This report examines present conditions in the nine-county San Francisco Bay Area in the context of historic trends and expectations for the future. The report describes the recovery of the economy and identifies driving factors influencing industry expansion, employment opportunities, and income consequences throughout the region. A shifting population is the theme of an analysis of changing demographics generated by continuing foreign immigration, revitalized in-migration of workers seeking opportunities in the region’s expanding economy, and a baby-boom population moving into retirement years. A close look at recent housing trends and housing policy shows a shift in the balance of growth from single to multifamily dwellings and from suburban and rural to urban job centers.

The report consists of an introduction, four main sections addressing the regional overview, the economy, the population base, and the housing market, and a concluding section.

Section 1: A Strong Recovery in the Region

The first section sets the framework of recent history and expectations. With a 9.8 percent increase in employment and 10.7 percent increase in gross regional product between 2010 and 2013, the Bay Area has outpaced both California and the US in job recovery and expanding output. Population growth has been more moderate, at 3.8 percent between April 2010 and January 2014, while the housing stock has expanded by only 1.4 percent. The sections that follow explain these short term trends in context to help shape longer term expectations.

Section 2: The Economy—Strengths and Consequences

By spring of 2013, the region had regained all of the jobs lost in the 2007 to 2009 recession, while estimates indicate that the jobs lost since the higher peak in 2000 were finally regained by the end of 2014. This rebound has spread unevenly throughout the region, with counties as diverse as San Francisco and Napa each having passed the two previous peaks in employment.

The other seven counties remain below previous peaks, although they are rapidly approaching full recovery. Long term industrial shifts continue, with steady growth occurring in health, social services and education, and leisure and hospitality, resumption of boom growth after a period of volatility in professional and business services and information, and a leveling off of declines in manufacturing employment and financial services. San Francisco has taken the largest share of new professional and technical jobs, Santa Clara the largest share of new information jobs, while the bulk of health and social service and accommodation and food job growth is distribute evenly between San Francisco, the South Bay, and the East Bay.

In all, much of the new growth has gone to sectors and locations that already are areas of competitive advantage for the region. The three fastest growing major occupation categories—computer and mathematical, food preparation, and sales and related occupations—reflect the combination of highly technical, distributive and local serving industry expansion.

Labor force participation—close to 67 percent—is higher than the average for the state or nation, and has ceased its decline from the 2009 peak. The region has a highly educated workforce, and shows signs this high education level will continue well into the future. The majority of the adult age groupings have seen growth in the share that are college educated, and most of the younger adult age groups are better educated than the next older population group. Total personal income growth (the change in the sum of all income across the entire population) has been strong in the region, although, adjusting for inflation, household incomes remain below their 2007 peak, and in six counties remain at or below 1990 levels. The number of jobs in higher wage occupations is growing more quickly than low wage or middle income jobs, while many occupational categories—whether high, middle or low wage—continue to have wages below their 2010 levels. With these trends, the Bay Area is moving in concert with other parts of the nation in seeing rising income inequality.

Section 3: A Diverse and Changing Population

The region’s rate of population growth is rebounding from low levels in the previous decade, but remains far below the experience of the 1990s. The character of population growth has changed in several ways, including the location of growth, age composition of the population, and ethnic makeup. The location of growth has shifted from concentrating in the suburban and rural counties in the 1990s and 2000s to focusing on the more urban counties since 2010. Santa Clara, Alameda, and San Francisco counties, the three largest counties in the region, had the fastest rate of population growth between 2010 and 2014, with over one third of the region’s population increase occurring in the cities of San Jose, San Francisco, and Oakland. However, Contra Costa County exceeded San Francisco in the number of households added, suggesting a very different age and family composition between the two counties.

