UPDATE: Divided San Jose City Council gives whopping break to high-rise developers
A proposal being considered by the City Council would give developers a break on fees to encourage building downtown. File photo.

Downtown high-rise developers will receive a huge discount during the pandemic but their savings will come at the expense of low-income housing.

As COVID-19 worsens economic conditions for those looking to build in San Jose, city leaders voted 7-4  Aug. 18 to eliminate a fee that helps fund affordable housing.

Councilmembers Sergio Jimenez, Magdalena Carrasco, Maya Esparza and Sylvia Arenas voted against the fee reduction.

“I’m deeply concerned and deeply discouraged about the fact that we’re facing an ever-worsening housing crisis,” Esparza said. “And yet here we are on the cusp of moving forward on another giveaway to developers while working families and communities are out working multiple jobs, struggling with increasing rents.”

The Inclusionary Housing Ordinance requires downtown developers building 20 or more units to dedicate 15 percent for low-income residents. If developers do not want to give up 15 percent, they must pay a 20 percent “in lieu fee” of $125,000 per affordable rental and $157,858 per affordable property for sale to supplement the cost of creating other affordable housing.

The City Council brought the fee down to zero to encourage residential development.

“If you look at our downtown, you look at the number of cranes in the sky versus other comparable cities, we have been lagging behind in terms of the number of development projects that have been brought forward,” Vice Mayor Chappie Jones said. “And if we don’t provide either incentives or fees, then these properties aren’t going to move forward and there won’t be any fees to build affordable housing.”

Councilmember Johnny Khamis advocated for the fee reduction, saying it would bring more jobs to San Jose.

“If there’s nobody building, that means nobody’s going to have jobs,” Khamis said. “And we have to look at what we can do as a City Council to spur job growth … a lot of the jobs that come out of construction are skilled and good paying jobs.”

The $0 fee would be in effect until June 2023, giving developers leeway during the pandemic to begin housing projects without the burden of additional costs. Fees would gradually increase in 2024 to $13 per square foot of new development and would return to the previous $25 to $43 fee by 2025.

“You do not get a single dollar out of a builder from a fee if they cannot get financing to build,” Mayor Sam Liccardo said. “You can have the fee as high as you want, you won’t get a single dollar.”

Even when the city does receive those dollars from in lieu fees, Eddie Truong, director of government and community relations for the Silicon Valley Organization, said the support is not enough to build affordable developments.

“Some development projects are costing more than $100 per square foot to build,” Truong told San José Spotlight. “We’re talking like hundreds of millions of dollars for high rises for housing. So if you do the math quickly $125,000 for 20 homes is $2.5 million. The city would not have enough money to build anything.”

In 2019, San Jose Spotlight reported only 245 affordable units had been built in San Jose since 2017. The city’s goal was to build 10,000 units by 2022.

The City Council originally approved the fee reductions in November 2018 but progress was delayed due to COVID-19.

Councilmember Sergio Jimenez expressed concerns developers aren’t including workers in the conversation.

“They come to the table asking for subsidies, but when it comes to doing right by their workers, many of them are not interested in doing so.” Jimenez said. “And they’d much rather go to the non-union contractors where they can pay people low wages and zero health care, creating these very conditions that caused us to have this fiasco at Silvery Towers some time back.”

To qualify for reduced fees, projects must be residential buildings with 10 or more stories in downtown. Developers also would need to prove 80 percent occupancy of housing units before June 30, 2025.

Contact Carly Wipf at [email protected] or follow @CarlyChristineW on Twitter.

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