A split San Jose City Council votes to weaken rent control law

Housing was at the forefront of Tuesday’s City Council meeting, as San Jose lawmakers weighed making changes to several crucial housing laws. Among them was amending the city’s Ellis Act, where lawmakers voted 6-5 in favor of reducing the number of units developers have to put back under rent control after redevelopment.

Councilmembers Sergio Jimenez, Maya Esparza, Sylvia Arenas, Raul Peralez and Magdalena Carrasco cast the dissenting votes.

In a stunning upset to the droves of labor and housing advocates who attended the meeting, the policymakers voted to amend the ordinance by tweaking the amount of rent controlled units that are reinstalled in a new building after the previous one was demolished — a move spurred by a fear that the law’s former requirement was halting housing production in the region.

“Our mayor and council are supposed to be public servants and not serving developers,” said Karen Kindorf, a community leader with Sacred Heart Community Service. “We need to address housing for low-income and very low-income people first.”

Formerly, the Ellis Act required developers who demolished or remodeled an existing rent-controlled complex to put at least half of the new units or the number of old apartments taken off the market – whichever number is greater – back under rent control. But now, the law requires only a cap of “no more than seven times the number of withdrawn apartments.” For a building with 100 units, the changes would reduce the number of affordable units to 35 percent.

“We need more housing in the Bay Area — period — and we’re not going to get it without investment,” said Councilmember Lan Diep, who supported the changes.

But several councilmembers argued against the move, saying that changing the law opens the door to weakening rental protections.

“We’ve seen very little convincing evidence that these changes are needed, but we have been presented clear evidence of negative impacts that will be brought to our vulnerable communities,” said Esparza, who lives in a rent-controlled building and has seen former neighbors displaced. “Our city staff’s own report shows that only 28 percent of those displaced are able to stay in San Jose. Tonight is our chance — this is it. We have to show our residents that we are committed to keeping our most vulnerable residents housed.”

But Mayor Sam Liccardo fired back, criticizing the current law as not being a “sensible approach” to policy. The mayor said some of his colleagues were missing the point. Displacement occurs when families are pushed out due to a shortage of housing and soaring costs of living, he stressed, not because developers are coming in and pushing people out.

“What is the source of displacement? Is it developers coming in and pushing folks out or is it that we don’t have enough housing, that rents are rising, and families are being evicted and then being displaced?” said Liccardo. “I heard today that changing this policy is violence against tenants. I think it’s violence against tenants if we don’t do something.”

If developers rebuild a new project with at least 15 percent affordable units, the city said it will waive all other Ellis Act requirements. For displaced residents, a “right to return” policy where tenants can move back into the new building and pay their previous rent plus costs attributed to the city’s consumer price index, or have the developer find replacement housing elsewhere will be implemented. In both cases, tenants’ rents cannot be raised by more than 5 percent each year.

Per Vice Mayor Chappie Jones’ request, developers seeking exemption from re-control can allow tenants to return to their previous unit or offer them an equivalent one. Displaced tenants will also have the option to form a tenant group and negotiate with the landlord evicting them by signing a two-thirds majority agreement.

The new law will go into effect 30 days after its second reading, which is expected later this year.

Inclusionary housing ordinance 

Developers in San Jose who want to build market-rate projects will now have an easier time getting shovels into the ground, as lawmakers on Tuesday voted 10-1 in favor of granting those developers in downtown an exemption from paying into an affordable housing fund. In a win for developers, the City Council also voted in favor of reducing the amount of affordable units they’re required to set aside, based on the size of the project.

Esparza was the sole dissenting vote.

The law in question – the city’s Inclusionary Housing Ordinance (IHO) – formerly required all market-rate developments with 20 or more units to designate 15 percent of those apartments as affordable or pay a fee to an affordable housing fund. But now, the policy will only apply to smaller projects of five units or more.

Many cities have affordable housing requirements on most developments, but not all developers want to offer affordable housing. As a result, cities charge developers an in-lieu fee to satisfy their affordable housing fund and finance low-income housing projects.

For all developments in the city, the in-lieu fee will be based on the location and scope of the project. For West San Jose, the fee will be $43 per square foot, while citywide it will be $18.26 per square foot. But in downtown, no fees will be added. Housing officials said the change will incentivize more development in the city’s core as it aims to build at least 10,000 new housing units by 2020, and a recent analysis shows the city is severely behind on this goal.

To preserve how long a unit can remain affordable, the new policy will also extend the period of affordability for rental units to 99 years, up from the original 44 to 55 year span. Since 1998, the city has built a total of 9,398 apartments, but only 1,780 of those units are affordable.

Liccardo attributed the shortage of housing to the region’s economic boom, expressing support for the changes as he hopes the new policy will get more shovels in the ground.

“Our jobs creation in Silicon Valley has exceeded our housing production, it’s a basic supply and demand challenge,” Liccardo said. “We need to build more market-rate housing because we have a lot of tech employees who are gobbling up apartments, driving families out and taking up that housing stock that’s critically need it for families who can’t afford it.”

Several pro-development business groups agreed, citing concerns over the growing housing crisis.

“The feasibility and cost study show the severe challenges our region is facing in producing affordable housing,” said Michelle Huttenhoff, SPUR’s San Jose policy director.

But not all councilmembers agreed. In a memo released early Tuesday, Arenas urged her colleagues to keep the policy in place for buildings with 20 or more units. She added that not enough multi-unit housing is getting built in her district.

“I have real concerns about making this change at the same time we are easing the requirements for large developers. This creates both the appearance and fact of shifting the cost of our city’s affordable housing from large corporations to small local businesses — and ones specifically trying to improve our neighborhoods,” wrote Arenas.

Jeffrey Buchanan, director of public policy at Working Partnerships USA, said the new policy gives a handout to developers while failing to support projects that focus on low-income housing.

“At a time when the city is falling $520 million short of its affordable housing goals, we are proposing deep, deep cuts to few we need to build affordable housing our lowest income families need,” said Buchanan. “This proposal represents a shift of our affordable housing resources from serving low, very low and extremely low income units to supporting more moderate income housing, where renters are least likely to be rent burdened.”

In addition to the proposed changes, city staff will also study the viability of utilizing SB 35 to streamline affordable housing projects.

City officials will return to the City Council for approval of the amended policy by the end of the year.

Contact Nadia Lopez at [email protected] or follow @n_llopez on Twitter.