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Wage Growth Isn’t Why There’s An Affordability Problem In the Bay Area, It’s The Slow Housing Growth

San Francisco. Though prices have dropped a bit recently, it remains the most expensive place to rent an apartment in the country.

The threshold to qualify for low-income status in the Bay Area rose to $117K earlier this year, but the high cost of living in the Bay Area is nothing new, Avanath Capital President and Chief Investment Officer John Williams said.

“San Francisco has always been expensive,” said Williams, who is also an Urban Land Institute trustee.

He said when he moved to the Bay Area from Los Angeles County 35 years ago, affordability was a problem then, too.

“To me, it translates back to simple economics,” he said. “If you don’t build a lot of buildings, you’re not going to have cheap rent.”

Bay Area Council Senior Vice President of Public Policy Matt Regan said the rising living costs in the Bay Area are going to be detrimental to long-term growth in the region. Renters are falling victim to the supply and demand mismatch in the Bay Area, he said.

“If the private market cannot supply housing for people making $117K per year, you’ve got to ask some serious questions why,” he said. “We’re losing economic diversity and we’re losing a lot of people in lower-paying jobs and blue-collar jobs.”

Williams said he isn’t worried.

“The inherent attractiveness of the Bay Area isn’t going away,” Williams said. “The demise of the Bay Area has been talked about ad nauseum.”

The Bay Area will always have capital, educated talent, innovation and jobs, he said. The problem really comes down to economics.

“It’s a policy problem that needs some amount of fixing and, in my opinion, that is to increase the supply of housing,” Williams said.

Avanath Capital Management President and Chief Investment Officer and Urban Land Institute Trustee John Williams

Williams said people find ways to make housing work for them in the Bay Area. A firefighter making only $50K per year can afford monthly rent of $1,200 and ends up living wherever that rent is available even if it means having a 40-mile commute, he said.

A lot of different alternatives to traditional housing have been proposed over the last few years to try to build more housing. Facebook and Google have proposed building housing units for some of their workers. Room sharing and co-living options also are becoming popular around the Bay Area.

The Bay Area Council’s stance has long been that the housing crisis is a regional problem that can be solved by building more housing. Adding accessory dwelling units can help create the single biggest supply of affordable housing, Regan said.

When people talk about moving out of the Bay Area, they aren’t moving to places like Des Moines, Iowa, where you can’t make $120K to start out, Williams said. They move to New York, Los Angeles and Seattle or maybe even Austin or Denver, but all these markets are becoming less affordable.

“Intellectual capitals will always be expensive,” Williams said.  

Knee-jerk reactions to rising rents, like rent control, only protect existing residents, and not new residents, he said. The only answer is to build more units and rents will stabilize, Williams said.

“You’re not going to get a rollback in rents. Rents aren’t going to drop 40%,” he said. “What you would hope is Bay Area wage increases outpace inflation on rent.”