Affordable Housing Study Session

The City Council had a study session last week devoted to affordable housing. The session covered how San Jose could build more affordable housing, even though it has already publicly funded and completed roughly 21,000 such units in years past and has 1,500 additional units currently in the pipeline. As a point of comparison, other cities have done little during the same time period.

Comments from the council included advocacy for the building of more traditional single family homes, potentially in the Almaden Reserve and Coyote Valley, with the objective of bringing down the average cost of such dwellings. The economist who was invited to speak at the meeting said any newly constructed houses in the urban reserve may indeed sell, but following this path would be contrary to the changing, age-based demographics of San Jose (more seniors, more young people). In addition, statistics indicate that committed couples are having fewer or no children today compared to past decades, which highlights a demographic shift that alters demand for single family homes.

Most economists and urban planners agree that suburban sprawl is bad for city revenue and the environment. The majority of homes in San Jose are single family dwellings, and the resultant suburban sprawl has contributed to the city’s economic problems and transportation woes. Building out houses across the valley in Almaden and Coyote would only magnify the pain.

It was mentioned during the study session that 4,500 units of market rate apartments are under construction in North San Jose. Had the council approved the construction of single family houses instead of high density apartments, the result would have netted roughly 300 houses or 4,200 fewer housing units overall.

I asked the economist, point blank, which of the two options he would choose: 4,500 apartments or 300 houses. Not surprisingly, he chose the 4,500 apartments. The 4,500 units in North San Jose would create more overall affordability by providing additional housing (supply and demand). Three hundred single family homes is a drop in the bucket when considering the over 175,000 similar units that already exist. In contrast, the creation of 4,500 market rate apartments would add significantly more construction jobs, aggregated property and utility tax revenue, and larger park and road paving remittances than the 300 single family homes.

Additionally, the development of density in North San Jose does not create conflict with traditional single family neighborhoods and enables more of an active urban community that both young professionals and seniors alike seek out. This is significant, because young professionals and seniors are the two fastest-growing demographic groups in San Jose. And not coincidentally, they are also less inclined to choose a single family home and all of the inherent maintenance responsibilities that come with it.

The Housing Department will return to council in February 2013 with further information to consider. One option is to look at borrowing money by issuing bonds that would provide funding for more affordable housing construction. This is the same method utilized to purchase golf courses and the Hayes Mansion. San Jose is already in debt for over $800 million for past bond issuances, and this figure does not include the $1 billion plus attributable to airport bonds.

Yet another option would be to make market rate housing developers pay an “impact” fee to fund affordable housing. The enactment of such a fee would increase the cost of market rate housing to the future resident. The theory behind this approach presupposes that for every new, highly paid professional, more demand is created for workers in the service industry who will also need housing.

Speaking of “impact”, we should consider the impact of affordable housing developments on our police officers. I wrote and shared data on this impact 18 months ago.

I was not supportive of the ideas mentioned above at first glance, so I asked if some alternative options could be considered. One course of action would be to follow the example of Santa Clara and Mountain View, and waive adherence to prevailing wage ordinances on affordable housing construction. Doing so would lower the cost of construction, which in turn would mean that San Jose no longer has to subsidize these projects by continuing to waive infrastructure fees for road paving and parks. To date, the city of San Jose has waived more than $100 million of infrastructure fees to promote affordable housing.

Another idea I suggested concerns the distinction of affordable housing that is built by for-profit entities versus non-profit entities. Non-profits build the majority of the affordable housing in San Jose and are exempt from paying property tax. For-profit construction results in property tax revenues being paid to San Jose and other government entities, such as schools, that need the revenue to pay teachers. Property tax revenues are the largest annuity stream payable for ongoing city services in San Jose, and each and every time the council approves another affordable housing development exempt from property tax, we move one step closer to laying off another police officer or teacher. I have written before about the consequences of this lost revenue.

At the end of the day, I believe in quality over quantity when it comes to affordable housing. Everyone—not just some—should pay property taxes and contribute to the costs of road paving and the creation of new parks. This provides a good example of equity and paying as we go for infrastructure and ongoing city services.

16 Comments

  1. Bring back police and fire staffing.  Bring back library hours.  Then let’s talk about low income housing and an A’s stadium.

  2. Low income housing, about priority 99 out of 100 for San Jose.  Why must SJ carry the weight while other cities and towns do little or nothing?

  3. From now on, build all the housing in the downtown core/frame area only and let the rest of the cities across the county build their share of housing.  Keep away from disastrous sprawl mentality and stop it defending vigorously!  ONLY IN DOWNTOWN SAN JOSE FOR HOUSING AND JOB GROWTH FROM NOW ON!!!!!!!!!!

  4. I know that “expert” economists and “expert” urban planners are all in kumbaya agreement that single family residences are a bad way to go and that the socially responsible thing to do is pack more dwellings onto the remaining available plots of buildable land.
    I say San Jose can be different.
    Let’s buck the advice of the establishment “experts”. Let’s try something different.

    • > I know that “expert” economists and “expert” urban planners are all in kumbaya agreement that single family residences are a bad way to go and that the socially responsible thing to do is pack more dwellings onto the remaining available plots of buildable land.

