreasawtheconstructionof358,500totalhousingunitsoveratimeperiodwhere

typicallong-termregionalgrowthpatternswouldhavecalledforalittleover1millionunits.Thiscreated a

shortfallof699,000housingunits.Thelimitednewhousingthatwasbuiltduringthistimelargelyservedthose

abletopaythemostforhousing.Roughly316,000ofthenewlybuiltunitswererentedorsoldatmarketrateto

thosewhowereabletoabsorbtherapidlyrisinghousingcosts.Atthesametime,affordablehousingdevelopers

builtroughly42,500unitsofpermanentlyaffordablesubsidizedhousing—notnearlyenoughtosatisfythe

demandforhousingatthelowestendofthepricespectrum.Themissing699,000unitsfallintotwocategories:

486,500unitsofhousingneededforthosebelowthemedianincomeand212,500unitsofhousingneededfor

thoseabovethemedianincome,meaningthatthedemandforaffordableandmiddle-incomehousingwent

largelyunmet.

FIGURE 10

Historical Housing ShortfallBayAreaHousingDemand,2000–2018How much housing would the Bay Area

have needed to build over the last 20

years to prevent income inequality from

getting worse? Analysis by SPUR and

The Concord Group shows a shortfall of

699,000 housing units, most of them

for households below the area median

income (AMI).

14 ThisresearchwasconductedbyTheConcordGroupforSPURin2019.

TOTAL DEMANDFOR HOUSING:

1,057,000UNITS

ABOVE AMI

Units built for house-holds at or above AMI:

316,000

Units not built for households below AMI:

486,500

Units not built forhouseholds ator above AMI:

212,500

Units built for house-holds below AMI:42,500

BELOW AMI

HousingBuilt:358,500 units

HousingNotBuilt:699,000 units

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AFFORDABLE BAY AREA 16

Whatwastheimpactofthisfailuretoproduceenoughhousing?Wheredidallofthosepeoplego?AsSPUR

haswrittenaboutpreviously,15somemovedtootherplaces,somedecidedtostayandpaymoreoftheirincome

towardrent,andothersnevershowedupinthefirstplace:Individualswhomayhavecontemplatedmovingto

theBayAreadecidedtogoelsewhereduetotheregion’shighhousingcosts.Ofthosewhohavestayed,some

liveinovercrowdedhousing,doublingupwithfriendsandfamily,orinunitsthatareill-suitedtotheirfamilysize.

Othershavenotlefttheirchildhoodhomes.OfthosewhohavelefttheBayArea,somehavemovedtoouter-

countycitiessuchasSacramentoinsearchofcheaperhousing,16enduringlengthysuper-commutestokeeptheir

BayAreajobs.OthershaveleftNorthernCaliforniaaltogetherformoreaffordablemetroareas,likeDenveror

Austin.Mostdistressingofall,manyhavelostallformsofhousing,leadingtotheregion’scurrenthomelessness

crisis.

Wealsoinvestigatedhowmuchandwhattypeofhousingtheregionshouldproducetokeepupwithfuture

demand.Morehousingwillbeneededastheregion’schildrengrowupandcreatefamiliesoftheirownandas

theeconomycontinuestoevolve,addingnewworkersinthedecadestocome.Accountingforgrowingdemand

isparticularlyimportantinstemmingtheflowoflower-andmiddle-incomehouseholdsfromtheregion.

It’snotpossibletoknowhowmuchtheregion’spopulationwillgrowoverthenext50years,butdata

analysiscanofferhelpfulprojections.Forthisinvestigation,ourpartnersattheCenterforContinuingStudyof

theCaliforniaEconomyestimatedahighpopulationgrowthtargetandalowpopulationgrowthtarget.17The

ConcordGroupthenmodeledwhatthosetargetsmeanforhousingdemand.Basedonthisanalysis,SPUR

estimatesthattheBayAreawillneedaminimumof1.5millionnewunitsbetweennowand2070bothtokeep

upwithpopulationgrowthandtostopthecurrenttrendoflosinglow-andmoderate-incomehouseholdsasthe

regiongainswealthierhouseholds.

