Tom Thurston: Oakland’s War on the Middle Class

If the Fact Sheet (PDF) on the City of Oakland Housing Element Update (PDF) is any indication, the City plans to continue its war on the middle class.

The Housing Element is updated every five years, and a hearing (PDF) is set for Tuesday, April 14 in Hearing Room 3, from 6-8 pm. From January 1, 2007 to August 1, 2008, the City saw 483 new units for low- and very low-income households (“affordable” units), but only 65 new units for moderate income households. From January 1999 through June 2006 the City issued 1,173 permits for “affordable” units but only 155 permits for middle income households. By any reasonable measure, Oakland’s housing policy has been an abject failure for the middle class.

In the coming 5-year cycle, the Association of Bay Area Governments mandates that Oakland produce nearly 4,000 homes (PDF) for low/very low income households and 3,143 homes for moderate income households. Considering that the City was about on pace in its production of “affordable” homes, one might expect the City to address the area where they were failing miserably. However, nothing in the Fact Sheet addresses any plan to stimulate the production of housing for middle income households. The Fact Sheet gives maps with opportunity sites for additional “affordable’ units. Not surprisingly these are concentrated in areas already supersaturated with low income housing. I found not a word on the housing crisis of the middle class.

The legacy of this war on the middle class is shown in Oakland’s demographics. Looking at our neighbors—Berkeley, Alameda, San Leandro and Hayward, they have average household incomes from $57,189 (Berkeley) to $63,173 (San Leandro). Oakland’s is $46,475. Berkeley’s relatively low ranking may be linked to a smaller household size, with perhaps fewer two-income households. The others have comparable household sizes. Oakland’s average household is a low-income household by government standards! At a minimum, planning policy should correct past wrongs. Oakland clearly has absorbed more than its share of low income households to the detriment of its middle class.

While noting that Oakland is transitioning from a manufacturing-oriented economy to a technology/information oriented economy, the Housing Element is moving to perpetuate the pain of this transition. The current policy will attract more low-skilled people competing for an ever-diminishing number of manufacturing jobs.

If we want to attract people for the Oakland of the future, we should build to attract young people with associate’s and bachelor’s degrees, people with the information skills for the new economy. These homes will be sized for singles and childless couples. They will be rentals, since people with student loans won’t have the down payment for a condo. They should be in funky or cool neighborhoods. They should help make the neighborhoods cool.

If you build it, they will come. If you build more housing for low-skilled, low income people you will attract more low-skilled, low income people. If you build no middle class housing, the middle class will continue to erode. City politics will be ever more fractious. There will be fewer people with money to pay for City services and ever more demands on these services.

The Housing Element takes no account of the amount of “affordable” housing provided by Section 8 vouchers. These further distort the housing market toward low income households, in many flatland neighborhoods to a massive degree.

If the policies of the past have clearly failed, the City would do well to turn away from them. Right now that doesn’t seem to be in the cards.

Tom Thurston is an East Oakland resident and Chair of the Central City East Redevelopment Area PAC.

34 thoughts on “Tom Thurston: Oakland’s War on the Middle Class

  1. Robert

    Tom, I am curious as to why you are leaving out the numbers for above moderate units from your discussion. These units are targeted at families making 120% of the median income. In Oakland, this limit would be only $56,000, which I think is still very much middle class. Since this units compromise 50% of the units constructed, and 50% of the ABAG targeted unitls, they have a major impact on the intrepretation about whether Oakland policy is antagonistic to the middle class.

  2. V Smoothe

    Robert, income targeting for “affordable” units is determined by Area Median Income, not the City’s median income. 120% AMI is over $100k for families. However, the deed restrictions on BMR properties make them a poor investment and thus undesirable for financially educated homebuyers, especially in a market like today’s.

  3. Max Allstadt

    Exactly, so-called “permanently affordable” units perpetuate generation over generation wealth stagnation. It is difficult for the lower and middle classes to afford a home in the first place. The current system for creating “affordable” units robs people of the opportunity to profit from their home if it appreciates. I guess that privilege is only for rich people!

