Why a $400,000 income means you still think you're middle class

Call it the Bay Area's middle class paradox. Many residents who identify as middle class say they struggle financially even though their salaries put them among the wealthiest in the country.

It's not unusual for someone earning more than $200,000—the threshold for a household being within the top 5 percent of income earners in the nation—to feel as if they can barely afford the cost of living, and certainly not a home, in San Francisco and its suburbs.

The region is filled with high-paying tech companies like Google, Facebook, Salesforce and Apple, but even with a plum job, renting quickly sucks up salaries and buying a home is a stretch. The latest numbers indicate the median price paid for a home or condo in the Bay Area stands at about $850,000; the median price in San Francisco is $1.3 million.

As a result, the term middle class is often skewed to match the region's astronomical cost of living and people with six-figure salaries—one that would allow you to buy the nicest house on the block in say Boise—call themselves middle class.

Case in point: In a Feb. 2018 survey of residents in Palo Alto, some people considered themselves middle class with a household income of nearly $400,000.

"Clearly in the Bay Area the term 'middle class' means different things than it does in other places around the Country or even in California," says Williams Riggs, a professor and researcher of finance and economics at the University of San Francisco School of Management.

What is middle class anyway?

Whether you're considered middle class commonly depends on your income and in the U.S., an annual household income of $60,000 (often based on two salaries) is right in the middle, according to the U.S. Census Bureau. But it's actually far more complex than that and experts differ on how much you have to earn to fall into the middle-class camp.

The Pew Research Center, which often conducts studies on economic class in America, defines middle class as those making between two-thirds and twice the national median household income, meaning middle class households earn about $39,000 to $118,000. This range certainly doesn't work in the Bay Area where a recent government report revealed households earning below $117,400 in San Francisco, San Mateo and Marin counties are "low income" and qualify for low-income housing.

Some economists use a definition starting at about 50 percent above the poverty level for a family of four ($35,000) and topping out at six figures of annual income ($100,000), adjusting for inflation over time. But that range just doesn't work here.

"A household can bring in $120,000 to $140,000 in most places throughout the Bay Area, and still not be able to affording housing within a comfortable 30 percent of their monthly expenses," Riggs explains.

Stephen Levy, director and senior economist of the Center for Continuing Study of the California Economy in Palo Alto, agrees it's hard to judge class by income in the Bay Area due to the high cost of housing.

"You can completely be wiped out by your rent costs," Levy says. "At $200,000 you can afford rent but you can't afford to buy a house. There's a big difference between being able to afford to live here and being able to afford to buy a house."

Levy adds: "You can be middle class by normal measures but not middle class in the Bay Area in light of housing costs."

ALSO: $303K is the annual income now needed to buy a median priced home in San Francisco

Middle class is a label that's also often associated with homeownership, comfort and optimism, but in the Bay Area this is nearly impossible to achieve if your income falls within the national definition of middle class. Here, the numbers shift and that salary range moves up, but by how much?

The U.S. Census doesn't calculate median household income for the nine-county Bay Area, but the 2017 U.S. Census data reveals a median income around $101,000 in the SF-Oakland-Hayward metro area. But that's not enough to make ends meet for many large families. In June a new report from the Department of Housing and Urban Development found a San Francisco metro area family of four bringing in $117,400 a year qualifies as "low income."

If being able to afford a house is the requirement for reaching the ranks of the middle class of the Bay Area, then the threshold might be around three times the median household income. Earlier this year, the California Association of Realtors released a report indicating the household income needed to buy a median-priced home in the city was around $303,000.