San Jose looks at ways to increase housing for middle-income workers
A policy of opportunity housing would allow owners of single-family homes to build limited additional housing on their property. Photo courtesy Santa Clara County Association of Realtors.

    Middle-income wage earners, such as firefighters and teachers who often are left out San Jose’s housing equation, are the focus of a new effort being discussed at City Hall.

    Councilmember Johnny Khamis said the city becoming a member of the California Community Housing Agency (CalCHA), which issues government purpose bonds to finance affordable housing, might be the solution for middle-income earners.

    “It’s a win for the people who are looking for affordable homes and a win for the city,” Khamis said, “because the city hasn’t built a single new low-income housing unit for a couple of years. Not a single one.”

    Although the city has approved housing for people in very-low income brackets, such as seniors and the homeless, Khamis said the city has fallen short in producing workforce housing for people earning 80% to 120% of the area median income (AMI).

    “This program is exactly what we need and in the right time,” Khamis told San José Spotlight. “We see a lot of homelessness and everybody wants to solve that issue. Teachers, mechanics and restaurant workers get sidelined because they’re making a gainful living. They have been neglected.”

    CalCHA helps those who earn too much to qualify for traditional affordable housing yet not enough to live comfortably in the communities they work, said Scott Carper, program administrator for CalCHA.

    Vince Rocha, senior director of housing and community development of Silicon Valley Leadership Group, said CalCHA offers another tool in the toolshed of affordable housing, which is needed because San Jose isn’t meeting housing demands.

    “Otherwise, we’re leaving a whole segment of our workforce and residents out of the equation when we’re talking about affordability,” Rocha said.

    By issuing governmental purpose bonds, CalCHA finances projects that provide, preserve and support affordable housing. Private investors buy California tax-free municipal bonds at favorable rates.

    The money comes from private investment that is paid back over 30 years. At the end of the cycle, when the bonds are paid off, the city inherits the property. After 15 years, the city could opt to purchase the property, with a cost based on how many bonds are outstanding. Once all the debt obligations are paid, surplus funds would revert back to the city.

    “There’s no risk to the city as investors are on the hook and the city is not,” Khamis said. “This frees up money that would have gone to low-income housing development and allow us to use more money towards helping the homeless.”

    Detractors have raised the concern that once the bonds are paid off, the city may get a property that’s dilapidated.

    “It’s possible, but the city still gets a free property,” Khamis said.

    Jacky Morales-Ferrand, San Jose’s director of housing, said although the proposal offers an interesting opportunity, the city needs more time to fully understand the financial, legal and economic implications, risks, benefits and costs.

    “It has some potential, but we want to make sure the entity we join and support issuing this is really a partner … because if there are ever any issues with properties, people will come back to the city and want us to hold somebody responsible,” Morales-Ferrand said.

    She said another option is California Statewide Communities Development Authority (CSCDA), which also issues tax-exempt bonds to acquire affordable housing for middle-income workers. CSCDA was created in 1988 and services more than 530 cities, counties and special districts. San Jose has been a member since 1990.

    As CalCHA purchases housing that already exists — from apartment units to apartment buildings — no development is needed. As soon as property is purchased, the housing becomes immediately available.

    Existing tenants of apartment buildings are not displaced as the units are converted from market-rate to the deed-restricted moderate category through attrition. CalCHA reserves one-third of the units for those earning 80% or less, one-third for those earning 80% to 100% and one-third for those earning 100% to 120% of AMI. It could take a few years to fully reach these goals. Rent increases are limited to no more than 4% annually.

    According to the housing department, moderate-income households earn between 81% and 120% of AMI.

    In 2020, single people would fall into the moderate-income category if they earned $78,550 to $118,950 a year. A family of four earning $112,150 to $169,900 a year would also be considered moderate-income. About 5% of 16,000 income-restricted apartments qualify as moderate-income.

    “Moderate-income housing remains very difficult to finance given the lack of subsidies and affordable housing funding programs for this income group,” Morales-Ferrand said.

    Khamis said CalCHA creates affordable housing without new taxes and purchases can be completed in a matter of months, making affordable housing quickly available rather than having to wait four to five years for development.

    Since its inception in January 2019, CalCHA has acquired 1,180 units, representing private investment of $594 million. Its acquisitions in the Bay Area include units in Santa Rosa, Fairfield, Larkspur and Livermore.

    On Dec. 2, the topic returns to the City Council’s Rules and Open Government Committee, which will decide whether to move forward with a full council discussion. If so, a final vote would follow on Dec. 8 or Dec. 15.

    Rocha said the city having market-based solutions in addition to tax-revenue solutions is the only way to reach its goals of providing affordable housing.

    “This gives the city options they don’t currently have,” Rocha said.

    Contact Lorraine Gabbert at [email protected].

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