Ifweincludetheexistinghousingshortfall—the699,000unitstheregionshouldhavebuiltoverthelast

20yearsbutdidn’t— weestimatethattheBayAreaneedstoproduceaminimumof2.2millionunitsby2070,

orroughly45,000unitsperyear (seeFigure12). Webelieveit’simportanttoincludetheshortfall,ascurrent

residentsoftheBayAreaarealreadyexperiencingtheimpactsoftheregion’sfailuretodeliverasufficient

amountofhousing:highhousingcosts,overcrowdingandhomelessness.Aswehaveshown,theregion’sinability

todeliverasufficientamountofhousingatallincomelevelshasledtoalossoflower-incomehouseholds.By

addressingtheshortfall,theregioncouldamelioratesomeofthesenegativeimpacts.

SPUR’shousingtargetof2.2millionunits(45,000peryear)issomewhathigherthantheregionaltarget

developedbyCASA(theCommitteetoHousetheBayArea)of35,000unitsperyear.18McKinseyestimates

thatCalifornianeedstoproduceaminimumof3.5millionhomesstatewidetomeetabacklogdemandof2

15 Terplan,Egon,“HowMuchHousingShouldtheBayAreaHaveBuilttoAvoidtheCurrentHousingCrisis?,”SPUR,February21,2019,https://www.spur.org/news/2019-02-21/how-

much-housing-should-bay-area-have-built-avoid-current-housing-crisis

16 Kneebone,ElizabethandIssiRomem,“DisparityinDeparture:WhoLeavestheBayAreaandWhereDoTheyGo?,”BuildzoomandTernerCenterforHousingInnovation,http://

ternercenter.berkeley.edu/uploads/Disparity_in_Departure.pdf

17 TheCenterforContinuingStudyoftheCaliforniaEconomyprovidedSPURwithpopulationandjobprojectionsasdetailedinitsreportHigh and Low Projections of Jobs and

Population for the Bay Area to 2070 — Projection Framework, Specific Assumptions and Results,https://www.spur.org/sites/default/files/2020-03/CCSCE_High_and_Low_

Projections_of_Jobs_and_Population_for_the_Bay_Area_to_2070-Projection_Framework_Assumptions_and_Results.pdf

Thereportincludedahighgrowthtargetandalowgrowthtargetbasedonnationalprojectionsforjobsandpopulation,aswellasassumptionsaboutimmigration,growthin

variouseconomicsectorsandtheshareofthepopulationandjobgrowththattheBayAreawillattract.SPURchosetobaseitsanalysisonthehighgrowthprojectiondueto

thefollowingfactors.First,itisunknownhowrapidlytheBayArea’spopulationwillgrow,butitmostlikelywillreachboththelowandthehightargetseventually,ifnotwithin

50years.Planningforthehighgrowthtargetenablestheregiontofullymeetfuturehousingdemandandplanforappropriatedensity.Second,ifhousinggrowthexceeds

populationgrowthtargets,thenhousingpricesmightstabilizeordeclineforaperiodoftime.Stabilizingpriceswouldhaltfurtherdisplacement.Whileaperiodofdeclining

pricesmightmakeexistingownersworseoff,itmighthelprentersandassistmanyinthemiddleoftheincomedistributioninbuyingahomeforthefirsttime.Itisalsoeasierto

stopbuildingwhenpricesdroptooquicklythanitistobeginbuildingrapidlywhenhousingpricesspike.

18 CASA,CASA Compact: A 15-Year Emergency Policy Package to Confront the Housing Crisis in the San Francisco Bay Area,January2019,https://mtc.ca.gov/sites/default/files/

CASA_Compact.pdf

AFFORDABLE BAY AREA 17

millionhomesplusagrowthdemandfor1.5millionhomesby2025.19TheBayArea’sRegionalHousingNeeds

Determinationfrom2015to2023—setatthestatelevelthroughtheRegionalHousingNeedsAllocationprocess

—showedaneedfor188,000housingunitsoveraneight-yearperiod,orroughly23,500unitsperyear.The

needsdeterminationforthe2023–2031cycleisroughly441,000units,or55,000unitsayear.

