An in-depth review of recent economic, demographic, and housing trends in the San Francisco Bay Area shows a region with a strong but volatile economic base, a well-educated but aging labor force, a diverse population with widely varying needs and abilities, and communities focused on addressing changing demands for housing but at times struggling to find the resources to satisfy those demands or to balance pressures for new development with demands from constituencies resistant to change.
The region has once again demonstrated resilience in recovering from challenging economic conditions. The economy has moved beyond economic recovery and into expansion. Strong employment growth has brought employment levels back to the peak last reached in 2000, while total personal income is at an all-time high.
A diverse set of industries have contributed to the recovery, with jobs in health and social services, professional and technical services, accommodation and food, and information leading the expansion. This mix of industries has led to growth in demand for occupations ranging from high wage computer and mathematical occupations, to middle wage sales and related occupations, and low wage food preparation jobs.
Going forward, a skilled labor force will continue to be the base of the region’s economic prosperity. The aging of the well-educated baby-boomer age cohort has raised concerns over the ability of the region to maintain the skills needed for its existing employment base, but well educated younger age groups will help maintain the region’s skill base.
Economic growth and prosperity have not spread evenly within the region. Only two of the nine counties, San Francisco and Napa, had surpassed both 2000 and 2007 employment peaks by mid-2014. Despite strong region-wide growth in total personal income and declining unemployment rates, at a household level, incomes are below previous levels in inflation adjusted terms. Indeed, in six of the nine counties, adjusting for inflation, household income is at or below the level of the 1990 census, 25 years ago. While inflation-adjusted average wages have dropped since 2010 for high, middle, and low wage occupations, the decrease has been much greater for low and middle wage jobs than for high-wage occupations.
Income inequality and poverty are rising in most Bay Area counties at a pace similar to California and the US.The share of families in poverty has risen as well in most counties since 2010, dropping only in two of the smaller North Bay counties.
Regionwide population growth accelerated from the 2000 to 2010 decade, with the strongest increases in the more urban counties of Alameda, San Francisco, San Mateo, and Santa Clara counties. The expanding economy has led to a shift in migration patterns, with fewer people leaving the region and more moving in. The biggest increases in population moving in are found in San Francisco and Santa Clara counties. The biggest decreases in outward migration have occurred in Alameda, Contra Costa, and Sonoma counties.
Virtually all of the net population increase since 2000 (after balancing gains and losses) has been in people 50 years and older. This aging population distribution is happening unevenly among counties, with the North Bay counties (Marin, Napa, Solano, and Sonoma) and Contra Costa seeing the largest increases in median age, while the median age, and the share of population over 65 have both dropped in San Francisco.
Housing construction is just beginning to recover from the Great Recession and the end of the housing bubble. Since 2010, the region has added less than 10,000 units per year, about one-half of the rate of construction from previous decades. Most of the recovery in housing has occurred in the multifamily sector. While the workforce is growing in both relatively low-wage and high-wage occupations, the housing market is much less successful at providing units for the low- and middle-income families in the region.
With less rapid expansion in housing, household size is rising, particularly in the counties experiencing the strongest population growth. Nevertheless, overcrowding, which increased during the recession has begun to show signs of decreasing in many parts of the region, perhaps a result of lower unemployment.
The lag in new construction is also contributing to a diverging of the jobs/housing ratio among counties. The ratio has dropped in counties that already had excess housing relative to the workforce and has increased in counties with jobs in excess of the housing available.
The housing market has entered a familiar period of rising demand, rising prices, and declining affordability. With a strong economic recovery and lagging housing construction, rents and higher-end housing prices are rising to levels above previous peaks.
Affordability trends differ for owners and renters. Compared to homeowners, a higher share of renters are burdened by high housing costs, as measured by percent of households spending 30 percent or more on housing. Homeowners overall have seen a decrease in the numbers of housing cost-burdened households since 2007, in all counties in the region, while the share of burdened renters has risen, especially in the East Bay and South Bay counties.
Looking towards the future, the region’s challenges continue to be related to the interplay of employment change, population shifts, and housing supply. Key uncertainties include volatility of leading industries, the distribution of growth among high, middle and low wage jobs, the geographic distribution of the population, housing affordability, resource availability, and public policy decisions.
The San Francisco Bay Area economy has gone through several cycles of reinvention over the past three decades, with industries ranging from defense to finance to Internet to real estate to social media. The transitions are sometimes rocky, and the people displaced by one downturn are not necessarily those who benefit in the next upturn. These business cycles can be challenging to different locations within the region as the consequences of growth or decline are often spread unevenly.
The recession brought about a shift in employment opportunities, with job growth concentrated in high wage and low wage occupations. This left limited opportunities for workers starting at the bottom of the wage scale to move into occupations paying a living wage. Growth trends since 2010 show some recovery in middle wage occupation categories, but uncertainties regarding earning power remain as overall wage levels continue to decline for occupations at all ends of the earnings scale.
Recent trends suggest that young adults are leading the resurgence of downtown living. However, the preferences of a young adult age group will not necessarily carry over to a twenty-five year pattern of increasing urbanization. Certainly, there is no indication of a large scale shift in preferences across age groups, and once millennials enter the age of typical family formation, the nature of the urban shift will become clearer. The success of infill policies will depend in the long term on an urban lifestyle that attracts aging retirees as well as today’s young adults as they begin to form families. Yet for now, developers cannot put enough housing in places like San Francisco commensurate with the population surge there the past few years. While much land is available throughout the region, different types of housing are in demand at different times, and by different segments of the population. Land policy and housing markets will need to be flexible enough to adjust to changing needs.
The mix of high wage and low wage occupation growth means the region will need housing for both ends of the spectrum. Jurisdictions have been most successful in providing market rate housing for above moderate income households, while housing needs of middle and low income households are more difficult to address. The region’s economy has been restructured in the past as businesses have been unable to keep employees who cannot afford to live in the region. Thus the resilience of the region’s economy is closely tied to the characteristics of the housing market.
The future development patterns of the region will be managed by local jurisdictions, but the funding of that development will come from the private sector as well as local, state and federal resources. The sources of those resources were changed by the recession as well as by changing state and national level policies. With the loss of local redevelopment powers, public financing for subsidized housing remains uncertain, but new sources of revenue for housing and infrastructure are emerging, including some revenues related to the management of air quality.
The information compiled and interpreted in this report will be the foundation for ABAG’s subsequent forecasts of regional growth and patterns of development. Yet regional analysis is not a one-time activity with final conclusions at the end. Instead, it is meant as a resource for future planning activity at the local and regional level. Conditions in the region change daily. The material presented in this study can be used as a metric against which to compare these changes, while the ongoing work by ABAG researchers and other groups in the region will continually refine the information and analysis underlying regional and local planning, development, and community services.
By identifying both regional assets and challenges, the report provides background that can be used as local and regional agencies, businesses, and community organizations assess their options for adapting to a changing business, social and natural environment. Conversations around the strengths and challenges of the Bay Area can lead to the actions necessary to support a livable, healthy, and sustainable region.