      Galtus Magnus:

      It says right here in my SmartPlan, written by SmartGrowth experts, that transit villages built over light rail stations and High Speed Rail stations are the smart way to provide affordable housing.  Especially if the villages have lots of charging stations hooked up to SmartMeters for charging SmartCars.

      What do you have against being smart?

      Are you some kind of anti-intellctual Neanderthal?

      • Yes I am a Neanderthal- and not a very Smart one at that.
        But it seems to me our City is overdoing the social responsibility thing when it comes to building new housing. And existing Sannazayans are paying the price and suffering the results.
        If our city planners had the best interests of it’s residents in mind wouldn’t truly SmartGrowth make San Jose less affordable, not more affordable?

        • I think there is some confusion about the current state of San Jose laws, and specifically a confusion that I wouldn’t expect from someone with the handle “John Galt.”

          Under current planning laws, it is illegal for a property owner to build the homes that he believes would sell on a free market. If I want to turn my Willow Glen land into an apartment complex, there are a host of laws that will frustrate me. These include floor-to-area maximums, height maximums, mandated parking laws, etc. It is literally illegal to build apartments on your own land. Unless you have very powerful friends, You CANNOT do anything that would challenge the government mandated suburban-style environment.

          This anti-density planning (the notion that San Jose’s planners “want density” is belied by the laws that cover 90% of the land in the area) plays a large role in explaining San Jose’s current budget crisis (the financial crisis and the unions didn’t help).

          Besides the principle that we ought to be free to develop our land as we see fit, why should we want to get rid of this anti-density planning? Well, density makes our taxes cheaper, and makes the city livable for our adult children and our aging parents. It makes neighborhoods more walkable, and is seen as an attractive way of living for many thousands of people. Urban areas are expensive precisely because there is a lot of demand for that lifestyle. It’s not exactly for me, but I have no right to use the government to stand in the way.

          density is not being forced on us by “planners.” The “plans” to the extent that this city has any, have been pro-suburban and against high density. It is only the occasional exception to this rule that get’s noticed and written about in the news, precisely because it is so unusual.

          A person named “John Galt” should probably defend free markets. In San Jose, that means free markets in building, and that means private developers building high-density.

        • Galtus Magnus:

          dhkelly makes the case for zoning and suggests that even earnest “free market” advocates might not like the consequences of doing away with municipal zoning.

          I like the free market as much as anyone, but I would certainly have qualms if some “entrepreneur” decided to build a lard rendering factory, a fish meal processing plant, an insane asylum, or a Democrat activist club adjacent to my property.

          What are we free marketeers to say about “zoning” and the limits it places on property rights?

          Specifically, what would Milton Friedman say?

        • Let’s not confuse libertarianism with anarchy. I’m not anti-government and, especially when it comes down to the local level, government’s role must become more restrictive on property rights. But these restrictions, vis a vis zoning regulations, should have the interests of the people of San Jose in mind. It’s not the government’s job to reflexively cater to market pressures by adjusting zoning. That’s like having no government at all. And that’s what annoys me. We have a government- but it’s not representing the interests of the people of San Jose. It represents the interests of people who would like to live in San Jose. It represents the interests of developers. It represents the interests of giant corporations. And it represents the interests of progressive ivy-league urban planners- “experts” in whom our city council places too much faith. The diverse, hustling bustling walkable urban village, despite what these “experts” preach, is not the only legitimate model of a modern American city.

          Let’s acknowledge and appreciate the unique attributes of this valley in which we live. The natural beauty. The relative uncrowdedness. We don’t need to lose that. San Jose’s always going to be a place which people will pay to have a piece of. Let’s quit cheapening it. Let’s quit giving it away.

  5. What’s wrong with the people who run San Jose?  Let’s take care of the taxpayers who live here NOW!  We don’t feel safe out walking after dark.  We need motion lights and locked doors at all times.  It seems like City leaders are burying their heads in the sand on the most important issue.

  6. The thing is, they keep building and building but the City resources aren’t there to service these new communities. It will take more police, more fire, more code enforcement, more of everything, so why do they keep building more and more housing? I just don’t get it.

  7. PO,

    how about cleaning up your own house (city services, bad council decisions) before me add more housing that will not bring any income to the general fund.  SJ has enough section 8 housing already.  Other cities have done little because they understand the outcome.

  8. I’d like the thank Mr. Oliverio for this very smart post. The fact is that high-density housing is an excellent way for the city to regain its financial footing: high-density homes produce far more tax revenue than they absorb in police or fire protection.

    I would only ask that the council consider not just “affordable” high-density, but also more high-density housing priced at market rates. Unregulated high-density homes priced at market rates make the whole city more affordable by increasing supply. What’s more, they don’t cost the city a dime. This is a very smart plan, and people who support free-market solutions and balanced city budgets should get behind this.

  9. Unless there is ownership available in high density units, i.e. equity, this won’t work.  San Jose council members should be considering making affordable housing and equity building one in the same thing if they are not already.  Bare Bones high density units can be built and sold at a cost of $50,000 or less to the housing consumer.

  10. It seems like many high density apartments are being built along Fruitdale Ave.  The old K-Mart is becoming apartments, the old Del Monte canery is apartments, the old Saddlerack area are townhomes/apartments.

    When will San Jose fund parks, libraries and other city services in the West of Meridian portion of district 6?