TheConcordGroup’smodel(seeFigure11)looksathousingdemandatvariousincomelevelsbasedon

populationgrowthandseekstoanswerthequestion:HowmuchhousingdoestheBayAreaneedtoaddat

differentpricelevelstopreventincomeinequalityfromgettingworse?ItassumesthatthosewholefttheBay

Areaoverthelast20yearsaren’tcomingbackandfocusesonmakingthingsbetterforthepeoplewhoarehere

nowandthosewhomightcomeinthefuture.

FIGURE 11

How much housing does the region need to build?ProjectedBayAreaHousingDemand,2018–2070

It’simportanttonotethatTheConcordGroup’smodelingdoesn’tanswerthequestion:Howmuchhousing

isneededtodrivedownhousingprices?Thisquestionisnotoriouslychallengingtoansweraccuratelydueto

theconfluenceofmanyfactors.Totakejusttwoissues:First,developerswon’tbuildnewhousingunlessthey

areabletocoverthecostsofconstruction(labor,materials,landandfinancing).Theabilitytocoverthesecosts

isoftendependentonrisinghousingprices.Ifhousingpricesdropbelowthelevelneededtobuildnewunits,

privatedeveloperswillstopbuildingnewhousingandpriceswillrise.Second,ifhousingpricesdodecrease,

thentheBayAreabecomesamoredesirableplacetoliveformorepeople,whichincreasesdemand,andthat

increasesprices.

Becauseit’ssohardtoanswerthequestionofhowmuchhousingtheregionwouldneedtobuildtodrive

pricesdown,wearetreatingtheanswersthatcomefromourmodelingasminimumtargets,knowingthatthe

BayAreawouldneedtooutproducethesenumbersbysomefactorinordertoreducehousingpricesovertime.

Itwillbeimportanttodevelopahousingdeliverysystemthatcanchangebasedonhousingprices,allowingfor

morerapidhousingproductionwhenpricesspike.Thissystemshouldalsotakeintoaccountthelocationsand

typesofhousingneededtoaddressdemand.

19 McKinseyGlobalInstitute,AToolKittoCloseCalifornia’sHousingGap:3.5MillionHomesby2025,October2016,https://www.mckinsey.com/featured-insights/urbanization/

closing-californias-housing-gap

Monthly Rent orMortgage Paymentat 33% of Income

% of AreaMedian Income

AnnualHousehold

Income*

Housing Units Needed to Keep UpWith Projected Population Growth

1,492,000 units needed by 2070*Assumes 2.75 people per household

368,000

203,500

139,500

103,500

165,500

168,000

343,500

2018 Median Income= $99,000

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AFFORDABLE BAY AREA 18

TheBayAreawillalsoneedtoadoptnewpoliciestohelpdevelophousingforpeopleatdifferentincomes.

Theregionwillstillneedtoproduceasignificantamountofmarket-ratehousing:aminimumof343,500units

forhouseholdsmakingmorethan200%oftheareamedianincome.Forthoseat80%oftheareamedianincome

andbelow,theregionwillneedtoproduceaminimumof571,500units.Andforthosebetween80%and200%

oftheareamedianincome,another576,500unitswillbeneeded.

FIGURE 12

SPUR’s 2070 Housing Target TotalBayAreaHousingDemand,2000-2070By adding the existing housing shortfall

from Figure 7 to the projected housing

need in Figure 8, SPUR estimates that

the Bay Area needs to produce roughly

2.2 million new housing units by 2070, or

about 45,000 units per year.

So

urc

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PU

RA

naly

sis

AFFORDABLE BAY AREA 19

ConclusionBuilding45,000unitsayearisroughlydoubletheaveragehousingproductionfortheBayAreaoverthelast

20years.Reachingthisgoalacrossallincometargetswillbechallenging.Butwithpoliticalwill,theregion

cantaketheconcretestepsneededtogetthere.Wedescribethesestepsinthethreeadditionalreportsin

thisseries:Housing as Infrastructure: Creating a Bay Area Housing Delivery System That Works for Everyone;

Meeting the Need: The Path to 2.2 Million Homes in the Bay Area by 2070;andRooted and Growing: SPUR’s Anti-

Displacement Agenda.

