Open Doors Apartments in Los Gatos, a MidPen Development, Image credit: MidPen Housing
Last month, we shared with you an update on the program under development in San Jose which proposes to ease the requirements of the city’s Inclusionary Housing Ordinance (IHO) on new development. The IHO is an essential tool for producing affordable housing (for more background about inclusionary housing, please see our explainer, here). At Council direction, city staff are currently proposing dramatic reductions in inclusionary requirements as part of a Residential Incentive Program (RIP) to try to stimulate housing development. The incentive program would be applied to about 10,000 residential units already permitted or planned before July 2022, and would also include waivers for city fees and taxes.
The current proposal waives all inclusionary fees if developers set aside just 5% of new units at rents affordable to moderate-income households at 100% of AMI rents – 1-bedroom $3,686, 2-bedroom $4,146. These rents are currently higher than market rents, meaning the proposal would essentially eliminate all the public benefits of the Inclusionary Housing Ordinance for affordable housing in these growth areas. This proposal will neither generate affordable apartments, nor will it collect fees to build more affordable housing.
SV@Home recognizes the challenges of the high costs in the current construction market and supports thoughtful cost reduction actions to help projects move forward. But, overriding existing affordable housing ordinances is a substantial step that requires careful analysis of the costs and benefits of waivers.
Potential consequences of the Residential Incentive Program
- In-lieu fees are one of the largest sources of the City’s affordable housing funding. A one-time investment of city funds leverages significant state and federal funding. Losing these funds is especially significant given that Measure E funds have been largely reprogrammed to support the City’s emergency interim shelter program.
- RIP would narrow the City IHO’s compliance options. Many developers are currently choosing alternatives that fit their projects and benefit the city. Fewer options could make some developments harder to build, not easier.
- RIP may have no impact. The City’s Cost of Residential Development Study and developer feedback report that unless costs come down and rents go up waiving all current fees and requirements, including park fees, would be unlikely to move projects forward.
- Since development costs are the real barrier, developers will have every incentive to lock-in the reduced fees, and then waiting for better market conditions – both undermining the Council’s intent to spur development now while still losing the public benefit.
SV@Home will be advocating for alternative cost reduction measures that would:
- Be based on actual analysis of the costs and benefits of any incentive program,
- Prioritize generating fees for affordable housing rather than not-affordable apartments at 100% AMI rents, and
- Include iron-clad guardrails that ensure any incentives are limited to the roughly 10,000 units in projects underway prior to July 2022.
SV@Home has engaged with city staff during both stakeholder and multiple individual meetings in an effort to explore possible strategies for spurring more housing production without sacrificing homes for our neighbors most vulnerable to displacement. Staff continues to collect feedback and analyze the fiscal impacts to the City along with the likelihood of development feasibility. We are continuing to engage and will bring the affordable housing advocacy community into the process when staff makes a final recommendation to Council before the end of the year.