A FRIEND OF MINE IS LOOKING TO MOVE closer to the heart of the Bay Area — to Berkeley, specifically — and called me the other day to bring me up to date on his progress.
“It’s insane, Matt,” he said. “One-bedroom apartments start at around $2,000 per month!” My friend makes around the average salary in the Bay Area (currently around $65,000 per year) and still can’t really afford a basic, no-frills apartment in a no-frills neighborhood.
I did some back-of-an-envelope calculations to determine what the average salary would get you in terms of a lifestyle.
A gross salary of $65,000 nets out, after taxes and other deductions, to around $42,000 per year, or $3,520 per month. An old rule of thumb dictates you should spend no more than 1/3 of your income on shelter — which means, for our median Bay Area earner, about $1,200 per month, or slightly more than half the rent for a reasonably nice one-bedroom apartment in the East Bay.
The Bay Area is becoming like Manhattan — a great place to live if you’re making, say, $150,000 a year or more. For everyone else, life is anywhere from economically challenging to a more or less constant emergency — and that’s if you’re by yourself. I can’t even imagine trying to raise a family on the median income.
The law of supply and demand says that if a thing is both scarce and desirable, then the price of that thing will go up. I think it is safe to say that, according to that law, the Bay Area is suffering from a severe and growing shortage of affordable housing.
The causes of this are many and complex, but there are two that are most relevant for the purposes of my discussion here.
First, the Bay Area is an extremely desirable place to live. We have a thriving entrepreneurial culture here, some of the most benign weather in the country, world-class universities, fetching scenery, a vibrant arts scene, and much more.
Second — and this will be the focus of the rest of this piece — there is a built-in incentive for builders to supply houses for more affluent buyers. They will, after all, make fatter profits on a $900,000 house than on a $300,000 house.
(That brings me to a quick aside about economics in general. There is a tendency among the slice of the American political right that styles itself as acolytes of Ayn Rand to interpret economic laws as interchangeable with moral laws — if the market is only supplying housing to the richest few percent of Bay Area earners, then that is what ought to be happening, and to interfere with that is somehow not just economically questionable but immoral.)
Back to my point here: The Bay Area desperately needs more affordable housing.
Now, when most of you hear “affordable housing,” you probably think of housing projects built expressly for the poor, or perhaps a mandated few percent of market-rate housing developments that are deliberately set aside for a few lucky lower-income people to live in.
Whatever the merits of those standard approaches to the problem, I think there are other options worth mentioning, ones that take advantage of certain aspects of the laws of supply and demand without being a slave to them.
My thought would be to make the more urban parts of the Bay Area more densely built than they are now.
University Avenue in Berkeley, for example, should be lined top to bottom with five-story, mixed-use buildings — shops on the ground floor and four floors of apartments above. Given the housing shortage, I think eminent domain ought to be in play as a method of achieving this — anyone with a one-story business ought to be compensated for lost business while the building is torn down and a new building is built with space for the old business on the ground floor and four floors of apartments above. San Pablo Avenue would also be a good candidate for this approach.
Done right, this would reduce or even eliminate the need to build a certain mandated proportion of “affordable housing” into the supply. If you build enough of this quickly enough, it will supply the market with enough housing that rents will start to come down purely because of the supply-demand relationship.
I think my approach would be better in the long term than Letting the Market Sort It Out, because the market has failed to provide an adequate supply of affordable housing for years, and (unless something changes) when it eventually does it will do so in a far less kindly way. The day is fast approaching when lots of ordinary citizens — the people who bag our groceries, change our oil, watch our children and clean our houses — will no longer be able to afford to live in the Bay Area, and that will be the day when Something Has To Give. History suggests that letting things get to that point is a recipe for social unrest and other avoidable upheavals.
The problem with my proposal is that while it might be good policy, it would be extremely politically difficult.
Part of that is because of the skewing of our political discourse rightward over the last 40 years or so, which has resulted in any government action for purposes other than things like contract enforcement and military action being perceived as bloated, wasteful and inefficient.
The bigger problem is that solving problems always involves winners and losers. The winners, of course, would be those previously mentioned grocery-baggers and child care workers who could more easily afford to support themselves in the Bay Area. The losers would be owners of existing apartments, who would see their profit margins diminished as a greater supply of rental units came on the market and lowered the market rate for rents.
Matt Talbot is a writer and poet, as well as an old Benicia hand. He works for a tech start-up in San Francisco.
