Commercial developments in San Jose just got a little more expensive to build, but the extra costs will go to new affordable homes in the city, where homelessness is on the rise.
City officials voted 7-4 to approve a new commercial linkage fee at about 12:40 Wednesday morning, as the council meeting stretched past the usual midnight cutoff.
Elected officials settled on a fee that represented a compromise: it was lower than what some in the labor and affordable housing communities had hoped for, but higher than the recommendation by city staff.
“I commend my council colleagues, community organizations, and business partners for working together to find middle ground on a solution that will generate millions of dollars annually for affordable housing, while ensuring that job-creating projects can move forward,” Mayor Sam Liccardo said in a statement Wednesday.
The fee comes as the city balances two realities seemingly at odds with each other.
On the one hand, San Jose, like most California cities, faces a looming recession and budget deficit caused by Covid-19. Officials say the 10th largest city in the country would benefit from economy-boosting projects, like new office building developments.
But every commercial development—offices, retail, hotels and warehouses—also brings jobs and therefore more demand for homes in a region already feeling the weight of a crushing housing shortage.
The linkage fee is meant to increase the cost of the commercial properties so the city can use that money to get more hard-to-finance affordable housing. The questions is: how much can the city charge without scaring away developers altogether?
Councilors attempted to find that balance when they offered downtown office developers with projects larger than 100,000 square feet the chance to choose their own fee.
Developers can now choose to pay the fee all at once for $12 per square foot, in phases, for a total of $15 per square foot. Or, they can build or buy affordable housing in the city.
Some housing advocates on Wednesday celebrated that San Jose had finally followed in the footsteps of most of its Santa Clara County neighbors by adding a linkage fee.
“It was a long time coming, and it is an important win,” housing nonprofit, the nonprofit SV at Home wrote in a letter to supporters.
But not everyone thought the agreement was a good deal.
Jeffrey Buchanan, public policy director at local think-tank Working Partnerships USA said he was “disappointed” in the vote.
“The mayor and council majority sided with corporate developers looking to pad their profits over Black and brown families, who will have to live with the impact of these projects on rising rents and the threat of displacement for years to come,” he said.
How it Works
Developers will now pick from three options to pay their commercial linkage fee.
In the first option, developers can pay $12 per square foot all at once when the city certifies the project is ready to have tenants move in, known as a certificate of occupancy.
If a developer wants to break up its linkage fee payments, it’ll pay a total of $15 per square foot. The first payment of $5 per square foot would be due when the project gets its certificate of occupancy. The remainder would be due when tenants start moving in.
The last option is to build or buy affordable homes alongside the approved commercial development to offset the housing impacts of the project.
Large projects in other parts of the city will pay $5 per square foot. Smaller commercial projects would pay $3 per square foot, though the first 50,000 square feet would be free.
Retail developments won’t see any extra costs “due to increasing vacancies brought on by the COVID-19 economic crisis,” according to city officials.
That’s a decision supported by SVO, Silicon Valley’s largest chamber of commerce.
Eddie Truong, SVO’s director of government and community relations, told San Jose Inside ahead of the vote that charging additional costs to the already struggling bricks-and-mortar retail industry would be “out of touch.”
For background on the long-debated linkage fee—and all the controversy that came with it—here’s a handy explainer.