At its March 25th meeting, the Community and Economic Development Committee of the City Council received an update on the proposed “Soft Story” Seismic Retrofit Implementation Program, which is scheduled to come back to the full council in May. “Soft Story” buildings were built before construction standards were reformed in 1990 and potentially lack the strength to withstand a major earthquake. (For more details, see our overview here.)  The total number of vulnerable properties is uncertain, but estimates for San Jose are between 18,000 and 24,000 units in 2,500 to 3,500 buildings. If a significant number of these structures collapse or become uninhabitable, the risk to lives, homes, and property damage is potentially immense and highly concerning. 

The challenge is that while we know how to do the retrofits (upgrades) to make these properties safe, it is incredibly expensive. The city calculates costs by building, but reasonable estimates put the costs at, on average, $20-30,000 per unit – that is potentially $360-720 million city-wide. The good news is that this is probably an overestimation; not all of the ‘soft story’ buildings will need retrofits, and we really do not know the true cost, depending on when and how the work is paid for.  

The problem is that for rental units, particularly the oldest ones, the policy being proposed would place the burden for these upgrades on the tenants renting the units.  Because most of these apartments are covered by the Apartment Rent Ordinance (ARO), the proposal is to allow 100% of the costs to be passed through to the tenants over 20 years.  That might not sound like a big deal, but it could mean an 8% rent increase in a single year and rents that keep going up more than they would have long into the future.  If your rent was $2000 right now, you could see an increase of $160 a month and nearly $2000 for the year.

It has been established that tenants of these ARO units are the most likely to be rent-burdened and severely rent-burdened already.  These are households that cannot afford to absorb rent increases of 5% per year, let alone as high as 8% in a single year. Further, this policy threatens to increase the baseline rents across an entire submarket of properties, impacting future renters’ access to homes they can afford. As currently written, the policy provides only the potential for limited resources to be available to mitigate this impact.   

The policy reflects the core intent of preserving lives and critical housing resources serving many of the city’s lower-income households. However, it does not acknowledge the policy’s financial impact on low-income households and communities. 

The risk is that this policy will:

• produce significant additional financial hardship for lower-income renters, 
• exacerbate current patterns of overcrowding, 
• lead to the displacement of large numbers of people from San Jose, 
• and increase the number of people becoming unhoused.  

There are additional risks that property owners will be unable to secure the loans necessary to make the retrofits because they will not be able to show that their properties will be able to sustain the required rent increases. This will lead to significantly reduced compliance and significant changes in the target market rents for the properties, neither of which are beneficial to the tenants’ or public interest.

This policy must not pit the immediate stability of vulnerable households and communities against the risks of earthquake damage and destruction.  Both are important, but systemic solutions at scale are essential to addressing both.  

Other cities have either limited the amount of the costs that can be passed through to the tenants or created robust subsidy and rebate programs and special low- or zero-interest loan programs to finance the retrofits. San Jose has applied for some additional funds from the Federal Emergency Management Agency (FEMA) and has begun to explore loan programs, but they are not in place.

SV@home has joined with other community-based organizations doing anti-displacement work in San Jose to open up a dialogue with city staff to restructure the timeline for the program to allow for a better understanding of how many and which properties will be impacted, a more accurate assessment of the actual costs, and the establishment of funding sources to offset the costs to tenants and property owners.  The likely financial impact is too great not to be fully considered alongside the real costs of a potential earthquake.  We are hopeful that we can make progress before  

Initial analysis shows concentrations of soft-story buildings on the west side in District 1 and in the central part of the city in District 3.  These are the areas where there is potential for displacement and risks. We should move towards a mandatory program that works without putting households at immediate concentration in Districts 3 and 1.