San Jose’s housing plan projected to be more costly

Quick-build temporary shelters are faster and cheaper for San Jose than investing in permanent affordable housing—that’s been Mayor Matt Mahan’s pitch during his first six months in office. But as officials prepare to approve this year’s $5.2 billion budget, the long–term costs for short–term housing don’t exactly support Mahan’s sweeping claims.

It’s something he touted at least 15 times at news events, city meetings and on social media last week to garner support for his goal of shifting millions of Measure E funding away from affordable housing to shelters. Yet it’s a divisive plan that housing advocates have criticized, saying the mayor has the numbers wrong. They said long-term interim housing is going to cost more and put the city in a financial hole.

In 2020 voters approved Measure E, a property transfer tax, to raise money for the city’s homelessness and housing crises. But since it’s passing, Measure E dollars have become the city’s main source of funding to support affordable housing development.

San Jose’s homeless population is down 4.7% since last year—the first dip in 13 years. But there are still more than 6,300 homeless residents—4,411 of whom live on the streets.

But while Mahan advocates that short-term housing is the best financial option, his plan fails to include the millions of dollars it would cost annually to operate these sites. City analysis shows that if San Jose developed all of Mahan’s interim housing projects, it would cost $60 million a year to operate the 1,028 units planned by 2030. Right now, the city already spends about $17.5 million annually on its six existing interim housing sites.

In comparison, affordable housing does not have an ongoing cost component for the city. It may be more expensive to build initially, but most of the city’s dollars are loans to developers, which means the money would be repaid over time.

Pricing it all out 

Today, the city is funding the operations of 437 beds across six interim housing sites that use temporary, prefabricated cabins—Felipe Bridge Housing Community, Mabury Bridge Housing Community, Monterey at Bernal, Rue Ferrari, Evans Lane and Guadalupe Lot E.

Since 2018—when the city approved its first two interim housing projects for 80 homes—they spent $38.5 million on building costs, according to the city’s housing department. That breaks down to about $6.4 million per site or $16,600 per one-room unit.

In comparison, since 2018, the city has spent $134.7 million on 22 different affordable housing projects—$6.1 million per project. The city’s investment was about $200,000 to $250,000 per unit for one-two bedroom apartments.

When examining costs to run and maintain interim housing, the numbers are much steeper than the upfront costs incurred for long–term housing. The upkeep requirements come in at about $41,600 annually per bedroom, according to the city’s housing department.

Based on this data, in five years San Jose will spend about the same to build and maintain one interim home than one affordable home. In 15 years, the city will spend almost three times more on a single interim home.

“For that price, the city could provide subsidies for the construction of 2.8-3.7 new units of permanent supportive housing or rapid rehousing for homeless individuals and families,” said Jefferey Buchanan, public policy director of local nonprofit Working Partnerships USA. “Housing which is constructed to standards to last for 99 years.”

He noted the city could find ways to bring down operating costs for interim shelters, but predicts it will still cost tens of millions annually. That would surpass the city’s projected five-year surplus—$25.9 million—which means something from the city’s budget will likely have to be cut.

“Potentially requiring either massive ongoing program cuts to existing essential services or ending (interim housing) operations and sending residents back to the streets,” Buchanan said.

Mahan maintains that ultimately the cost will be worth it, because the inhumane conditions on the streets is an immediate concern that has massive economic impacts across the city.

“It’s a clear moral imperative… to give basic dignified housing with supportive services and that privacy and stability and security to every person in our community,” Mahan said. “Before we embrace the slowest, most expensive strategy possible (affordable housing).”

It doesn’t add up

Housing Director Jacky Morales-Ferrand said the city would need to rely on state, federal or philanthropic dollars to maintain the costs required to operate the roughly 1,000 planned interim housing rooms proposed by Mahan—because the dollars do not exist now. With San Jose anticipating a budget shortfall of $18.8 million in 2024-25, this plan would dig the city into a deeper hole. It would place an even bigger dent in the budget.

“Comparing the (construction) costs is shortsighted,” Morales-Ferrand told San José Spotlight. “Ultimately, affordable housing across income levels is the solution to our homeless and housing crisis. We need to expand the funding for each instead of pitting them against each other.”

But Mahan said he’s not worried about the ongoing operational costs because the financial gap could be filled by other agencies that have helped San Jose through various grants and programs. For example, the Monterey and Branham interim housing site costs $70 million for construction and one year of operations—of that $51 million is coming from the state, $4 million from Santa Clara County, $5 million from the Sobrato Foundation and $10 million in city dollars.

Mahan said even if the city didn’t have outside financial support, the ongoing costs amount to only a fraction of the city’s entire budget—and to the mayor, that is without a doubt a worthwhile cost.

“We’re talking about (less than) 2.5% of our operating budget in the general fund to address the single most significant issue we face as a city right now,” Mahan said. “This moment demands bold investments that demands urgency.”

But housing critics, and even Mahan’s own colleagues on the city council who have created alternative plans to his Measure E proposal, are still doubtful that this is the best way.

“Interim housing is an innovation of shelter, not an innovation of housing,” Ray Bramson, chief operating officer at Destination: Home, told San José Spotlight. “It has been incredibly more effective than older forms of homeless shelter, but it is not permanent housing—so let’s not compare the two.”

Short-term vs. long-term solutions 

Interim housing sites are known as quick-build, temporary homes that provide shelter and services such as food or case management for San Jose’s most vulnerable homeless population. Residents stay at these sites typically for a couple of months. They are given private rooms that lock and some have bathrooms. The designs of these shelters range from repurposed shipping containers to prefabricated homes which are expected to last between 15-20 years.

About 50% of people who live in interim housing move into permanent housing, city data shows.

Alternatively, affordable housing is just regular housing, but with rents set low enough that people making below the median income can afford to live there. In Santa Clara County, the median income is $50,000 for an individual and $130,000 for a family.

Jen Loving, executive director of Destination: Home, said interim housing is part of the solution—and one the city should continue to fund—but she takes issue with how the mayor compares it to affordable housing.

“It is misleading the general public to phrase it as if all of a sudden there’s a cheaper, faster answer that no one was thinking about,” Loving told San José Spotlight. “Shelter (interim housing) is not better from an outcome perspective, when you compare it to permanent housing, or a cost perspective over time.”

The San Jose City Council will have its final Measure E hearing today at 6 p.m. and will vote on a spending plan tomorrow at 11 a.m. Learn how to watch and participate.

Contact Jana Kadah at [email protected] or follow @Jana_Kadah on Twitter.