San Jose and Developers Need More Incentives to Spur Housing

More incentives may be needed to get developers to plant more shovels in the ground for housing in San Jose

City officials and developers say incentives passed this month to “unblock” the multifamily construction pipeline fall short, and the city needs to do more to jumpstart construction, the San Jose Mercury News reported.

This year, the South Bay city had no market-rate project larger than 20 apartments break ground.

So the city this month approved a 50 percent cut in construction taxes for the first 1,500 units for projects in designated growth areas that applied by June 2022 and received building permits until the end of next year.

The city will apply a 25 percent tax reduction for up to 8,539 units of eligible projects beginning in 2026. It will also reduce park fees in North San Jose by nearly half and delay the payment of taxes until the receipt of a certificate of occupancy.

Some 35 projects, including 7,357 market-rate and 2,276 other units, qualified for the incentives. But that’s not enough to help San Jose meet its state housing goal to build 62,200 homes by 2031 — an average of 7,775 units per year.

With only about 600 parcels qualifying and expectations that it might only see a few hundred extra units entitled per year, developers and elected officials say the city needs to expand the policy even further.

“It makes no sense,” land-use consultant Erik Schoennauer told the Mercury News. “There are so many exclusions (that) it’s going to generate nothing, so I hope in 2025 we can have a real talk about improving the city’s overall process.”

Last year, San Jose issued permits to build 2,666 homes, but not a single developer broke ground on a market-rate apartment complex, with the market brought to a halt by higher interest rates and costs.

The streamlined process approved last week includes minimum qualifying criteria: projects must have a minimum density of 40 units per acre and be located in growth areas like planned urban villages and within half a mile of existing major transit stops or corridors, according to the Mercury News.

Exclusions include parcels with planned development zoning, within the airport influence area and within 300 feet of a creek or 100 feet of a city landmark.

One of the biggest changes the policy would make is allowing qualifying projects to forego the need for a public hearing, cutting an estimated 20-month review time for multifamily housing.

San Jose Mayor Matt Mahan agreed that the streamlined process needed to go further, issuing a memo with Vice Mayor Rosemary Kamei and Councilmembers Sergio Jimenez, David Cohen and Dev Davis that call for the city to expand the ministerial approvals process to the airport, Downtown and other growth areas.

“This policy change, I think, strongly stands on its merits as a good step forward,” Mahan said. “If anything, we’re applying it in far too little of the city, given how much work we’ve done in planning and how little housing we’ve actually seen built in the very areas where we say we desperately want it.”

— Dana Bartholomew