More multifamily home construction could be in San Jose’s future, with the approval of a new developer incentive program.
The San Jose City Council on Tuesday voted 9-1 to squash financial penalties for developers who build less than the required 15% affordable housing benchmark, provided the projects are multifamily homes. Councilmember Peter Ortiz was the sole no vote.
Mahan, who spearheaded the council discussion, said city analysis shows hundreds of homes have been built downtown because of the existing high-rise incentives program, which officials recently extended. He said giving developers a break on one-time fees on affordable housing could mean more housing overall.
“The reality is that if we, particularly through one-time fees, try to meet all of those other obligations on the back of new housing construction, we will get less housing, which is our No. 1 need and our No. 1 crisis,” Mahan said. “We should think of it as a loss, because frankly, we got nothing this year, literally nothing.”
Up to 35 housing proposals totalling more than 10,000 homes are eligible, but only two to three projects are likely ready to move forward. Still, the incentive program is already achieving some of its intended outcomes, Housing Director Erik Soliván said.
Based on three potential projects analyzed by the housing department, developers could save up to $14 million in city-mandated fees through the multifamily housing incentive program.
“There are always trade-offs and balances in considering how best to incentivize market rate (housing) development, but that is for council and the mayor to consider how best to weigh those policy priorities based on staff recommendations and detailed analysis,” Soliván said at the meeting. “The probability of proceeding forward and reaching the target return on costs for certain projects is rather high.”
The amount of affordable homes pledged by developers who qualify for the incentive program is more than the 65 affordable homes that could have been funded with the financial penalties, he added.
Support from city officials for the multifamily housing incentive program soared after housing department employees said there were no multifamily homes constructed in 2024 — a stark drop from the 336 multifamily homes built last year and the 782 constructed in 2022.
Councilmember Pam Foley asked about the potential impact to San Jose’s transportation safety programs, since these funds go toward traffic management.
“These kinds of funds help to support the staff that work on the neighborhood traffic management program,” Transportation Director John Ristow said. “Those are also the funds set aside for small-scale safety improvements around schools and residential streets like enhanced sidewalks, beacons.”
Ortiz voiced concern about a city report stating the multifamily housing incentive program’s tax breaks would not advance many housing projects due to outside factors, such as land and construction costs. He wasn’t the only councilmember to raise this point.
Councilmember Domingo Candelas also questioned the long-term impact.
“We know that economic conditions are the main barrier at this moment,” Candelas said. “The bigger picture is the market, and we can’t control that.”
Housing development companies with representatives who spoke in favor of the multifamily housing incentive program included the Hanover Company, Sand Hill Property Company and Urban Properties.
“We represent two of the (35) projects on this impacted list, and I’m pleased to relay that we have capital commitments for both of our projects representing 742 housing units that could break ground next quarter,” Scott Youdall, the Hanover Company’s regional development partner on the West Coast, told city officials Tuesday. “But critically, both commitments are contingent on this incentive program passing today.”
Contact Vicente Vera at [email protected] or follow @VicenteJVera on X, formerly known as Twitter.
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