UPDATE: San Jose eases housing development requirements

The San Jose City Council has approved a trio of housing measures intended to spur local development by adjusting certain requirements that homebuilders say have stymied new projects.

Two of the measures expand incentive programs that reduce construction taxes and ease affordable housing requirements for developers. A third measure revamps San Jose’s inclusionary housing policy, which requires market-rate housing developers to direct a portion of their investments to create affordable homes set aside for low-income residents.

Both incentive program measures passed unanimously. The adjustment to the inclusionary housing policy passed 9-2, with Councilmembers Domingo Candelas and Pamela Campos voting no.

Supporters of the housing package contend it will provide crucial relief for San Jose’s beleaguered housing industry, which has struggled to get projects off the ground in the face of longstanding economic headwinds. But the measures also ran into fierce opposition from some advocates who argue the city is placing too much emphasis on market-rate development, and in doing so weakening support for new affordable housing.

“Because of the city’s position financially, because of dwindling federal support, we’re running out of ways to assist the production of affordable housing,” Alison Cingolani, a director for the San Jose-based affordable housing advocacy nonprofit SV@Home, told San José Spotlight.

However, San Jose Mayor Matt Mahan, a key backer of the changes, argues the city’s current mix of fees and requirements have only compounded the barriers to new housing.

“Affordable housing policies only work if housing actually gets built,” Mahan said in an email sent to constituents Sunday outlining the housing measures. “With high construction costs, tighter financing, and higher interest rates, the rules are no longer aligned with market reality — and that means less housing gets built, rents rise, and displacement increases.”

The changes to the city’s inclusionary housing program, all geared towards making requirements less burdensome for developers, turned out to be the most controversial of Tuesday’s housing votes. 

The measure recalibrates the complex formula used to determine how many affordable homes a developer must provide in new developments, and what income levels they must target.

For example, prior to Tuesday, developers of residential apartment buildings could meet the requirement by setting aside 15% of homes in a new building for renters earning between 50% and 100% of area median income. As an alternative, they could set aside 10% of homes for renters earning just 30% of area median income.

The new policy modifies the first option and also introduces a third option under which a developer may set aside 7% of the new apartments for people making 50% of the area median income. The median income for a family of four in Santa Clara County is $195,200.

Affordable housing advocates have raised concerns that the new policy may result in the creation of fewer below-market rate homes.

Candelas pushed to defer portions of the inclusionary housing policy to give staff more time to review potential impacts, but his proposal was voted down. 

“I do believe there is an opportunity to craft an inclusionary ordinance and update it, but one that does not leave out our disadvantaged communities,” he said. 

Councilmembers also approved a measure to extend the city’s development incentive program. Passed in December 2024, the program reduces a number taxes and fees for qualifying projects, including a 50% cut to the city’s construction tax. 

Backers credit the program with helping five projects — totaling more than 1,400 homes — begin construction last year. In contrast, over the entirety of 2024, not a single market-rate housing construction project got off the ground, according to city officials.

The first phase of the program wound down at the start of the year. Tuesday’s extension pushes the end date back another year and also raises the limit on the number of projects allowed to participate. 

A third measure expanded San Jose’s longstanding downtown high-rise program to include downtown projects converting office buildings into new housing. Such projects will now enjoy financial waivers allowing them to forego 100% of the city’s construction tax and 50% of its park impact fees.

The change is part of the city’s broader effort to encourage developers to convert underused commercial buildings into homes.

San Jose generates a significant amount of revenue from development taxes and fees, which fund key city priorities such as transit programs and parks. The one-year extension of the housing development incentive program alone will mean forgoing an estimated $6.6 million, according to officials.

But land use consultant Erik Schoennauer, who represents a number of residential projects that could benefit from the incentive program, said without the changes, many projects will remain in financial limbo.

“It needs to be understood that this is truly a 911, five-alarm emergency. The lack of housing is really the root cause of many of our challenges,” Schoennauer told San José Spotlight. “The city council must take every step to make it cheaper, faster and easier to build housing. The industry and the market needs help.”

Contact Keith Menconi at [email protected] or @KeithMenconi on X.

Story updated Feb. 6 at 5:20 p.m. Original story published Jan. 26 at 8:30 a.m.

Editor’s note: This article has been updated to clarify the changes councilmembers approved to the city’s inclusionary housing policy.