Thesepolicychangeswillrequireallofustochangethewaywethinkabouthousing.TheAmericanDream

hasalwaysinvolvedlandownership,fromtheJeffersonianagrarianidealtotheculturalelevationofthesingle-

familyhomeandthewhitepicketfence.Yetothercountriesandculturesdonotplacehomeownershiponsuch

apedestal.PartoftheculturalvalueofhomeownershiphastodowiththeroleitplaysintheUnitedStatesas

aprimarymechanismofwealthgenerationandwealthtransferfromonegenerationtothenext.Anotherpart

hastodowithourcountry’sextraordinarylackofasocialsafetynetrelativetootherdevelopedcountries.One’s

abilitytoretireandenjoyoldageoftenhingesonpropertyownership.ButtheAmericanconceptionofproperty

rightshasdeeplynegativeconsequencesforrenters.Unlikehomeowners,mostrenterscan’trelyonbeingable

tostayintheirhomesforthelongtermandaren’tguaranteedstablehousingcosts.

Ifwearegoingtochangeourhousingsysteminanymeaningfulway,weneedtochangeourcollective

dream.Whatifwedreamedofafuturewhereallfamiliescouldaffordhousingandgotogreatschools?

Wherenoonehadtoliveinfearthatthenextillnessorchangeofjobcouldresultinlosingtheirhome?Where

commuteswereshortandpleasantanditwaseasytogetaroundbytrain,bus,bikingorwalking?Whatifthere

werewaystobuildassetsforfuturegenerationsthatdidn’tinvolveowningahome?Whatifassetbuildingwere

notamatteroflifeanddeathbecauseoursocietytookcareofitspeople?Whatifhomelessnesswerenot

toleratedandwefoundawaytohouseourmostvulnerablepopulations?

Dreaminganewdreamistheprerequisiteforabetterfuture.It’stimeforustorisetothechallenge.

AFFORDABLE BAY AREA 20

Appendix Methodology to Determine “Historical Housing Shortfall” (Figure 10) and “How much housing does the region need to build?” (Figure 11)

Figures10and11inthispaper,“HistoricalHousingShortfall”and“Howmuchhousingdoestheregionneedto

build?,”weredevelopedbyTheConcordGroup(TCG)toillustratedemandforhousingateachwholedollarof

incomeandmonthlyhousingcost,whichmeansthemodelreflectstruedemandforeachindividualincome.For

themodel,TCGuseddatafromClaritas’Spotlight,asyndicateddatasourcethatprovidesyearlydemographic

datafortheUnitedStates.Thismodelspecificallyusedthehouseholdincomedistributionfromtheyear2018.

Spotlight,liketheU.S.Census,presentsitshouseholdincomedistributioninranges($25,000to$50,000,

$50,000to$75,000,etc.).Intotal,thereare10delineatedincomeranges.

TCGmadeasetofassumptionsthatinformedthemodel.First,that“housingaffordability”wouldbedefined

asahouseholdspendingnomorethan33%ofitsincomeonhousingcostsandthateveryhouseholdwould

demandhousingatthatpercentageoftheiryearlyincome.TCGthenquantifiedtheunitsdemandedateach

householdincomerangebasedoneachhouseholdinthatincomerangespending33%ofitsincomeonhousing.

Forexample,householdsmakinglessthan$49,000,orlessthan50%oftheareamedianincome,wouldhavea

maximumaffordablehousingcostof$1,400permonth.Theequationtoreachthisfigureis(AnnualIncomex

HousingBurden[33%])/12(monthsinayear).

