San Jose Exempts Developers From Paying $139 Million in Affordable Housing Fees

Some $138.5 million won’t be going into San Jose’s affordable housing fund this year, as the city seeks to spur development by doling out exemptions to market-rate projects.

In a recently released public document, the city listed 30 market-rate developments that won’t have to pay affordable housing fees. As a result of excluding these projects, 8,130 market-rate residential units will be built and an estimated $8.6 million will be collected in annual recurring tax revenue, according to the report.

The city spends $125,000 per affordable unit. By forgoing $138.5 million in fees, the city lost the equivalent of more than 1,100 below-market-rate homes.

Projects qualify for exemptions in one of two ways. One exempts projects that were already in the pipeline before the affordable housing fees was established. The other is an exemption high-rise buildings downtown.

“There is a balance that we have to have in terms of ensuring that market-rate developments can go forward while still wanting to meet our affordable housing goals” Jacky Morales-Ferrand, director of San Jose’s housing department, told San Jose Inside.

If developers want to build a residential project in San Jose—as with most Bay Area cities—they have two options when it comes to affordable housing: build it or pay the city a fee. San Jose’s affordable housing law, passed in 2014, requires 15 percent of a project’s units to be affordable.

If developers opt to pay a fee instead, that money goes into San Jose’s affordable housing fund, and is used to develop separate affordable housing projects.

The idea behind allowing some projects to avoid paying these fees is that it makes it easier for developers to build market-rate projects, especially in downtown San Jose. Having an extra fee applied to projects that were already in the works, Morales-Ferrand said, may have prevented some projects from getting built altogether.

“It would hamper their ability to develop,” she said. “Because we know that housing is critically needed, it’s important to keep both the market-rate production and the affordable production moving forward.”

In total, 20 projects received an exemption because they were already in the pipeline before the fee was established. One of them, the Hanover Cannery Park was built with 403 market-rate units and got a $6.3 million break on affordable housing fees as a result of the so-called pipeline exemption.

For the exemption applying to high-rise housing projects downtown, the report says the city has a vested interest in encouraging development there.

As Google and the extension of BART promise to bring a massive influx of jobs to the downtown area, it’s “critical” to also have people living there. Ten projects received a downtown high-rise exemption, according to the report. The exemption was passed by the City Council as a limited-time waiver, and does not apply to new projects.

“We support fee reductions for high rise development given the slow pace of development in the city and the dire need for housing,” said Michelle Azevedo, director of policy and operations and the San Jose Downtown Association. “We are severely under-housed and San Jose continues to be one of the most expensive cities to live in. We need more housing across the board—from very low income to middle income. By building more residential projects, housing will become more affordable.”

For a complete list of exempted projects, read the entire report here.

9 Comments

  1. Watch how fast residential rental development in SJ stops when the exemption runs out and the state legislators gut Costa-Hawkins. What is being called a “housing crisis” today will look like a walk in the park a few years from now. Of course all the corrupt goons in office now, who are creating tomorrow’s mess, will have moved up to feed at a higher public trough.

    • It’s already happening. Expect minimal amounts of new residential apartment construction because the consensus is building that Costa-Hawkins at some point is going to get repealed. The stuff that is in the pipeline will be built but don’t expect a lot more.

  2. > If developers want to build a residential project in San Jose—as with most Bay Area cities—they have two options when it comes to affordable housing: build it or pay the city a fee. San Jose’s affordable housing law, passed in 2014, requires 15 percent of a project’s units to be affordable.

    What an incredibly stupid bone-headed policy.

    By political design, a “below market rate project” is NOT intended to make a profit. Therefore, it is just a pure cost center.

    What do they teach in MBA schools about cost centers? MINIMIZE! MINIMIZE! MINIMIZE!

    No property manager is going to spend one cent more than absolutely necessary to keep these diseased, cramped, firetraps barely legal, whatever “barely legal” means.

    “Below market-rate” is just a sanitized term that crypto-Marxists have been taught to use so that don’t have to say “slums by design”.

  3. >> The city spends $125,000 per affordable unit. By forgoing $138.5 million in fees, the city lost the equivalent of more than 1,100 below-market-rate homes. <<

    The intelligent thing would be to help people move OUT of the Bay Area and get on with their lives being productive members of society without government assistance.

    Of course, we don't want that. We want everybody to depend on the government for their entire life.

    • “We want everybody to depend on the government for their entire life” …. and continue to vote for more corrupt, socialist leaders who will provide those voters with their gov’t cheese.

  4. This goes back to the issue of a terrible lack of leadership in this City. From the Mayor and City Council to department Directors like Jacky. Developers laugh at us all the way to the bank, and the teams at the City don’t have the expertise necessary to get the job done.

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