The Future of Bay Area Housing Markets and Income Inequality: What the Demographics Tells Us

Chan Zuckerberg Initiative, Bay Area Housing Advocacy Coalition, San Francisco Housing Action Coalition, Bay Area, San Francisco

By Nina Gruen, Gruen Gruen + Associates

This article will also appear in The VIEW, the quarterly newsletter of Commercial Real Estate Women San Francisco (CREW SF). CREW SF’s mission is to develop and advance women as leaders in the commercial real estate industry. It is dedicated to changing business’ gender trends and closing the parity gap by giving women in real estate the support, resources, and opportunities they need to connect, influence, and lead. For chapter news, events and membership information visit

An earlier version of this article was published in the July-August 2016 issue of APA California Northern News.

[dropcap]B[/dropcap]ecause US birth and death rates are pretty stable—at least for the not too distant future—predicting demographic change is easier than predicting the future of the economy. The rate of immigration is basically the only unknown.

The 84 million millennials (those born between 1981 and 2000) are currently the country’s largest demographic. By 2030, this generation will be between the ages of 30 and 49, and will account for almost 91 million people (the increase being due to immigration). The latest generation—the recently named iGeneration, those born after 2000—will surpass them, accounting for over 125 million by 2030, or 35% of the total US population. Conversely, the size of older generations will decline. So for example, the boomer generation, formerly the largest, will decrease substantially: its oldest members will be age 84 in 2030 and are projected to account for only 17.6% of the population. Table 1 shows the pattern of each subsequent generation being larger than the previous one.

Table 1. Generations as a percent of total US population projections, 2016–2030. Sources: US Census Bureau, Population Division, 2014 National Population Projections; Gruen Gruen + Associates.

Race and ethnicity
Hispanic populations, followed by Asians, will experience the largest percentage growth increase in the United States between 2016 and 2030. As shown in Table 2, the Hispanic population is forecast to increase by 55% and the Asian population by 19%. According to the 2014 National Population Projections of the US Census and the California Department of Finance, Hispanics are now the largest ethnic group in California: they account for 39% of the state’s population, followed by whites (38%), Asians (14%), blacks (6%), and others (3%).

Table 2. US population projections by race and Hispanic origin, 2016–2030. Sources: US Census Bureau, Population Division, 2014 National Population Projections; Gruen Gruen + Associates.

The long-term economic and real estate impacts of these dramatic changes in America’s ethnic and racial mix will depend upon whether we are able to provide the younger generations with the type of education that gives them the skills needed to be employed and enhance the productivity of an economy that is undergoing its greatest technological change since the Industrial Revolution. Table 3 presents the educational attainment of the country’s post-college-age millennials (age 25–34) and Gen Xers (35–54) by racial and ethnic categorization.

Table 3. Millennial and Gen X educational achievement in 2014 by percent of population group. Sources: US Census Bureau, Current Population Survey, 2014 Annual Social and Economic Supplement, Gruen Gruen + Associates.

While looking at the proportion of college graduates within a demographic segment is certainly not the only measure of progress in employment and productivity, these data suggest that we have not been making sufficient progress in providing our Hispanic and black populations with the skills required to enter the middle class. Unless we begin to do so within the next decade, it may be too late to save the middle class that our democracy depends upon.

While not everyone needs to go to college to earn a livable wage, statistically there is no question that college grads earn more income over their lifetimes.

Successful workers will have to have the cognitive and perceptual skills needed by technologically innovative industries and services. We are living in a time when many of our manufacturing and logistics support companies cannot find enough workers with the training needed to operate the industries’ new digital tools.

Many workers without the needed training who once held well-paying jobs, particularly those over 40, have given up on obtaining employment that will provide a living wage, while younger unskilled workers are limited to low-paying service jobs for the foreseeable future. To provide these two groups with the appropriate training, we need to adopt apprenticeship programs such as those Germany and other European countries have had for many years. Importantly, rather than focusing high school education exclusively on preparation for college, we should be offering technical training beginning when students are freshmen in high school.

In 2014, approximately one-third of black and Hispanic students did not receive a high school diploma. If they had gained the requisite skills training during their high school years, a higher rate would have graduated, and those who did not would still have possibilities for employment at more than the minimum wage.

Renting and owning
The shift from the majority of national and regional households residing in owner-occupied units to an even split between owner and rental housing will be America’s new housing pattern. By 2020, it is estimated that half of all US households will be renters. This is because the foreign-born and Hispanics will account for two-thirds of the growth in renter households, with Hispanic households accounting for the largest share.

The rationale behind the switch in preference from ownership to rental differs with age and income, but is often linked to an increased preference for mobility. Younger households with $100,000+ incomes often prefer to rent because it provides them job mobility. The over-60 often elect to rent to avoid maintenance tasks; and as they age, some older households will move to more accessible space, e.g., no stairs. However, because so many millennials are employed in low-paying service jobs, the sharpest drop in home ownership rates has been among those 19–35 years of age.

Many of these households move to foreclosed single-family, detached exurban houses that can accommodate multiple generations. This trend is not limited to high-cost areas like the Bay Area; it also occurs in overbuilt, lower-priced markets like Phoenix and Las Vegas. In many instances, grandparents are able to babysit while both parents have one or more jobs(1).

Due to their high salaries, the impact of the Asian housing market—both condo and rental—should not be underestimated, particularly for those Asian millennials working in STEM fields. All new high- and mid-rise multifamily units built in San Francisco now attract approximately 50% Asian occupants. While the majority are Chinese, there is a wide variety of country origins, including Pakistan, India, Vietnam, and South Korea. Many Asian households appear to have a strong motivation to own rather than rent, and they often have a strong preference for newer rather than older housing stock.

Skills, income inequality, and the housing market
While demography and housing demand preferences play important and interacting roles in the vigor and scale of the regional economy, the skills of the local labor base are critical. Some may disparage “techies,” but the Bay Area’s innovation economy is one of the world’s strongest because a large number of uniquely talented, technically advanced workers combine innovative ideas in local agglomerations. As Enrico Moretti has pointed out in his book The New Geography of Jobs, highly paid tech workers provide the consumer demand that fuels the jobs of less-skilled service workers.

But the high price of housing places a burden on the less well paid and unemployed and contributes to income inequality. Over time, high housing prices also threaten the health of the regional economy, as they are less able to attract and hold tech workers. As that happens, we are likely to see today’s innovative high-tech economy go the way of finance, shipping, and other industries that once were the mainstay of the local economy.

As we have seen in recent political discussions, narrowing the income gap and reopening the path to the growth of the middle class are shared American goals. This review of current and likely future demographic and housing market conditions in high-cost areas, including the San Francisco Bay Area, suggests the urgency of policy changes to achieve those goals. The question is, will we have the political will to successfully adopt the needed policies?

(1) Data in this article are derived from the report “America’s Rental Housing: Expending Options for Diverse and Growing Demand” from the Joint Center for Housing Studies of Harvard University (2015).

About the Author
Nina J. Gruen has been the principal sociologist in charge of market research and analysis at Gruen Gruen + Associates since cofounding the firm in 1970. Nina applies the analytical techniques of the social sciences to estimating the demand for real estate and to understanding the culture of the groups who determine the success of development, planning, and public policy decisions. She has led market and community attitude evaluations and programming studies that resulted in the development and redevelopment of many retail, office, industrial, visitor, residential, and mixed-use projects. She can be reached at

West Coast Commercial Real Estate News