Why has building housing in San Jose become increasingly unaffordable?

When Justin Ponzio, assistant principal at Branham High School in San Jose, acquired an $800,000 single-family home with financial help through the county, he said it was a steal.

“I got pretty lucky, to be honest, because there was a slight downturn,” Ponzio said.

That, plus some friendly negotiations with his realtor landed him with a place to live for a dream price.

His fellow teachers just a few minutes away at San Jose Unified and East Side Union High School districts meanwhile have been begging for affordable units themselves with a proposed teacher-only affordable housing project still languishing in the planning stages.

It’s a common refrain in Silicon Valley, where the median monthly rent is more than $3,000, according to the Silicon Valley Institute for Regional Studies.

The exorbitant costs, according to experts, are due to a perfect storm of scarce land, high labor costs and lots of red tape from city, county and state governments.

According to a 2017 study by Smart Cities Prevail, a construction industry think tank, 71% of a project’s costs are “hard” costs, like materials, equipment and wages. Contractor and developer fees make up 18%. Other costs, like architectural and engineering services, off-site improvements and permitting and impact fees make up around 15%.

“Despite the fact that labor makes up only 15% of a project’s cost, it is often inaccurately cited as the primary factor in housing costs,” said David Bini, executive director of the Santa Clara & San Benito Counties Building & Construction Trades Council, which represents more than 30,000 local construction workers. “There might be some minor fluctuations in those costs, but materials might be the most volatile,” Bini added.

City and county officials have made numerous attempts to reduce housing costs, including subsidies, rent relief programs, nonprofit-led housing developments and rent control. California is one of only five states in the country, along with the District of Columbia, that have cities with rent control laws.

Two attempts to enact statewide rent control in California in 2018 and 2020 were both soundly defeated at the ballot box.

More than 1,500 affordable housing units were completed or in some part of the construction or planning process between July 2019 and June 2020 in San Jose, according to the city’s latest Production and Preservation Report. Roughly 4,000 more units are waiting for entitlements and funding. That puts the city more than halfway to Mayor Sam Liccardo’s goal to create 10,000 affordable housing units by 2022.

One thing local voters did pass is Measure A, a $950 million affordable housing bond in 2016 that some experts say has placed a dent in the region’s housing needs.

“I’ve shaken hands and handed out keys for units with people who have told me, ‘Thank you, you saved my life,'” said Geoff Morgan, chief executive officer at First Community Housing, a nonprofit affordable housing developer and manager. “The voters spoke, they created bond measures that are helping us to continue to build housing.”

But a recent audit found the county is behind in meeting its housing goals using Measure A dollars. Auditors wrote that the slow rate of construction and delivery of projects has made projects vulnerable to price increases, ultimately threatening the county’s ability to provide housing for those most in need.

Residents qualify for affordable housing based on how their income compares to the county’s median income of about $141,000 a year. A single person working a minimum-wage job in San Jose makes about $32,000 per year.

Still, the city lags in reaching Liccardo’s housing goal with just a year left to go. And with costs of living increasing amid a pandemic-fraught local economy, affordable housing prices are set to go up too.

Will prices ever go down? As long as demand is high and local policy prioritizes preserving single-family homes over building high-rise apartments with affordable units, experts say decreasing prices aren’t likely anytime soon. And even if city officials wanted to build denser, the city’s layout might make that difficult.

“The problem with achieving that kind of high density is that you have to do something to get the cars to get underneath the houses,” said Robert Wood, a professor of management and business at San Jose State University.

But pursuing open land further south and building denser housing would help, he said.

“There’s no reason why we can’t have a housing policy like Seattle’s here,” he added, referring to the city’s aggressive housing density policies.

One of the city’s latest affordable housing proposals, a plan to build up to 3,500 apartment units, with 15-20% of them affordable units on the site of the city’s iconic flea market, brought the same consternation that was seen across the proposals at San Jose Unified and East Side Union High School District.

“(You’re) trying to say this project will bring more housing. Housing for who?,” said Veronica, a public commenter at a recent Planning Commission meeting to discuss the flea market affordable housing project. “That’s the real question.”

Contact Lloyd Alaban at [email protected] or follow @lloydalaban on Twitter.