Affordable housing: San Jose fee deadline may get pushed amid coronavirus
The sidewalk along 6th St. at the new Facet housing development site by Shea Properties and SWENSON Builders. Photo by Kyle Martin.

San Jose has been transitioning the way housing developers contribute to affordable units for years, but the coronavirus may stretch the process out even longer.

The South Bay city has been working to move from a fee-based system to one that promotes actually building low-income units whenever possible and often comes with higher fees for developers that don’t. But some projects have been grandfathered into the the old system because the plans were in motion by mid-2018.

Now, the last of those residential developments are marching toward a June 30 deadline to get final plans approved and pay the affordable housing fees to remain under the old system. Currently, 10 projects with a combined 1,976 units proposed across the city qualify to pay the fees using that old calculation, known as affordable housing impact fees.

Once the deadline passes, all housing developments not yet fully approved would follow the city’s newer inclusionary housing ordinance, which calls for either building a certain number of affordable homes on site or potentially paying higher fees than before.

But COVID-19 has disrupted the process, slowing developers making deals and processing plans, said Rachel VanderVeen, deputy director of the city’s Housing Department.

“We recognize that with the public health crisis and the COVID situation and the city’s declaration of an emergency, a lot of timelines for our developers changed … it’s just harder to actually run their own businesses as well,” she said.

Now San Jose officials are aiming to push the June 30 deadline to an unknown date in the future when the city lifts its declaration of emergency, which was enacted in March due to the the contagious coronavirus.

“Essentially this is just saying we are recognizing that COVID changed a world for everybody,” VanderVeen said.

Not everyone is happy about the proposed change. It’s unclear when the declaration of emergency would be lifted, but city documents say it is likely to be extended in the coming months.

“The struggle with this is that it’ll allow a handful developers, many who’ve had their entitlements for quite some time, to be given a pretty significant and lengthy set of exemptions from having to follow the inclusionary housing policy,” said Jeffrey Buchanan, director of public policy for Working Partnerships USA, a labor and social justice advocacy group.

Two programs

The grandfathered developers could pay either $18.26 or $18.70 per square foot in affordable housing fees in the coming year. If all projects pushed forward, it would generate more than $27 million in fees for affordable housing in the city, according to public documents.

But if the developers don’t make the deadline, the projects would instead need to comply with the city’s newer inclusionary housing ordinance, which mandates that 15 percent of the units built in any project with 20 or more homes be set aside for low-income renters.

For those that don’t include the homes on-site, the law still allows other options, like dedicating land or paying fees.

The fees — a flat $125,000 per required affordable home — tend to be significantly higher than what developers would pay under the previous system, potentially more than doubling affordable housing fees for some, according to calculations by San José Spotlight. But it is challenging to calculate exactly how much would be generated because developers can use a number of options to offset those fees.

Even so, Buchanan likened extending the program to a break for developers and said he’d prefer the city didn’t extend the program.

“We’re in the middle of a public health emergency and it’s frustrating to see the focus on continuing to cut fees for developers at all costs, even at a time when as a city we’re going through significant budgetary strains,” he said. “It’s just really frustrating for those of us that want to see the city focus more on working families and affordable housing and good jobs.”

Extension or no, some of the developers may not make the deadline either way, VanderVeen said. But for others, changing the requirements for the affordable housing in the developments could impact financing, a key part of getting the project built.

In at least one case, a developer told the city they planned to build the project but needed more time to secure the loans due to the pandemic, which has made some lenders more hesitant, VanderVeen said.

“There’s a mixed bag, there’s some that may (make the deadline), and there’s some that may not,” she said. “But this does just give those that were, on track — and they really were on track prior to COVID — it’ll give them a breath and a chance to just try and get over the goal line before it expires.”

The idea of losing housing developments is a tough pill to swallow in a city like San Jose, which has made a goal to build 25,000 new homes, including 10,000 affordable units, by 2022. The city is currently behind on that goal while facing serious budget deficits in the coming years due to the coronavirus that has shuttered tax-generating business across the region.

San Jose councilmembers will decide today whether it makes sense to push the affordable housing program deadline back — one more example of how coronavirus has potentially shifted plans in Silicon Valley and across the country.

The 10 projects that could be impacted by the change include:

A list of projects that are currently subject to the city’s former affordable housing fee program. Chart courtesy of city of San Jose.

Contact Janice Bitters at janice@sanjosespotlight.com or follow @JaniceBitters on Twitter.

Editor’s Note: The executive director of Working Partnerships USA, Derecka Mehrens, serves on San José Spotlight’s Board of Directors.

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