Working in the Bay Area may pay more than other parts of the United States, but for middle-class residents, new research shows it’s a trade-off that increasingly means giving up buying a house.

Households earning around $80,000 to $165,000 are considered “middle income” here, depending on location and family size, compared to a national median income of $67,521. Even before the pandemic bidding wars, it wasn’t enough to keep up with soaring home prices: Only 24% of homes sold in 2019 in San Francisco fell into price ranges that middle-class buyers could afford, according to a report released Monday by UC Berkeley Terner Center for Housing Innovation.

Those at the heart of the region’s frenzied property market say the barrier to entry has only risen since the coronavirus upended daily life. Potential buyers borrow money or walk away. Residents who already own homes go to extreme lengths to keep them. Those excluded from home ownership are spending more on rent, widening inequality and growing fear that essential workers like teachers will be permanently valued.

“To qualify for one of these homes anywhere in the Bay Area, you need to have an average annual income of $235,000,” said Tim Yee, real estate broker and president of RE/MAX Gold Bay Area. “It’s crazy, and for first-time home buyers, it’s extremely difficult unless they have very wealthy parents.”

In San Francisco, 47% of homes for sale were affordable to middle-class buyers — defined as those earning 80% to 120% of local median income — as late as 2010, the report said. Alameda and Santa Clara counties saw even steeper declines in affordable home sales, dropping from nearly 70% and 63% of homes sold in 2010, respectively, to just over 30% in 2019.

Although prices have been rising for decades, economists like Stanford University’s Mark Duggan have said “small breakpoints” are getting harder to ignore. They range from anecdotes about truckers and teachers leave the state to labor shortages in local institutions like his children’s Palo Alto schools.

“My school district couldn’t have bus drivers, so all the parents have to cobble together carpools,” said Duggan, director of Stanford’s Economic Policy Research Institute. “My view as an economist would just be to pay bus drivers a lot more.”

The pay problem

During the Bay Area’s boom years of 1940 to 1960, the average home sold for about $15,000, which equates to about $140,000 today, according to the Terner Center report. Rents averaged about $80 a month, or about $760 in today’s dollars. Housing costs largely matched income, allowing workers, teachers, nurses and line cooks to spend less than a third of their income on housing.

With median home prices hovering around $1 million in 2019, the report found that 39% of middle-class Bay Area homeowners spend more than 30% of their income on housing.

For renters, the cost burden is even higher, showing how being excluded from home ownership can deplete savings and reinforce wealth gaps. About 49% of middle-class Bay Area renters spent a higher share of their income on housing in 2019.

“The outlook is dwindling as costs continue to rise and revenues fail to rise,” said Terner Center policy director David Garcia, who has seen pressure push more Bay Area workers to areas like his hometown of Stockton. “It’s not just some sort of coastal zone problem,” he said. “These affordability issues are increasingly seeping into more suburban and rural parts of the state.”

Across California, about 52% of middle-income residents owned their homes in 2019, up from more than 59% in 2000. The numbers also mask deep racial divisions. Nearly two-thirds of middle-class black households in California rent their homes, compared to 37% of white households, which the report attributes to factors including falling average wages, discrimination in home loans and inheritance racist housing laws.

Aside from income, the report highlights a severe lack of new housing and disproportionately expensive housing in areas under construction. As it stands, California ranks 49th in the fewest homes per capita, with 358 existing homes per 1,000 people, compared to a national average of 419 homes.

This imbalance increases the pressure on legislators to consider more radical reforms. In addition to recent single-family zoning moves and increasing penalties for communities that refuse to build new housing, State Assemblyman Alex Lee, D-Milpitas, also sees an opportunity to increase support for “social housing” concepts already popular abroad in places like Vienna and Singapore.

Berrows works out of the room she rents from Dolan, who would have struggled to pay the mortgage, property taxes and other costs of her Oakland home without the extra income.

Nick Otto / Special for The Chronicle

The Bay Area could increase housing for workers, students and others, he says, by reallocating public infrastructure like parking lots and closed schools and turning them into mixed-income housing. Under his bill, AB2053, a new California Housing Authority would both buy existing housing and build homes where payments from higher-earning residents would help subsidize lower rents for neighbors.

“I hope social housing would provide a competitive option,” Lee said. “All the options are pretty bad right now.”

Stay or go?

In the sweltering heat and crippling uncertainty of August 2020, Sharon Dolan had a big decision to make.

Her now-ex-husband had moved on from the Oakland repairman they bought in 2008. So the longtime nonprofit and theater executive had to decide if she was going to find a way to keep the house, reduce the workforce or leave the Bay Area like many other artists she knows.

Sharon Dolan plays with her dogs, Sam and Hazel, in the garden of her Oakland home.

Sharon Dolan plays with her dogs, Sam and Hazel, in the garden of her Oakland home.

Nick Otto / Special for The Chronicle

With the smoke from the wildfires smothering the sun, she got into her car and drove. First at a friend’s house in western Massachusetts, then along the Atlantic coast, then in the vast natural parks of the west.

“I was thinking ‘Where would I live if I could live anywhere?’ “Dolan recalls. “The conclusion I’ve come to is that I’m happy in the Bay Area.”

With the help of a retired real estate agent, a plan emerged to refinance the house, buy out her ex, and install a kitchenette to rent out the upstairs. Dolan said she was lucky to find a good roommate, Dylynn Berrows.

The $2,500-a-month mortgage, plus property taxes and other homeownership costs, would have been out of reach on Dolan’s salary alone, which in recent years has averaged slightly above the median household income of $80,000 Oakland.

Oakland landlord Sharon Dolan (left) chats with her roommate Dylynn Berrows in the kitchen.

Oakland landlord Sharon Dolan (left) chats with her roommate Dylynn Berrows in the kitchen.

Nick Otto / Special for The Chronicle

“I don’t know if I’m going to be able to stay in the Bay Area or retire,” Dolan, 62, said. “But I have some fairness.”

Entire online subcultures exist for other Bay Area residents interested in various forms of “home hacking” to pay high mortgages or maintain an inherited family home. Other corners of Facebook and Reddit are populated by weary families planning outings to lower-cost states, as well as all manner of scammers looking to break into the market by taking risky loans or targeting properties in difficulty.

There is also the possibility of leaving. Although as a former Bay Area resident himself, Davis Realtor Greg Stidham knows it can be difficult to ditch the big coastal cities for more affordable inland areas.

Some first-time buyers are swayed, he said, by the possibility of owning the kind of three-bed, two-bathroom home where they can raise a family. It also sees transplants looking to squeeze money out of Bay Area homes bought long ago, driving the local market up, but also providing a chance to put down roots ahead of weddings, graduations, retirements and other milestones.

“All of these life events are still happening,” he said, “and this market doesn’t care.”

Lauren Hepler (her) is a staff writer for the San Francisco Chronicle. Email: [email protected]: @LAHepler

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