Aging is happening unevenly throughout the region. San Francisco is the only one of the nine counties with a decrease in the share of population over 65, while the share is rising steadily in the other eight counties. The median age has dropped since 2007 in San Francisco, Santa Clara, Alameda, and San Mateo counties, but is increasing in the North Bay counties. Marin County has the oldest and most rapidly aging population. The region’s population is also diversifying. The share of the population that is non-Hispanic white has dropped from being a majority in 2000 to 41 percent in 2013. The non-Hispanic Asian population has overtaken the Hispanic population as the most rapidly expanding population group. The larger counties with the more urban job centers have significantly higher shares of foreign born residents than the smaller and more suburban counties. The region’s growth patterns are further changing with the stronger economy, as fewer people leave the region and more move into the region.

Section 4: Gauging Progress on Housing Goals

Although new housing production has lagged behind population and job growth, new construction and building permits are focusing more on existing job centers than in the recent past, and multifamily units are a growing proportion of new stock. The region’s housing stock grew by less than 40,000 between 2010 and 2014, a far slower pace of growth than in the previous two decades. While the pace of construction has yet to reach that of the 2000’s, the overall share of housing in the biggest cities has increased: During the 1990s, San Francisco and San Jose accounted for 22 percent of all units added; the following decade, the share was up to 28 percent, while for the period since 2010, the share had risen to 37 percent. Approximately 15,000 of the units added to the region since 2010 were single-family homes, while over 23,000 were multifamily homes. This is a continuation of a steady increase in the multifamily share of new units from 1990 to the present. While single-family units are still built predominately in the more suburban areas, multifamily construction is concentrated not only in the large urban job centers of San Jose, San Francisco, and Oakland, but also in areas that were historically suburban but have added major employment hubs, such as Dublin, Sunnyvale, Fremont, and San Ramon. These trends can be expected to continue in the near future, as reflected by the high share of building permits that are for multifamily projects.

A survey of planning departments shows a large share of new multifamily units are being permitted in priority development areas (PDAs), especially in the more urban parts of the region where the majority of new building permits have been issued.2 The counties where the majority (or all) of new multifamily units have been permitted outside of PDAs are also counties with very small shares of these units permitted (Marin, Napa, and Solano). Using the Regional Housing Need Assessment Goals as a benchmark, only about one fourth of the region’s needed production goals have been met for very low, low, and moderate income housing, compared to over 80 percent for above moderate income housing. The overall numbers are less than in the 1999 to 2006 period—not surprising when comparing two time periods divided into housing boom and bust. With the lag in housing construction and strong economic growth, housing affordability continues to be a major concern for the region. Renters have the highest levels of housing burden, higher rates of growth in housing burden, and greater levels of overcrowding, as measured with census data and using the HUD definition of more than 1.01 occupants per room. While affordability is predictably poor in San Francisco and Santa Clara counties, renter affordability is a challenge even in Alameda, Contra Costa, Marin, Napa, Solano, and Sonoma counties where more than 50 percent of households pay over 30 percent of their income on housing. Problems of homeowner affordability also show up in both urban and rural pockets throughout the region.

Conclusion—Prospects and Challenges

The San Francisco Bay Area has experienced a decisive economic recovery from the Great Recession (which officially went from fourth quarter 2007 through second quarter 2009) and is poised for expansion. Although employment growth since 2010 has far outpaced recent history or long term expectations, in fact by the end of 2014, the region had just returned to the employment peak of 2000 (the peak of the dot-com bubble). Population and labor force are growing more slowly, not needing to match the pace of employment change because many of the “new” jobs have been filled by existing residents. Nevertheless, household growth continues, increasing the demand for new housing units, while financing for new residential construction from either the private or public sectors is less readily available than in the previous decade.

The region’s challenges continue to be related to the interplay of employment change, population shifts, and housing supply. Key uncertainties include:

• A history of job change driven by innovative but volatile industries.
• Housing and location choices of a changing population: to what degree will an increasingly urban lifestyle continue to be the choice for aging retirees as well as for today’s young adults as they begin to form families?
• Meeting the housing needs for a wide spread of income groups: the concentration of occupation growth at both the low and high ends of the spectrum means the region will need housing affordable to households at multiple income levels.
• Whether new business centers and residential development will concentrate where transit services exist or can be provided.
• The effects of changing public resources and public policy on the ability of the region to meet the housing demands of growing population and labor force.