Findings from a recent study conducted by the city of San Jose revealed a troubling but not so surprising trend: It’s costing more than ever to develop housing in Silicon Valley.
Burdened by rising land value, increasing interest rates, and a scarcity of the workers we need to build new homes, housing development has never been more challenging. And while the report goes to lengths to show how the high costs have lead to a market infeasibility that is stagnating the development waters like a swamp, it doesn’t go far enough to talk about why we still need to build housing at the deepest levels of affordability, nor does it suggest what we should do when it comes to charting a route to a more affordable place for us all.
It is absolutely true that all types of housing construction are facing escalating costs due to a myriad of macroeconomic factors. Financing costs, for example, have more than tripled since 2019, adding an average of $70,000 per unit for development. Forces like these, far beyond our control, are feeding fuel to a raging inferno that’s burning down the future for so many vacant lots scattered throughout the community. But this is the case for every type of housing out there from market-rate to extremely low income. High development costs are part and parcel of building any kind of units in this region; it is a product of a broken system that is driving up the expenses across the board.
Unfortunately, of late too much attention on cost is being attributed solely to affordable apartments. The exorbitant increases cited in the study look galling on the page, but behind the numbers there’s a deeper truth. For instance, most of the recent extremely low-income projects considered included a larger number of multi-bedroom units designed to meet the growing need for families with kids.
Focusing on these larger units was a conscious decision by our leaders to address the dire need among families — and while we could certainly change course, we shouldn’t back away from ensuring all kids have a safe and stable place to live. And when you adjust for square footage, the report showed that this type of housing only rose 4% year-over-year and is only 14% higher than market-rate. That seems like a pretty worthwhile investment to ensure that working families with newborns don’t have to sleep in their cars.
The truth is that despite the cost, deeply affordable housing will always be a good investment. Many sources go into these projects, including private financing that’s paid back by the tenant’s rent and has zero financial impact on the taxpayers. And by smartly leveraging a variety of local, state and federal programs, costs are spread across jurisdictions meaning that a little city money goes a long way. The average San Jose project in the study only received about $85,000 per unit in city funding — providing a strong return on investment for city taxpayer dollars as we confront our housing crisis as quickly and cost effectively as possible given the difficult factors at play.
Embracing this fuller and much more nuanced analysis of what’s driving the cost of affordable housing can help lead us to real solutions too. We all share a goal of finding ways to drive down costs and build projects more quickly because it will mean more homes for so many vulnerable residents in a much shorter period of time. It’s our imperative to keep exploring what we can do to simplify the complicated systems — like affordable housing tax credit financing or local land entitlement processes — that drive up costs and slow down construction. If we are able to do this, we know the potential to unlocking so much more housing is just around the corner.
The one thing we can’t afford to do is to cease investing in this critical community asset. Increasing affordable housing brings enumerable benefits, providing a lifeline to struggling elders, single-parent families, aging veterans, and so many more. It is a proven solution that ends and prevents homelessness, and it also makes San Jose a better place for everyone.
We all deserve a safe and affordable place to call home — so, let’s get past numbers that don’t speak to the true need and see what we can get done for those who need help the most.
San José Spotlight columnist Ray Bramson is the Chief Operating Officer at Destination: Home, a nonprofit that works to end homelessness in Silicon Valley. His columns appear every second Monday of the month. Contact Ray at [email protected] or follow @rbramson on X, formerly known as Twitter.