Lack of Progress on Housing Weighs Heavy As San Jose Mulls Update to General Plan

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Downtown San Jose real estate The Registry

By David Goll

An effort by San Jose in recent years to right the city’s jobs-housing imbalance by emphasizing commercial development over residential is exacerbating Silicon Valley’s growing lack of affordable housing, according to some local developers.

And though city officials say they are eager to attract employers, they also point to the state’s 2012 dissolution of 400 redevelopment agencies throughout California, including in San Jose, for playing a huge role in the housing affordability crisis in the Bay Area’s largest city. Those agencies were required to spend 20 percent of their funds to build affordable housing units. At its height, the city received $40 million annually from its redevelopment agency to build housing.

[contextly_sidebar id=”nAASLX7nQpJpm1uxLoN9Hg4Yvz7svaCY”]Four years after that funding source dried up and the city decided to pursue more employers, officials are reconsidering that reduced emphasis on housing in this year’s update of the Envision San Jose 2040 General Plan, according to Jacky Morales-Ferrand, San Jose’s housing director, “The city does recognize the need for more housing,” she said, predicting a modification of the city’s approach as officials re-examine jobs and housing statistics.

Morales-Ferrand said the city expects to receive nearly $12.6 million in federal funding for its housing programs in fiscal 2016-17. San Jose, with 350,000 more people than Denver — where Morales-Ferrand used to direct housing efforts — gets about the same amount of federal housing assistance as the Colorado capital, she said.

“While HUD (Department of Housing and Urban Development) allocations are critical, they are not sufficient to overcome all barriers and address all needs that low-income individuals and families face in attaining self-sufficiency,” said a city report. “The City will continue to leverage additional resources to successfully provide support and services to the populations in need.”

That includes an increased impact fee of $17 per square foot on housing built by for-profit housing developers. Those fees are even higher in neighboring cities, said one developer, which have even less interest in building housing than San Jose, often because of public opposition to residential developments.

City officials have had some success in luring employers — Cupertino-based Apple Inc. has announced plans to purchase 86 acres of land north of Mineta San Jose International Airport to build a complex that could employ 20,000 people. And San Jose is the corporate headquarters of eBay, Cisco Systems and Adobe.

Morales-Ferrand said the city still encourages housing construction, though in targeted locations close to public transportation. The need for affordable housing is great: in the nation’s 10th-largest city, with a population of 1 million, San Jose’s median home price in February was $810,000, compared to a national median price of $211,000. Average rents of $2,362 for a one-bedroom apartment and $2,960 for a two-bedroom are among the highest in the nation.

San Jose has a goal of building 35,000 total housing units between 2014 and 2023, with 60 percent of that total affordable, Morales-Ferrand said.

Some developers say top leaders in the Capital of Silicon Valley had an unimpressive record of building affordable housing even during the redevelopment era. And the city built only 426 units of affordable housing in 2015, said Michael Van Every, president and CEO of Republic Urban Properties, the San Jose-based arm of Republic Properties Corp. of Washington, D.C. Van Every’s company specializes in building dense residential projects along transportation corridors and mixed-use developments. It has built 735 housing units to date in San Jose, and has 1,500 under construction or in the planning pipeline.

“Even when the redevelopment agency was around, it did a very poor job,” he said. “It left nothing lasting in the downtown area. But what the city did do well was building affordable units citywide. I feel the city housing department is capable of being creative and doing great things, but housing is being discouraged at the highest levels.”

Van Every said he serves on a housing task force convened by the city, but is one of only a few developers and the only one based in San Jose.

“Government puts up a lot of barriers,” Van Every said. “There’s also a lack of affordable locations to build housing and even market-rate housing. I think you’re going to see a plunge in all kinds of multi-family development projects in a couple of years.”

On the positive side, Van Every said there are housing advocates among city staff and elected leaders.

“There are a lot of hard-working, creative people in city government,” he said. Van Every credits Mayor Sam Liccardo as being more aware of the need for all kinds of housing, including affordable projects, than his predecessor, Chuck Reed.

He said Liccardo needs more support for that view from City Council members and senior staff.

“San Jose is what it is,” he said. “It has long been a regional center of housing and should continue to play that role.”

San Jose-based Barry Swenson Builder has been a huge player in the city’s increased urbanization of the past three decades, having built nearly 2,000 housing units, with another eight to 10 market-rate projects in the planning process. Josh Borroughs, Swenson’s senior development manager, praises San Jose’s efforts to provide shelter for Silicon Valley, especially when compared to neighboring cities that push office development over residential.

“San Jose has done 10 times what other cities have done,” Borroughs said. “It has made a noble effort and done more than its share.”

But the explosive increase in high-paying Silicon Valley jobs — particularly in Cupertino, Santa Clara, Sunnyvale, Mountain View — has driven up housing costs across the region, exacerbated by shrinking supply. He adds the larger impact fee on new housing in San Jose will only make it harder to build affordable.

“It contributes to more developers chasing a luxury product with very high rents,” he said.

More expensive housing and smaller amounts of subsidized affordable units — but almost nothing built for working-class and middle-class earners, Borroughs said.

“It used to be people in their 20s and 30s could buy something for $300,000, but today, there’s no entry-level product going up,” he said.

Morales-Ferrand said efforts are now focused to provide supportive housing for an estimated 4,000 homeless people. Officials are using a combination of temporary shelter in hotels the city recently acquired, as well as permanent solutions like the new Second Street Studios project built by First Community Housing. Another major resource is a result of smart planning by city officials when redevelopment funds evaporated four years ago. She said the city loaned $800 million to developers, so currently has about $100 million in loan repayment funds to put toward the construction of housing.

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