Can the SF Bay Area Solve Its Affordable Housing Crisis?

San Francisco Housing City Hall

Sky-high rents and a competitive real estate market have created a housing crisis of epic proportions in California and especially in the San Francisco Bay Area. The National Low Income Housing Coalition’s annual report, Out of Reach, ranks California as the third most expensive rental market in the country. The five most expensive rental counties are in the San Francisco Bay Area: Marin, San Francisco, Alameda, Contra Costa, and San Mateo.

Personal finance experts say it’s ideal to pay no more than 30 percent of income on housing. But regardless of income level, 48 percent of homeowners and 57 percent of renters are cost-burdened in California. Service workers, teachers, and even those with moderate-income positions often see more than half of their paychecks going to housing expenses.

“Lower-income households are paying 50–60 percent of their income on housing in California,” said Lena Robinson, regional manager of Community Development at the SF Fed, speaking at Innovative Approaches to Solving the Housing Crisis, a recent forum at the Federal Reserve Bank of San Francisco.

When you consider what that means in terms of financial stability and money for other necessities, the housing affordability problem becomes a larger economic issue.

“Average income in the top 20 percent of Bay Area households is $263,000 greater than the bottom 20 percent,” explained Supervisor Jane Kim, who represents District 6 on San Francisco’s Board of Supervisors.

The Tenderloin, Civic Center, South Beach, and South of Market (SOMA) are all within District 6, which is absorbing 80 percent of San Francisco’s development. Most of that development is new construction of large high-rise buildings consisting primarily of unsubsidized market-rate units for rent or purchase.

“San Francisco is building at 158 percent of market-rate housing need compared to 20 percent of need for low-income. We need to build more low and middle-income housing to solve the housing crisis,” said Kim.

High Demand, Short Supply

Affordability is only part of the Bay Area’s housing problem. Inadequate supply is the real underlying issue.

Housing production remains far below the estimated housing units needed to meet demand, especially in strong employment markets according to a report from the Legislative Analyst’s Office. Supervisor Kim says San Francisco’s data reflects those findings.

“In 2015, the Bay Area added 64,000 new jobs, most of them in Silicon Valley. But less than 5,000 new homes were constructed,” she said.

Solutions Start with City Leadership

In San Francisco, the average developer, when building a new unit, builds for a household of four that makes $270,000 per year. But without subsidy, there is no financial motivation to build below-market units that are affordable to households earning below the area median income. To address this problem, the city of San Francisco passed a $350 million affordable housing bond to achieve a dedicated source of subsidy for affordable housing construction and preservation.

Kim advocates for city leaders to be more involved in creating affordable housing as well. For example, by negotiating for a higher percentage of units to be built as affordable and mid-income above typical inclusionary zoning requirements. But many areas are challenged in knowing how well those requirements are being met. That’s one reason the San Francisco Board of Supervisors passed Ordinance No. 53-15 in April 2015. It calls for the city’s planning department to monitor the number of units being built at market rate and as affordable housing to gather better data.

Being more thoughtful and intentional about how city-owned land is utilized is another strategy that Kim discussed.

“If the city has site control, that’s a tremendous benefit. It gives us flexibility in building affordable housing by taking out the cost of the land,” she said. “Now we look at the entire portfolio of city land and land that’s underutilized. If there’s 100 percent usage, such as the MUNI bus yard, we could look at building housing on top of that existing usage.”

Local Economies at Risk

Matt Regan, senior vice president of policy at the Bay Area Council, explained that it’s in the best interest of local economies to create more affordable and middle-income housing now if they want to keep businesses in the Bay Area.

“Companies cannot grow here and cannot expand here. Jamba Juice is moving out of Emeryville to Texas. Western Digital is going to Oregon. We’re losing middle-income jobs because of the housing crisis. Companies can’t afford to pay middle-income employees enough to afford to live here,” he cautioned.

Beyond economic development opportunities, the SF Fed’s Community Development department finds that housing affordability and availability impact a host of issues, including the environment and the physical and mental well-being of the population.

Speaking after the forum, Robinson said, “The toll of long commutes, reduced disposable income, and a compromised quality of life are externalities of the housing crisis that we can no longer ignore.”

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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.