    We’d do far better if we incentivized home ownership with downpayment assistance programs, reducing restrictions on house-raising, and simplifying the process foe adding income units on owner occupied parcels.

  4. Ken O

    We need NO MORE section 8 or similar housing. These public projects perpetuate the “ghetto” culture Oakland has plenty of already. We need more projects like the “gateway” or whatever it is named over in East Oakland by the Coliseum. Home owners, not more moochers. People who cannot afford it here will necessarily then move to more affordable areas.

  5. Ralph

    Permanently affordable – on the one hand it allows people who would not be able to buy to buy but it prevents them from accruing the gains beyond some predetermined level, on the other hand it allows the city to have a permanent stock of affordable housing without constantly having to replenish every 5 – 7 yrs had the home been sold in the open mkt.

    max, i agree; it is somewhat disgusting that the house must stay in affordable housing stock for 99 years why shouldn’t the family beneft from the economic gain. But I say they do. Disperse the homes in fairly well to do neighborhoods with good schools and maybe the kids of these families buy into the academic culture of achievement and do well. They attend college, obtain graduate degrees and move the family out and allows another family the same oppty.

    down pymt assistance comes with a lot of strings too! are you suggesting that someone would be classified as a potential BMR owner today obtain downpymt assistance for mkt rate homes. but what happens when you have someone who would have been a potential BMR owner obtain downpymt assistance for a mkt rate home default?

  6. Art

    Also—and importantly!—your average household income numbers are way, WAY off. The 2008 median income numbers used for affordable housing in Oakland are $60,300 for a single-person household, $68,900 for a two-person household, and $86,100 for a family of four. So “moderate income” (120% AMI) is, as V notes, $103K for a family of four. “Low income” is currently $66K for that family, while “very low income” is $43K or below.

    These numbers change each year based on changes in incomes (and are available on the City’s website). But broadly speaking, the allocation of units is designed to encompass housing across the spectrum—and in particular, to help middle-income families afford to live here, not to drive them out. It’s also worth noting that the vast majority of Oakland’s ABAG allocation is for above moderate income (yes, that could mean luxury—and certainly means market rate!) housing—7,489 units of the 14,629 required. Only 1,900 very low income units are allocated to the city, largely due to the fact that—as you note—there is already a great deal of protected affordable housing here relative to other Bay Area cities. (In contrast, Dublin and Pleasanton—both much smaller cities—are each responsible for building over 1,000 very low income units.)

    I’m all for using a broad toolkit of strategies to help make housing more accessible to people at all incomes, but it’s also important to remember that “affordable” housing is also what makes it possible for many middle class families to be here. (And, for what it’s worth, while many programs focus on protecting affordable housing where possible, others—like some of the downpayment assistance programs—require only that a family stay in the home for at least seven years; there’s no wealth-building sacrifice there.)

  7. drydock

    I’ve read in the East Bay Express that the median (or average) income in Oakland has been increasing over the last decade. It seems like the “middle class” is winning this alleged war.

    Perhaps one thing Oakland can do is raise the maximum income level of it’s first time owner assistance loan program from $46,000 (I forgot the precise amount) to something like $65,000. Also increasing the amount of the loan from a maximum $75,000 to something higher. Surely, some of the federal stimulus must include some money to help prop up the housing market. Anyone do the research on this?

  8. Robert

    Rather than get into a bickering match about what income level designates the upper end of the middle class, I will just point out that ABAG uses a formula to calculate how many very-low income targeted, low income, moderate and above moderate units each administrative area should construct to take up their share of the population growth load. This formula takes into account the percentage of existing low income housing units already in Oakland, and therefore Oakland should build less than the area wide average for low and very low income units.

