The Bay Area Has Too Little Middle-Income Housing: Q&A With Sarah Karlinsky

Sarah Karlinsky headshot

It’s hard to think of anything more pervasive in the American consciousness right now than the high cost of housing, a crisis for which the Bay Area is a poster child. When housing is unaffordable, almost every aspect of life is warped. Rents and home prices affect how and where we live — potentially in overcrowded homes or far from amenities like public transit, schools, medical care, shopping, and parks. For those of us unable to work remotely, housing affordability dictates where we can find employment and how far we must commute to jobs. It can bolster or undermine a household’s economic stability and grow or stymie intergenerational wealth.

In a new research paper, Losing Ground: What the Bay Area's Housing Crisis Means for Middle-Income Households and Racial Inequality, SPUR’s senior advisor on housing policy, Sarah Karlinsky, reveals how the high cost of housing is shaping the Bay Area in ways that erode quality of life and erase economic and racial diversity. Using an analysis by our partner The Concord Group, a real estate economics firm, and data from a 2022 report by the Terner Center for Housing Innovation, The Landscape of Middle-Income Affordability in California, Sarah examines two of the most pernicious effects of high housing costs: the forced exodus of middle-income households and the increasingly disproportionate and punitive impacts on Black and Latinx households. She argues that two decades of persistent housing scarcity, accelerating growth in rents and home prices, and seismic shifts in median incomes have resulted in a housing market that calls for policy interventions — interventions that help middle-income, not just low-income, households and that address racist housing practices. We spoke with Sarah about the research and its implications.


Before we delve into your findings, can you explain how you define a “middle-income” household?

For the purposes of our research, they are those households earning between 80% and 120% of median income, or the midpoint at which half of households earn more income and half earn less in any given area. For the average-sized Bay Area household, the median income was roughly $108,000 in 2020.


You note that high housing costs are first and foremost a reflection of housing scarcity. Can you illustrate that problem?

In a report we published in 2021, we found that over the last 20 years, the Bay Area has fallen short of meeting housing demand by something like 700,000 housing units. In fact, the region has added many more jobs — one of its attractions — than housing units. From 2011 to 2017, it created nearly five jobs for every housing unit. In some of the most expensive counties, the imbalance was even more pronounced — about eight new jobs to every new housing unit.


And this lack of housing availability allows wealthy people to outcompete less wealthy people?

Yes. Housing scarcity has led to an exodus of low- and middle-income households. Since 1999, the Bay Area has seen a decrease of 300,000 households making less than $100,000 and an increase of 625,000 households making more than $100,000.


Let’s talk about another driver of the region’s housing crisis: shifts in median incomes. What do wage data reveal?

In a nutshell, the wealthiest households are enjoying explosive income growth, while other households are seeing their relative economic position decline, which changes what it means to be a middle-income resident of the Bay Area. This phenomenon has been most noticeable since 2010. The region’s incomes started higher and grew more than those of other California metros because the tech industry was attracting people to the area and paying high wages. As high-income households came to represent a significantly larger proportion of all households, the income distribution of households shifted upward, increasing median income.

There’s an iterative relationship between housing prices and median incomes: the ability of higher-income individuals to pay for scarce housing options raises the cost of housing. That cost then becomes increasingly too high for lower-income households to afford.


How has the upward trajectory of median income changed who can afford housing in the Bay Area?

You’d expect low-income households to be squeezed out of the market. But our research shows that middle-class households are also out in the cold. Many households that rely on so-called middle-income professions have lost economic ground. We’re talking professions like teaching, postal work, construction, and accounting. Wage increases for these kinds of jobs have not kept pace with the rise in housing prices.

Our new paper illustrates the shrinking ability of three fictional middle-income professionals to afford housing. In one of these case studies, the annual earnings of a teacher in West Oakland rise from $40,000 in 2000 to $66,000 in 2019. Despite a 64% increase in wages over that 20-year period, the teacher experienced a decline in her relative economic position because the median income of Oaklanders grew even more, from roughly $40,000 to almost $74,000, an 84% increase. Bad news for the teacher: her home purchasing power has decreased, that is, the gap between her wages and the average home price in Oakland has increased.

The bottom line is that many formerly middle-income occupations are now considered low-income occupations, earning between 60% and 80% of area median income — AMI — or even less due to relatively flat wage growth compared with wage growth for higher-income professions.


Your paper points to high housing costs’ disproportionate impacts on Black and Latinx households. How have they fared?

The short answer is, not well. Because Black and Latinx households have lower median incomes than the Bay Area population as a whole, they are less likely to be able to afford either the median-priced rental unit or a home purchase. Like households of other races and ethnicities, they’ve experienced wage increases, but nothing like the increases white and Asian households have enjoyed. Over the 20-year study period, Black and Latinx households tumbled the farthest down the median income ladder. Most of them fall somewhere in the 60% to 80% of AMI range.

According to data from the National Equity Atlas for the San Francisco-Oakland-Fremont metro area, Black and Latinx households are more likely to be cost-burdened than their white or Asian counterparts: in 2019, some 60% of Black households were rent-burdened, compared with 39% of white households. What we mean by burdened is that a household is paying 30% or more of its monthly income on rent. Similarly, Black and Latinx households are more likely to be cost-burdened by mortgages. And Black households are the least likely among all racial groups to obtain a home purchase loan.

