City of San Jose Releases RFP in Effort to Increase Moderate-Income Housing

San Jose, Bay Area, San Francisco, Santa Clara, Housing Trust of Silicon Valley, Housing Innovation Fund, City Council

By Meghan Hall

So much of the Bay Area’s development story has focused on the economic prosperity brought about by a plethora of burgeoning businesses in the technology, medical and data industries. However, the success story of the Bay Area’s growth has been tempered as of late by the worsening nature of the region’s housing crisis. The evolving nature of the housing market has become increasingly apparent in San Jose, where the City’s Housing Department has released a request for proposals (RFP) to increase moderate-income housing within the City. The RFP is seeking qualified firms interested in researching the most viable and cost-effective strategies to provide additional moderate-income housing opportunities.

“We were finding the local market was able to produce moderate income housing with little to no help from the city,” explained Ragan Henninger, deputy director of housing for the City of San Jose. “However, the market is changing, and it’s very difficult for a person of moderate income to find affordable housing in our very expensive market.

With a population of more than one million, San Jose is now the largest city in the San Francisco Bay Area, and the 10th largest city in the United States. Until the beginning of the last market cycle, the local housing market was able to produce moderate-income housing with little to no financial subsidy from the City. Additionally, the City has historically spent the majority of its funds allocated to affordable housing on rental units for low-, very low- and extremely low-income households. Since 1998, the City has produced 19,000 affordable homes and also provided 2,000 homeownership opportunities through deferred payment, “soft” second mortgage programs.

“Rental housing for moderate income used to be funded with four percent tax credit investment, and city subsidies weren’t needed,” said Henninger. “We also had the dissolution of redevelopment in the state. But then different market factors have all contributed to this lack of moderate-income housing, too.”

However, as major companies continue to flock to the region, bringing thousands of jobs — and employees — to San Jose, housing prices have continued to skyrocket. According to City documents, San Jose remains one of the most expensive markets in the country, and many families struggle to find and retain housing. City documents note that as many as 40 percent of Bay Area households are considering moving elsewhere due to high housing costs and increasing costs of living. The number of workers traveling at least 60 miles to work in an effort to find affordable housing has increased by 43 percent since 2010. In its RFP documents, the City states that even families with incomes exceeding $100,000 per year — traditionally viewed as a stable income bracket — are struggling to find adequate housing.

The State of California defines moderate-income housing as individuals or families between 81 percent and 120 percent area median income (AMI). The City of San Jose, however, considers “middle-income” housing to be affordable to households between 121 percent AMI and 150 percent AMI. According to HCD 2018 Income Limits for Santa Clara County, 120 percent AMI translates to about $105,200 annually for a single-person household.

While the City of San Jose notes that the current median rent for Class A apartments of all ages in the San Jose market is in the moderate-income range, many new luxury Class A apartments are coming to market priced well-above the median level.

So far, a few measures have been passed in an effort to increase moderate-income housing. In June 2018, Santa Clara County announced the award of $25 million in Measure A funds, which would be administered through the Housing Trust of Silicon Valley for first-time homebuyers with incomes up to 120 percent of AMI. However, such measures have not been enough to produce moderate-income housing throughout the City.

“Since the elimination of redevelopment, both the City’s strategies and the State’s redevelopment program income reuse rules have supported even greater emphasis on using limited resources for people with the greatest need,” states the City in public documents.

In June of 2018, the City Council discussed San Jose’s Affordable Housing Investment Plan in an effort to begin addressing the high level of demand for moderate-income housing. From the RFP process, the City hopes to solidify a framework for the financing of a publicly-subsidized, privately -funded Housing Innovation Fund to help fill the “missing middle” when it comes to housing stock.

“The council has directed the Housing Department to come back to them with some strategy to spur more moderate income housing and that will be the work of the consultants to look at different [avenues] whether its land use, policy decisions or investment to spur production,” said Henninger.

Parties interested in responding to the City’s RFP have until May 17th to do so, and the City Staff hope to be able to recommend a strategy to the City Council by the late fall of this year.

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