    Based on the formula, Oakland should be building about 27% low and very low income, and 73% moderate and above moderate income. This is way below the Alameda Countay and area wide requirement for 39% low and very low housing. In spite of being way below the area average requirements, Oakland only managed to construct 21% low and very low income housing over the last 9 years. 80% of the new housing units went to moderate and above moderate income targets. So I am really hard pressed to understand the concept that Oakland is attacking the middle class by building too much low income housing

    While I agree that Oakland has more than its share of low income housing right now, over time the ABAG formula will slowly balance that out. And since Oakland can’t even makes its reduced target, that adjustment will happen even faster. If your point is that Oakland should find a way to build more housing targeting the moderate income group, then I would agree. But that is far different from an attack on the middle class. ‘Cause I seriously doubt that very many Oakland residents, even those making more than 120% of the AMI, think of themselves as wealthy.

  9. Kent

    This debate seems to be about newly constructed housing, in certain parts of Oakland – and not the stock of ALL available housing. There is no shortage of housing for “middle income” folks in Oakland right now. Just look at all the foreclosed homes in the Fruitvale and Dimond districts on sale under $250K (many under $200K). Like the last poster, I have a hard time following the logic that we are witnessing an “attack on the middle class.” There is housing available at all levels – it just might not be in the neighborhood you wanted to live in. As far as the differing median income levels of local cities go, I think that median income reflects a LOT more than what type of housing is available. Anyone who reads this blog knows Oakland is faced with many problems, and that the causes are complicated. So it is with the median income level. You could say the same about crime statistics in Oakland vs. Berkeley and San Leandro. I certainly wouldn’t blame THAT on a “wrong mix of housing.”

  10. V Smoothe

    I think people are missing Tom’s point. If you look at the numbers for permits issued during the period of the previous RHNA, Oakland issued permits for 37% of the allocated low and very-low income units need, but under 8% of the moderate-income allocation. The City Council frequently advocates for directing our housing assistance resources even more heavily towards low and very-low income units than they already are. Personally, I have my own problems with BMR for-sale housing conceptually, and much prefer other methods of increasing housing accessibility, but I think that what Tom was getting at is that we should not forget about moderate-income needs. Our pattern has been to only build for low/very-low and above moderate, leaving out those in the middle.

  11. Ralph

    V, are there any govt (Fed, state, local) policies which truly help those in the middle. Who speaks for us? If you are very poor the govt cares, if you are very rich your money ensures that the govt cares – but if you are in the middle who cares for you? We need a homicide detective to speak for us? :)

  12. Tom Thurston

    I wonder if it’s time to reconsider our fetish of home ownership. Homeowners are less likely to move in order to take advantage of new job opportunities. Therefore homeowners tend to have lower lifetime earnings than renters. The period from the mid-eighties to 2007 has led us to believe that a home is an inherently better type of investment than other investments. The current correction brings it back into line with others.

    The American Dream is not home ownership. The American Dream is the freedom to create yourself–to start your own business, to live for art, to speak your mind, to marry your same-sex partner. The American Dream is not what you own, it’s who you are.

    Oakland’s population is vastly skewed toward households below $50,000 annual income. I think a healthier economy would have the largest group be the group be the group between 80% and 120% of area median income. That is clearly not the case in Oakland, and nothing indicates any effort toward corrective action.

    I have a suggestion. Any development that has all units–either for rent or for purchase–affordable to households at 120% of area median income or less should be exempt from inclusionary zoning requirements.

  13. Ralph

    Tom, that is an interesting stmt re: homeowners and renters. Is that supported by the evidence? On another note, why do people think of home ownership as an investment. People need to have shelter, which can come from either buying or renting. Sure you may accrue financial benefits from homeownership, but I don’t think that one should view homeownership as an investment vehicle.

  14. Tallysmom

    Ralph, the biggest boon about home ownership being an investment was blown out of the water about a decade ago when your house became your ATM via Home Equity Loans.

