A FRIEND OF MINE IS LOOKING TO MOVE closer to the heart of the San Francisco 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.