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Another good article, Matt. The cost of housing in the Bay Area has out-paced the rise in incomes over the past 20-30 years. How anyone can afford to live by themselves in the Bay Area without making a six figure income these days is beyond me. Keep fighting the good fight, Matt.
Now expect a backlash response from someone on the right in 3, 2, 1…
Why do you say the right. It could and more than likely will be someone on the left not the right. After all Benicia is a very Liberal town and odds are it will be a person on the left or from Berkeley.
Interesting article but a couple of points. The idea of businesses on the first floor and apartments above seems like a great idea but 1st St in Benicia is full of empty first floor businesses. I see this same thing everywhere I go – municipalities want a commercial/residential mixed use but it never seems to work out. The second comment I have is that this plan would be displacing many of the very people it purports to help – small business owners who would be kicked out of their existing buildings to make way for a new and improved building. Where are these businesses, and the jobs they create, supposed to go? And my final comment for now is, why does your friend HAVE to live in Berkeley? He can move to many other locales and get a much nicer apartment for a much more attractive monthly rental rate. I would go so far to say if he can’t afford to live in Berkeley, go where he can afford. Eminent domain to take private property for the sake of “improving” a city or neighborhood is something I am strongly against Remember when the eminent domain was used back east a few years ago to take homes from property owners for the enrichment of the city? Never panned out.
Matt, I think you’re exactly right about the real-estate/housing market. It doesn’t perform well for the human interests involved. It can’t cut the mustard, doesn’t do the job our community needs for sheltering folks in a way they can afford, and absolutely disproves Rightist claims to the “free market’s” wonderful goodness. EXCEPT FOR PROPERTY OWNERS, to whom, if you listen, you come to sense that they have problems, too. The higher up the financial ladder someone is, the fewer problems they need deal with directly. You begin to understand why competition for more income and less outgo has gotten to be so wildly fierce in our world, today. In the last fifty years. folks who own anything at all or have a decent bank-balance increasingly sacrifice other values and cut to the most efficient chase they can figure out, broad philosophy and morals be damned. Here’s the Tea Party in a nut-shell. No wonder the political Right Wing of the country seems to have lost both its mind and all decent humanity.
Robert you just can’t make blanket statements about groups of people in the venomous way that you do and expect to be taken seriously. It must really suck to be you because you are so obviously horribly jaded. You should have managed past that about 50 or so years ago.
I think it best to let market forces work it out without government intervention. Nothing that government does is done well. Private enterprise does things a lot better. If things get too skewed one way, market forces will work there too. We always hear of the pendulum swinging both ways. My observation is that it always does.
Matt,
How can you possibly discuss rental costs in SF, Berkeley and Manhattan while avoiding the proverbial 800 lb. gorilla: Rent Control?
Do you seriously believe that rent control has had no adverse impact on the availability of rental units in these cities?
You mention (on multiple occasions) the ‘law of supply and demand’; how do you think rent control impacts that law?
Does it: Increase demand or restrict availability?
You also mention ‘free market forces’, does rent control not equate to governmental restrictions of free market forces?
You desire multi-use, multi-story buildings in certain areas (an idea I support), but you wish to do so by decree and confiscation of property?
I do hope you will investigate the impact of rent control on the overall rental market and not view it from the limited perspective of lower rents for a limited number of people.
Start here to see the impact:
Gaming the landlord
Simple solution. Live where you can afford the rent. Many folks live in Vallejo, Concord etc and commute to work. There are solutiions. I want a place in Tahoe on the water. What do we expect those owners to do? Why of course lower the rent or selling proce so I can enjoyy the good life.
Matt,
I generally do not like to weigh in on these rants but in this case I feel I must.
You got me with your first point when you did your math. The general rule of thumb that housing should be about 1/3 of your income is based on gross income not net as you calculated. More importantly, affordability is something very personal for each individual and should never be based solely on math. You can use math as a starting point but then you need to look at individual family expenses. A single individual without children and minimal debt would likely be able to afford more for housing than a family of four with 2 children in pre-school.
It really comes down to choices – Many families make sacrifices in other areas of their budget, in order to be able to afford a home in a better school district for example. I am assuming your friend has reasons for his desire to be in Berkeley, if these reasons are important enough to him then he can make the choice to sacrifice other things like perhaps eating out frequently in order to afford the home in Berkeley he desires.
Guy
So Matt , how would you feel if your block was seized and apartment or condos replaced existing homes?