    I’ve been in our home for 22 years and since we DIDN’T do that, we’ve experienced wealth accumulation via higher wages (more $$ to save) and static housing costs. When we bought our house, our house payment was in the $650 dollar range, and even after we’ve refi’ed due to a small remodel HELOC, our payment is still in the $650 range. (And no — no granite counter tops or stainless appliances…. I went with “boomerang” formica — very retro 50′s!)

    House rents for a house similar to mine would be in the $1200 range, and I’m pretty darn sure the landlord would have something to say about 10 cats. (*I* have something to say about 10 cats!)

    So we have a great payment, and can stuff away a lot more money that we could 22 years ago when we were making 30K a year. Of course, we stuffed it into a stock market that went kaflooey, but that’s another matter….

  15. Chris Kidd

    What’s more, the government encourages people to buy into home ownership (and sometimes the financial speculation tha goes along with it) because they make home mortgage interest tax-deductable. That kind of incentive will need to go before people reconsider homeownership as the ultimate “american dream”.

  16. Art

    Incidentally, developments with units affordable to households at 120% of area median income or less *are* exempt from inclusionary zoning requirements. Because Oakland doesn’t HAVE any IZ requirements!

    The point on permits issued is a valid one, although it’s worth noting that in many cases, there are state and federal funding streams for low and very-low income developments that make it easier to develop those units relative to moderate income units (and developers of market-rate housing often opt for providing those units rather than moderate income units because the financial benefits are greater). So there are some other factors at play. (That said, I think it would be great to develop a more comprehensive program to target and fund housing affordable to moderate income levels. As others have noted, the market is doing a decent job of that on its own right not with the existing housing stock—but that may or may not last.)

  17. V Smoothe

    The primary stream for affordable housing development in Oakland is actually market-rate development. The State’s mandated tax-increment set-aside in redevelopment areas plus an additional voluntary City set-aside funds much of the affordable housing constructed. The Council is constantly trying to find ways to limit this funding only to the construction of low and very-low income targeted properties (not that they need to, it’s already getting distributed that way as is).

  18. Art

    Yah, I should have clarified—I meant easier to do the v-low/low versus moderate, not versus market-rate. This is unfortunately not a problem unique to Oakland—the carrots attached to mod-income housing in general are not great enough for many developers to “sacrifice” a market-rate unit. Particularly in the Bay Area where the income threshold for low is already pretty high, projects tend to go that direction to maximize available financing incentives.

  19. Robert

    Just speculation here, but maybe the lack of moderate income permits is due to the lack of demand for attached for apt/condo style housing for that income level? Attached or apt style housing is pretty much all that is being built in Oakland any more, and isn’t it possible that the middle income group would just rather live in a detached single family residence, even if it is in east or west Oakland? Or for that matter, out in Tracy?

  20. Robert

    Whether home ownership is a good investment relative to renting and investing the down payment somewhere else is subject to a large number of economic factors (interest rate vs. rent costs, ROI on property vs. ROI in the stock market, etc), and personal factors such as how long you plan to retain the house. However, there is one factor that makes ownership attractive, which is the special treatment for capital gains that a home receives. That does make ownership more attractive from an investment perspective. There are, of course many other reasons that some people wish to own rather than rent.

    Tom does make an interesting point about the US fetish about ownership. I don’t know if I buy into some of his consequences, but the high levels of ownership, and the high levels of detached homes, are almost unique to the US culture. And I am not sure it is for the better.

  21. Patrick

    The rate of homeownership is higher in Ireland than in the USA.

    Assuming adulthood begins at age 18, I’ve only rented for 7 of my adult years (I’m 44). The desire to own is not a fetish. It is a willingness to pay more to get more. Who always buys big-ticket items solely on the basis of investment potential? There is always an emotional element; otherwise, no one would ever buy anything but the most utilitarian of automobiles.

    My house was a 2/1 when I bought it, but I envisioned a 3/2; a couple of outrageously expensive permits and some wall changes later, and I live in a 3/2. I hated the cheap carpeting that came with the place, so I ripped it out and put in some domestically-produced maple flooring. No dishwasher? No problem. It’s my house and I can do what I please. And you can’t affix a price to that. Well, at least I can’t.

