The San Jose City Council is set to hear several big ticket items on Tuesday, including a proposal to extend a tax break for high-rise developments in downtown and updates on the city’s homelessness and housing crises.
Lawmakers will hear an annual update on the city’s ongoing homelessness crisis, and a proposal led by Councilmember Raul Peralez to speed up a study that would include a commercial linkage fee to fund the construction of affordable housing, as San Jose tries to reach its goal of the production of 25,000 housing units — 10,000 of them affordable — by 2023.
To address the growing need for housing, Peralez is urging for the city’s Housing Crisis Workplan include a commercial linkage fee — a controversial idea to place a new fee on Silicon Valley businesses to fund affordable housing. The idea to study such a fee, first proposed by former Councilmember Don Rocha, was killed by councilmembers several years ago.
“While our city is undergoing significant growth, the rate of our housing production continues to lag,” Peralez said in a memo. “Since January 2019 we have only added 775 units of affordable housing to our pipeline. Without an ongoing source of funding to balance the impacts of our economic growth, we fall further behind in hitting our affordable housing goals and in those five months, we could lose out on potentially millions.”
After many failed attempts, city officials in Dec. 2018 agreed to study a potential new commercial fee. Peralez is pushing for the final results and policy proposals no later than Jan. 2020, adding that it’s “more than disappointing” to learn the final report will be delayed another five months, at the earliest seeing results in June.
Since approving the study last year, Peralez said roughly 9 million square feet of new commercial development has been added to the pipeline — a missed opportunity to generate much-needed revenue for affordable housing. “At the rate that we are
growing, without a decision on a (commercial linkage fee),” Peralez wrote in a memo, “we are missing out on an opportunity to generate revenue that will offset the increasing affordable housing demand.”
The downtown councilmember also suggested developing specific income-targets for the 25 percent affordable housing
requirement for the Diridon Station Area — including an assurance that a minimum of 45 percent of those apartments will be for people who are considered “extremely low income,” most of whom spent more than half their paychecks on rent.
In another proposal, Councilmember Johnny Khamis requested creating a first-time buyer program to provide housing for teachers.
Housing officials laid out alarming statistics in the report, including a whopping total of 6,097 homeless individuals in San Jose, 83 percent of who live on the streets unsheltered each night. Since 2017, the city’s homelessness population has increased by nearly 40 percent.
“While there has been considerable progress in investing in new housing opportunities and support for homeless individuals and families in San Jose, meeting the immediate housing needs of homeless men, women and children remains a challenge,” said Jacky Morales-Ferrand, the city’s housing director, in the report. “To end homelessness, a community-wide coordinated approach to delivering services, housing and programs is needed.”
Extending tax breaks for high-rises in downtown
San Jose policymakers agree with the need for more housing — but they disagree on how to produce it.
That disagreement was evident earlier this week, when a proposal to extend a massive tax break to developers looking to build in San Jose’s downtown had the business and labor community squaring off at dueling news conferences, as the program significantly cuts construction taxes in half, and waives fees that would go toward affordable housing.
The nearly 15-year-old the Downtown High Rise Incentive Program has local lawmakers and advocates split on whether or not to waive fees and taxes in order to spur market-rate residences in the city’s downtown core. Since the program’s inception, the city has built 1,522 homes, according to housing officials. Currently, the subsidy would help build nine projects with nearly 3,000 units of housing that are in the pipeline. If the program isn’t extended, at least seven of those projects might not get built.
But if those fees and taxes are waived, then the city would be expected to lose at least $67 million in funds for affordable housing projects, according to top labor advocates Silicon Valley Rising and Working Partnerships USA. Those funds are expected to help create 458 units of affordable housing and help fix 20 miles of neighborhood streets.
“This giveaway will boost developer profits – but the public will get no affordable homes and no high-quality jobs,” said Silicon Valley Rising on its Twitter page. “City of San Jose councilmembers must vote no on money for nothing to the Mayor’s corporate donors.”
Still, the powerful business lobby — notably the silicon valley organization — is not backing down on its support as it estimates that San Jose would lose out on 3,500 units of vital housing. The former San Jose Silicon Valley Chamber of Commerce is advocating for creating more housing, and business leaders say the high price of building in San Jose hampers the city from meeting its goal of 10,000 new units of housing before 2022.
“Silicon Valley has some of the highest construction costs in the country — in fact, it is the most expensive place to build,” said SVO president Matt Mahood. “The costs are high on land, on labor and raw materials. Developers are looking at a 5 percent slim, slim profit margin. Without that profit margin, the capital markets don’t invest in projects.”
Mayor Sam Liccardo — a longtime proponent of development — agrees, denying claims from labor leaders who say he’s giving away “handouts” to wealthy corporate housing developers.
“The city has recognized that we won’t get high-rise apartments built if we don’t reduce the city’s fees on this uniquely difficult construction type. Ever since, we have reduced fees — with no direct city subsidy — to enable projects to get built downtown, but the reduction will soon expire,” Liccardo said in a statement. “If council doesn’t extend the existing fee reductions, San Jose will continue to suffer through its housing crisis with a puzzling dearth of high-rise construction.”
If approved on Tuesday, the program will be extended until Dec. 2023.
The City Council will meet 1:30 p.m. Tuesday inside the council chamber at City Hall, 200 East Santa Clara Street in San Jose.
Contact Nadia Lopez at [email protected] or follow @n_llopez on Twitter.
Editor’s Note: The executive director of Working Partnerships USA, Derecka Mehrens, serves on San José Spotlight’s Board of Directors.