Builders Want San Jose to Delay Affordable Housing Fee by a Year

Developers are pressuring San Jose to delay implementation of an affordable housing fee, which charges builders $25 per square foot of new construction to preserve economic diversity amid rapid gentrification.

The City Council on Tuesday will discuss how to transition from a $17-per-square-foot charge to a costlier inclusionary housing law, which requires developers to either set aside 15 percent of new high-density housing as deed-restricted below-market-rate units or cough up an in-lieu payment.

But the Bay Area Building Industry Association (BIA), which represents private developers, wants San Jose to hold off on charging the inclusionary housing fee until at least July 1, 2019, until the city studies how the charge would affect new housing construction. BIA lobbyist Dennis Martin noted that two recent study sessions hosted by the city highlighted how construction costs may hinder new development in San Jose.

During those study sessions, city officials heard findings from consultants at Keyser-Marston Associates about how President Trump’s tariff plan and rising costs related to a labor shortage threaten to put a damper on new construction in San Jose, which already grapples with a historic affordability crisis. The study sessions have developers saying they would need to jack up rents by another 25 percent for the average tenant to offset the rising price of construction.

According to the Keyser-Marston report, developers expect minimum profit targets to fall within the 10- to 15-percent range in order to consider a project financially feasible. Mayor Sam Liccardo told the Mercury News last month that the city might need to slash some of its taxes and fees to counterbalance market trends—as suggested by the BIA.

“Housing construction is not feasible, according to staff and consultant studies, in most of the city and is currently feasible in only one area [that is, West Valley],” Martin wrote in a letter on behalf of BIA. “A significant contributor to infeasibility is the staggering cost of city-imposed impact fees and taxes, including affordable housing fees.”

That’s somewhat of an exaggeration, based on the city’s own staff reports.

Municipalities have little control over market forces such as labor shortages and international trade tariff. What cities can control are fees and taxes, which make up only about 10 percent of the value of a typical housing unit in new market-rate projects—far from the “staggering cost” described by the BIA.

A coalition of environmental groups raised that point last week while urging the city to protect parkland fees, which it needs to address a $293 million backlog of parks-related infrastructure repairs.

“[C]ity fees and taxes have only a marginal impact on development feasibility, with the major drivers of feasibility being construction costs and available return,” they wrote. “Additionally, San Jose’s development costs are in line with surrounding cities. We believe that parks are as much an essential part of livable cities as police protection and road maintenance. San Jose needs to not only maintain, but [also] increase its current level of funding for parks in order to truly be a world-class city.”

More from the San Jose City Council agenda for May 8, 2018:

  • San Jose police are asking for an additional $387,871 for its body camera contract with Axon, bringing the total value of the five-year contract to more than $5.2 million.
  • History San Jose, a nonprofit tasked with managing city-owned historical facilities and collections, is poised to receive a one-year $784,000 contract extension until it secures a proposed 20-year deal with a 10-year extension option. But before the city agrees to that long-term commitment, several council members suggest reviewing the terms of the contract, which hasn’t yet been reviewed by the current council. A memo signed by Mayor Liccardo and council members Raul Peralez, Don Rocha and Johnny Khamis directs the nonprofit to do more with public spaces such as the historic Adobe-Peralta and Fallon House, which are typically only open to school groups and private functions. “We encourage History San Jose to take more risks in being creative, to open up our historic sites more frequently to broaden general public participation and interest, along with generating revenue for additional operations and programming,” they wrote.

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260

Jennifer Wadsworth is the News Editor for San Jose Inside and Metro Newspaper. Email tips to [email protected] or follow her on Twitter at @jennwadsworth.

5 Comments

  1. $25 a square foot on a 1,500 square foot house is $37,500.00.
    That seems like more than crumbs to me….

    • > $25 a square foot on a 1,500 square foot house is $37,500.00.

      This is what happens when the foragers are empowered to vote in the government.

      Successful behavior is repeated.

      This won’t stop until they’re made to stop. Otherwise, the end of the road is Venezuela.

  2. Let’s run some numbers. Since this is a progressive alternative news site, let’s build it up from a working-class perspective.

    Imagine a head of household who makes $12.50/hour and works 40 hours a week, no vacations, their wage (pre-tax) is about $25,200/year. Let’s say it is reasonable to spend 1/3 of your pre-tax wages on rent, so that comes out to $8400/year to be spent on rent, or $700 a month. The national average GRM (Gross Rent Multiplier) is 10, so national averages would value the property at $84,000. So, for the market to offer affordable housing for people who make $12.50 an hour, the total value – land, materials, labor, permits, etc have to out to $84,000.

    And San Jose wants to charge $37,500 just for the inclusionary fee that is on top of the land, materials, labor, permits, etc?

    How can you write article after article, fighting for affordable housing, inclusionary fees, rent control, open space, just cause eviction and not understand that the things you are fighting for are self-contradictory? The more you win votes in the City Council the worse off the people you proclaim to want to protect are?

    No one should pay more than $700 a month for an apartment if you are working class, you can buy units for $50K/$60K in many western states that have median pay at least $25K per capita. But you can’t expect there to be $700 a month rent when you pile on so many costs, it just will not happen. Saying that $37,500 is only 7.5% of the total cost of $500,000, is missing the point. No one can afford (they may pay it) to pay rent on a $500K unit. A $500K unit shouldn’t even be built.

    It is as if kids are running the government and your articles are the confirmation bias cupcakes they pacify themselves with.

  3. I’ve got a GREAT idea! Let’s mandate Solar Panels on all new houses! That will help with the cost of Housing in California!

    • Isn’t San Francisco known as fog city?

      How do solar panels work in the fog?

      But, let’s look on the bright side: at least the legislature is mandating that progressive San Franciscans spend THEIR money on something THEY can’t use.

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