    Before I get the “but you’ll always owe taxes to the government and pay for maintenance” rant: we all have to pay taxes to the government and maintain our living space. Renters pay indirectly and owners pay directly. Renters just abdicate all authority while still assuming the responsibility.

  22. Patrick

    Oh, and regarding detached homes being “unique” to US culture, as a dear friend once said: “if other countries enjoyed the wealth, opportunity, natural resources, and land that we did, they’d have done exactly the same thing.” I always wondered about that, until recently. China has identified our “lifestyle” as the one to emulate. What a disaster.

  23. James H. Robinson

    I don’t see home ownership as an investment per se. I see it as a hedge against inflation, since the cost of paying rent generally increases more than the cost of paying a mortgage over time. I also see it as a tax shelter since interest and local taxes are tax deductible. I think that is especially important in a high-tax state like California.

    I guess buying a home is something of an investment. For me, it says that I’m committed to Oakland and hope that this city improves over time.

  24. David

    The war on the middle class is simple economics.

    Let’s say I’m making a pizza. Originally I want to cut into 10 slices and charge $100,000 for each slice, making myself a nice $1,000,000, less my cost of ingredients and labor.

    But the dead hand of the government intervenes and tells me that I cannot sell slices for $100,000, it shuts out the “poor.” The government tells me I have to set aside 3 slices and only charge $50,000 per slice. Well. I still need to make $1,000,000 to cover my costs and produce a profit. So, since I’m only getting $150,000 from 3 slices, I need to make $850,000 from the remaining 7 slices, or over $120,000 per unit. HOWEVER, no one will pay 2.4X as much for a slice as some “poor” person spent for the SAME slice.

    THEREFORE, I have to make “deluxe” slices, which have to be bigger and have more toppings. I will then only sell 4 slices from my pie, now, for almost $215,000 per unit, and I can justify that because they’re almost twice as big and have more toppings.

    Now the gov’t has what it wants. 3 slices for poor people, but because of the economics of this, only 4 slices left that only rich people can afford.

    Naturally in my allegory, slices=houses.

    This is why set-asides for poor people screw the middle class and you get what you get in the Bay Area–scads of ghettoes alternating with ridiculously expensive houses.

  25. Art

    This model is a little misleading. Most programs that require developers to set aside a certain percentage of units to sell below market rate (and, again, Oakland doesn’t actually have this requirement right now!) require that the subsidized slices be equivalent to the market-rate slices. So you can’t just make the market-rate units bigger and better to make up the difference (believe me, it’s been tried—by developers and in court!) Developers can sometimes fudge this with finishes (e.g., the base model at a cheap price, but oh wait, the market-rate buyer requests lots of “upgrades”), but not with unit sizes.

    But, again, this is all in the abstract. We don’t have inclusionary zoning. The affordable units that come from new development typically come from fees and incentives, or are the result of tax credits and other funding sources that have strings attached (and that aren’t unique to Oakland).

  26. dto510

    Art is right that under strict IZ laws (which only a small minority of CA jurisdictions have), developers must make the units whether market-rate or price-capped similar. But developers certainly do sell the market-rate units at an inflated price to make up for the hit they are being forced to take on the price-capped units. Look at the Bay Area cities with IZ – they are much more expensive than Oakland, and don’t have more affordable housing. IZ is a proven failure, and Oakland was fortunate it did not get caught up in the hysteria to pass it a few years ago. The issue seems dead with this turndown, especially since so-called “affordable” units are doing especially poorly, showing how little demand there is for government-regulated housing.

  27. David

    dto510, exactly. Even if the units are “equivalent” the developer then has to sell the “market rate” at inflated prices to make up the money.

    It also explains why you get such poor value for your money on newer, market-rate construction. It’s seriously terrible out here. I’d love for everybody to go on a field trip to anywhere else (Chicago, Madison WI, etc) and peruse new construction and the prices and compare the quality to here.

