Housing is expensive for everyone in the Bay Area, but it’s especially challenging for middle-income buyers. Most new housing supply is at the high or low end and the gap in between is being called “the missing middle.” According to data from the Association of Bay Area Governments, between 2007 and 2015 in the nine Bay Area counties, permits were issued for a total of 27,451 units (rental and for sale) for low- and very-low income people making up to 80 percent of each area’s median income. By comparison, the region permitted 13,164 units that people making 80 to 120 percent of area median income theoretically could afford. And 110,159 units for people making more than 120 percent of median income received permits. Matt Regan, a senior vice president with the Bay Area Council, which represents business, states:
The cost of building an inclusionary unit is the same as building a market-rate unit. But if you sell them at a lower rate, in order for the building to make economic sense, those costs have to be passed onto the market-rate units, which make those further out of reach for middle-income buyers.
Most Bay Area cities have inclusionary housing programs that require developers to set aside a certain percentage of units for lower-income buyers, or pay a fee that cities can use for affordable housing elsewhere. For rental housing, they can charge an impact fee, based on the project’s size, to be used for subsidized housing elsewhere. In most cities, middle-class housing is created through a process economists call filtering. Christopher Thornberg, founder of Beacon Economics, states:
Take a place like Dallas; it’s growing rapidly. What do Texas home builders build? They build high-end apartments, high-end homes. All these high-income people move into the high-end housing. Upper-middle-class people move into the housing they moved out of, and middle-income people move into the housing upper-middle-income people moved out of.
However, filtering only works if there is a lot of new construction occurring. California’s failure to create enough housing to keep up with population growth has been well documented. In a 2015 report by the Legislative Analyst’s office, the blame for the shortage in coastal cities, for example, was placed on “community resistance to housing, environmental policies, lack of fiscal incentives for local governments to approve housing” and high land and construction costs. A better solution must be created to solve the housing crisis, so that everyone has better housing options that are affordable.