In the Bay Area, middle-income families often face a difficult choice—move to the outskirts or leave the region entirely if they want to buy a home. That’s why some housing advocates are asking: should California focus on building more homes for rent, or for ownership?

Christopher McCormick, a 38-year-old software developer, defies the typical image of an affordable housing tenant. While commuting through Emeryville in 2020, he noticed a new apartment complex under construction. He was surprised to learn his $79,400 annual income qualified him for a below-market-rate one-bedroom apartment. The $2,100 monthly rent was nearly $600 cheaper than similar market-rate units, and after entering a lottery, McCormick moved in.

McCormick’s unit is part of California’s broader strategy to retain its middle class. The state plans to build 2.6 million homes by 2032, with 420,800 designated for moderate-income households—those earning between 80% and 120% of the area median income. In Alameda County, that range is $125,050 to $191,750 for a family of four; in Santa Clara County, it’s $159,550 to $234,250.

However, the private sector has shown little interest in this income bracket, prompting the state and municipalities to offer incentives such as relaxed zoning or reduced parking requirements for projects that include below-market-rate units. Yet moderate-income housing still doesn’t qualify for the same tax perks as low-income housing.

To date, just 22,316 such units have been constructed, five years into the state’s plan. Developers cite high interest rates and stagnating rents as barriers—and argue that more financial incentives are needed to make these projects feasible.

But policymakers remain divided on what type of housing the state should prioritize: should support go to rental properties or toward helping people buy homes?

Experts widely agree the state needs more housing overall, but rental units remain the safer bet for developers, especially in expensive markets. Rentals bring more consistent revenue, come with fewer legal headaches, and see strong demand from those priced out of homeownership.

Even so, winning legislative support for rental housing incentives remains a challenge. This session, two bills aimed at addressing the gap failed to pass. One, SB 336 from Sen. Scott Wiener (D-San Francisco), would have extended property tax exemptions to buildings with middle-income tenants. Currently, only low-income projects qualify. The other, AB 595 from Assemblyman Juan Carrillo (D-Palmdale), sought to give tax credits to developers building for-sale, income-restricted housing.

Both proposals were shelved amid California’s $12 billion budget deficit.

Yet advocates remain persistent. SB 336, or a version of it, has surfaced almost annually since 2019. Supporters see it as a structural fix that could encourage broader investment in moderate-income housing.

Developer Enrique Landa, one of the bill’s major proponents, is behind a massive redevelopment of San Francisco’s Potrero Power Station site. The 29-acre project will feature 2,600 homes, with a third priced below market. The first building, set to open this fall, will include 105 units for moderate-income tenants.

“We were only able to do this because we had a larger project that was able to cross-subsidize this effort,” Landa said during a May Senate hearing. “This wasn’t a replicable path — but with this legislation, it could be.”

Still, questions remain about whether moderate-income housing delivers enough savings to justify hefty tax exemptions. A Bay Area News Group analysis found that in many parts of the region, these units don’t offer significant discounts—except in ultra-expensive counties like San Mateo and San Francisco. In fact, 7% of moderate-income units in the Bay Area are vacant—twice the rate of units set aside for those earning less than 80% of the median income.

Rich Wallach, with Burbank Housing in Santa Rosa, argues that policies aimed at moderate-income units must ensure significant rent reductions.

“The trick to not having vacant units sit is to undercut the market — not be at market,” Wallach said.

Some activists point to another issue behind the higher vacancy rate: many moderate-income residents are simply leaving the Bay Area altogether.

“Moderate-income families may reach a point in struggling with housing affordability where they just decide to leave the region,” said Adam Briones, CEO of California Community Builders. “These are people who want to buy a home, and they absolutely cannot do it in the Bay Area.”

McCormick eventually joined that exodus. He said, “I was giving someone else money without building equity myself.”

When he explored below-market for-sale options in Emeryville, he found mostly condos—many with HOA fees and property taxes that would push his monthly cost to around $3,200. It was more than he was willing to pay. Instead, he bought a five-bedroom house near Pittsburgh, Pennsylvania, for $310,000. His monthly mortgage is now $2,800.

Briones sees that kind of story as proof that California needs to focus on promoting ownership opportunities.

“For a rental, the landlord retains the economic benefit,” Briones said. “If we subsidize units for a homeowner, that helps to create generational wealth for a moderate-income household.”

Historically, the federal government has prioritized rental housing since 1961, when it launched the Below Market Interest Rate Program. That shift deepened in 1986, when the Low-Income Housing Tax Credit became the primary tool for financing affordable housing. But earlier efforts leaned toward ownership. In 1955, New York’s Mitchell-Lama program provided tax breaks and financing to help developers build affordable homes for moderate-income residents—with half the 130,000 units developed offered for sale.

Back then, developers accepted just a 6% return. Today, that figure is nearly unheard of—homebuilders reported a 20.7% average gross profit margin in 2023, according to the National Association of Homebuilders.

Housing researcher Alex Schafran believes both rental and ownership models have merit. But in the Bay Area, homeownership is increasingly out of reach for anyone below the top income brackets.

“But everyone should have a real choice,” he said. “Regardless of income.”

Originally reported by Kate Talerico in Silicon Valley.