  28. Art

    These may not be the wisest examples—Chicago has IZ, and Madison did until very recently. (Madison is an interesting example of a failed IZ model; the design and timing of their program ended up hurting, rather than helping, their affordable housing stock.) Poor construction and high prices may be a problem with new construction in Oakland, but we definitely can’t blame that on inclusionary zoning. There are a lot of other factors that drive price; can’t speak to construction quality as I don’t know that industry well enough, but it’s possible that some of the fault there lies in the building standards set by the respective state and local governments, too.

  29. Chris Kidd

    Oh my, a nuanced argument. While I don’t like IZ either, we can’t distill the differences between wildly different housing markets in completely different areas of the country down to a single talking point. Too bad: all that pizza talk was making me hungry.

  30. Ralph

    Thank you David love the way you laid it out.

    And in some respects, I do see my homeownership as a form of investment. When I rented I was truly wedded to the town, today I am in for the long haul. It was nights like last night which make me think we are headed in the right direction.

  31. David


    Sure, Chicago & Madison are different from Oakland. In terms of housing stock, by and large they’re superior, yet prices are lower. Again, I’d welcome you to take a field trip of comparably priced homes in the different areas.

    The difference? (along with IZ)? Neither city is “land constrained,” rather they’re “income constrained”–prices relate to incomes in non-land-constrained areas, in land-constrained areas, prices relate to rents.

    With land constraints (many of which are self-imposed by the unwitting collaboration of “affordable housing” folks who do the pizza example and current homeowners–who don’t want supply driving down their property values), the incentive is clearly to put up housing with the absolute lowest quality materials. Why? Because they can get away with it. There’s a restricted supply of new housing, as opposed to Chicago, Minneapolis, or wherever, and so they know they’ll have a surfeit of buyers, one of whom will buy the house at their inflated price. Elsewhere, there is no surfeit of buyers and no restricted supply, so builders compete on QUALITY (and location). That’s why new construction here is crap.

    The plain fact is, Chris, the dynamics of THIS market work to exclude the middle class. THIS market, with “affordable housing” set asides and everything else (NIMBYism, “landmarking”) work to bifurcate the market into poor folks’ housing and rich folks’ housing. Take a look at every other less-regulated housing market, and you’ll find 1) housing prices relating to income, not rents and 2) a broad spectrum market with all classes.

  32. livegreen

    Well, Jean Quan gets the job thing, she’s on the wrong side of Affordable Housing.
    From today’s Tribune:

    “”People also really care about fair and equitable economic development, which in this city means affordable housing and making sure the people who live here have jobs.”

    Revisit Tom’s article above to see how out of whack Oakland is on building less Medium Income Housing than Low Income Housing. My question for Jean: If she plans to keep this up, how does she plan to pay for the higher levels of Affordable Housing she wants? What about the deficit we’re already in?

  33. Naomi Schiff

    Affordable housing is not part of the general fund budget. At the moment, federal subsidies are making some of the affordable housing more feasible than the moribund market-rate housing construction. Jean Quan has been talking about “workforce housing” which is to say, not the extremely-low-income type aimed at the nonworking folks. There are several levels of affordability associated with these housing programs.
    Most affordable housing is currently using a mixture of federal subsidy, federal tax credits, and redevelopment tax increment funds. Some cities require some contribution from market-rate developers. The state requires cities to provide “density bonuses” in the form of greater leeway in zoning regulations to those who build affordable housing.

  34. Max Allstadt


    How does Quan “get the job thing”? Last time I checked, while she was chair of our Finance Committee, the city spent it’s rainy day money without her objection. We also funded a lot of NGO jobs programs, and then showed a massive spike in unemployment.

    Show me the green jobs. Where are they? Show me the new high-paying industrial jobs for people without college degrees. That’s what Quan and others promised when the city decided to “preserve industrial land”. Where are those jobs?