As homeownership becomes affordable only to those with the highest incomes and those able to access intergenerational wealth, the long-term wealth inequality of Black households is exacerbated. We must remember that Black households are less likely to have wealth or access to wealth due to systemic racism. These households have experienced many decades of discriminatory zoning practices such as redlining, which denied government loans for homes in neighborhoods with primarily Black households, and racial covenants, which denied Black households the right to purchase homes in certain neighborhoods.


Let’s talk numbers. First, rental affordability, for which your findings are counterintuitive.

Rents have increased significantly, particularly since 2010, but the ability of a median-income household to rent an average-priced unit in the Bay Area has also risen. Now you’re thinking, how can that be the case? Basically, median incomes have risen even faster than rents. Region-wide, median rents increased by 36% between 2010 and 2020, but the ability of median-income households to pay for rent increased more — by 55%.

As you’d expect, rental affordability varies from county to county. In San Francisco County, median rents increased 9% between 2000 and 2010 and another 10% between 2010 and 2020. Median incomes increased 44% from 2000 to 2010 and another 33% from 2010 to 2020.

For comparison, our paper looked at a county far from the three central cities of the Bay Area — Solano. By Bay Area standards, Solano County is affordable. Rents there grew a modest 8% between 2000 and 2010, while incomes grew 49%. From 2010 to 2020, however, rents increased 62%. During the same period, median household income increased by only 16%, far less than in other parts of the region.

Here’s the headline: The changing composition of income groups living in the Bay Area, along with income gains in the upper end of the income distribution, has allowed many households to keep pace with rising rents, even as many others find housing costs increasingly burdensome. Households making less than 100% of AMI — and that includes most Black and Latinx households — will find rents too expensive in many parts of the Bay Area.


Homeownership affordability is a simpler and sadder story. Tell us about it.

The homeownership picture is significantly bleaker than the rental picture for middle-income households. For-sale housing in the Bay Area has been too expensive for the median-income household for decades. The situation has significantly worsened since 2010. In 2000, the gap between the price that a median-income household could pay and the cost of an average-priced home was $196,000. In 2020, it was more than $360,000.

Like rental affordability, homeownership affordability varies significantly throughout the region, but overall, ownership opportunities are beyond the reach of all but the wealthiest households.

In San Francisco County, even a household earning 120% of AMI could not afford to buy the average-priced home in 2000. Between 2000 and 2010, the median home price grew by more than 56%. Between 2010 and 2020, it increased by 92%, reaching $1,484,000. That price was more than double the $670,000 that a median-income household could afford to pay.

In Solano County, housing prices increased a modest 11% between 2000 and 2010, reflecting the housing bust of the Great Recession. A household earning 80% of AMI could afford to purchase the median-priced home. But between 2010 and 2020, when housing prices increased by 98%, the average-priced house was no longer affordable to a median-income household. However, at $471,000, it was more affordable than in other parts of the Bay Area.


How are households coping with the Bay Area’s high cost of housing?

To afford housing in the Bay Area, some households are squeezing many people into their residences, paying an increasingly greater share of their income on rent, or commuting farther and farther to work. And maybe doing all three.

Since 2010, the percentage of homes with 1.5 or more people per room, what the U.S. Census defines as severe overcrowding, increased across the region. In 2010, San Francisco had the highest percentage of households with 1.5 people or more per room at 3.2%. By 2019, it was 4.1%.

The percentage of households, including middle-income households, paying more than 30% of their income for housing has also increased.

The incidence of super-commuting — commuting 25 or more miles one way to work — has risen. In search of more affordable housing, some people are driving farther and farther from major Bay Area job centers. The Bay Area and surrounding communities, such as Stockton and Modesto, have some of the highest rates of super-commuting in the country.


What can policymakers do to make housing more affordable for middle-income households and particularly Black and Latinx households?

I’m working on a report that will offer policy recommendations, but right now I can say that our current research points to four policy imperatives.

First, build more housing of all types and at all price points to reduce housing scarcity and increase income diversity. Regions with healthy housing markets — those that construct a significant amount of housing relative to population growth — provide enough housing overall so that market-rate housing is affordable to those at middle-income and even some lower-income levels. By contrast, regions with constricted housing markets, such as the Bay Area, need government intervention to create housing for middle-income households.

Second, develop policies to support not just middle-income households — those households at 80% to 120% of AMI — but also those earning between 60% and 80% of AMI, the median income of Black and Latinx households.

Third, expand policy tools to increase affordable homeownership opportunities. Black households in particular have long been denied the chance to create economic wealth through homeownership. Efforts are needed to repair the effects of systemic racism in the form of restrictive racial covenants and redlining.

Finally, learn from places that create middle-income housing, including countries with strong social housing models. California can deploy some aspects of those models. It could, for example, provide flexible and inexpensive capital sources and loan guarantees for construction of middle-income housing, use joint powers authorities to build more middle-income housing at scale, and allocate some state-owned land to middle-income or mixed-income housing.


Read Losing Ground