Second,TCGassumedthathouseholdsinthenine-countyBayAreawouldgrowataratedeterminedby

theCenterfortheContinuingStudyoftheCaliforniaEconomy(CCSCE).CCSCEusedtwodifferentgrowth

scenarios:ahighgrowthpotentialandalowgrowthpotentialforthenine-countyBayArea.Themaximum

growthscenarioprojected1%growththrough2040,1%growthfrom2040to2050,0.5%growthfrom2050to

2060,and0.5%growthfrom2060to2070.Intotal,themaximumgrowthscenarioprojectedaneedforroughly

1,492,000unitsofhousinginthenine-countyBayAreafrom2018to2070.Thelowgrowthscenarioprojected

0.6%growththrough2040,0.4%growthfrom2040to2050,0.3%growthfrom2050to2060,and0.3%growth

from2060to2070.Intotal,thelowgrowthscenarioprojectedaneedforroughly748,000unitsofhousingin

thenine-countyBayAreafrom2018to2070.

Third,TCGassumedthatthe2018incomedistributionwouldremainconstant.WhileTCGandSPURdonot

expectincomedistributiontoremainconstantoverthenext50yearsduetoavarietyoffactors,includingwage

growth,inflation,employmenttrendsandothermajoreconomicevents,TCGandSPURwantedtolookatthe

equitablehousingneedsindependentofthosefactorsandgiveabroadunderstanding,intoday’sdollars,of

howmuchnewhousingwouldbeneededatwhichincomelevelstoensurethathousingwouldbeatleastas

affordableasitistoday.

AFFORDABLE BAY AREA 21

Additional Methodology to Determine “Historical Housing Shortfall” (Figure 10)

TCGdevelopedasecondmodeltoquantifythetotalhousingneedforthenine-countyBayAreafrom2000to

2018asawaytoidentifytheunmethousingneeds.Inthismodel,TCGusedahouseholdannualgrowthrateof

2%(theaverageemploymentgrowthperyearduringthisperiodforthenine-countyBayArea)toreflectwhat

growthcouldhavebeenforhouseholdsinthisperiodifsufficienthousinghadbeenavailable.TCGalsousedthe

originalincomedistributionoftheyear2000.Overall,TCGbelievesthatabout1,057,000unitsofhousingshould

havebeenbuiltduringthistimeperiod.However,only358,000unitswerebuilt.

Thedashedlineacrossthecirclerepresentstheareamedianincomeforthenine-countyBayArea.Thegreen

numberbelowthedashedlinerepresentstheaffordablehousingbuiltintheBayAreafrom2000to2018.The

dataforaffordableunitscamefromtheDepartmentofHousingandUrbanDevelopment’s(HUD’s)LowIncome

HousingTaxCreditsDatabase(https://lihtc.huduser.gov/),whichtracksallaffordablehousingprojects,including

allprojectsfundedthroughHUD,stateservice,localgovernment,for-profitornonprofitsponsorsoranyhousing

projectwithanincomelimit.TCGhasassumedthat,whileaffordableunitscanaffecthouseholdsmakingupto

80%oftheareamedianincome,theseunitsservedthelowest-earninghouseholdswithinthenine-countyBay

Area.Thisgreennumberbelowthedashedlinerepresentstheunitsbuiltthatareaffordabletothosemakingless

than100%oftheareamedianincome.

Thegreennumberabovethedashedlinerepresentsthetotalmarket-rateunitsbuiltinthenine-county

BayAreafrom2000to2018.ThedataforbuilthousingwastakenfromHUD’sbuildingpermitwebsite(https://

socds.huduser.gov/permits/),withtheassumptionthatallunitsfromtheyears2000through2018werebuiltand

operatedatanoccupancyof93%.TCGhasassumedthat,whilemarket-rateunitscanaffecthouseholdsmaking

anylevelofincome,theseunitsmostlikelyservedthehighest-wageearnersinthenine-countyBayArea.This

greenabovethedashedlinerepresentstheunitsbuiltthatareaffordabletothosemakingmorethan100%ofthe

areamedianincome.

Therednumberbelowthedashedlinerepresentstheunitsthatshouldhavebeenbuiltforhouseholdsbelow

theareamedianincomebutwerenotbuilt.Therednumberabovethedashedlinerepresentstheunitsthat

shouldhavebeenbuiltforhouseholdsabovethemedianincomebutwerenotbuilt.Overall,TCGhasdetermined

thatthehousingshortfallforthenine-countyBayAreafrom2000to2018wasroughly699,000units.

AFFORDABLE BAY AREA 22

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