San Jose weakens rent control ordinance

Builders, investors say changes needed to get more housing started

In an attempt to balance a dire need for more affordable homes with developers’ requirement that projects pencil out financially, San Jose leaders on Tuesday weakened the city’s rent control ordinance, among other tweaks to housing policy.

Investors and builders said the changes are necessary to get more housing of all kinds off the ground. But during emotional testimony about friends and family fleeing their longtime homes, tenant advocacy groups decried the proposals, saying they will worsen the city’s housing crisis by forcing low-income renters out of the city.

“This is a frustrating situation for all of us,” said Deputy City Manager Kim Walesh.

Under the city’s old policy, called the Ellis Act, when developers tore down a rent-controlled apartment and rebuilt, they had to bring back under rent control half the new units or the number of old rent-controlled units taken off the market, whichever was greater. But the San Jose City Council agreed late Tuesday night by a divided 6-5 vote to put a cap on the 50% requirement at seven times the number of withdrawn apartments.

Under the new rule, owners can get a waiver from the requirements if they build 15% of a project’s new units as affordable homes and either offer old tenants a chance to return at their old rent or an equivalent apartment at their old rent, with annual rent adjustments of no more than 5%.

But Councilwoman Maya Es

parza worried the change will force more people out of their homes.

She pointed out that just 28% of tenants displaced in the past three years have stayed in San Jose and the fact that no developer said he had failed to get funding for a project because of the Ellis Act.

“When we fail to preserve existing affordable housing, we tear communities apart,” Esparza said in her own memo.

Rosa Cordova has lived in a rent-controlled San Jose hope for some 15 years but fears having to move out.

“I don’t want to be forced to leave San Jose,” Cordova said during a Halloween day news conference in which affordable housing advocates donned masks bearing Mayor Sam Liccardo’s likeness and accused the mayor of “tricking tenants and treating developers.”

Liccardo, along with Vice Mayor Chappie Jones, has said he heard from developers that projects under the old rule weren’t tenable.

The Ellis Act wasn’t the only controversial topic on the agenda for the council meeting, which ran until nearly midnight. The council also moved forward a plan to revise what’s known as its inclusionary housing ordinance.

In the past, developers on projects of at least 20 units have had to either make 15% of the units affordable or pay an “in lieu” fee that helps the city build affordable housing. City leaders Tuesday agreed on a proposal to apply the ordinance to projects with five or more units and restructure the fee to be by square footage rather than by unit.

According to a report commissioned by the Silicon Valley Organization, a business advocacy group, the old ordinance made for the single biggest city fee on most projects. The group supported the proposed changes, arguing they ultimately could reduce fees on larger projects and encourage smaller units, meaning they could raise the number of units on a given project.

On Tuesday, in a related bid to encourage more highrises in the downtown area, city leaders also agreed to reduce inclusionary housing fees on tall projects in the center of the city to $0, a figure that is set to gradually increase to $43 per square foot for rentals and $25 for for-sale developments by 2025.

“We must reform the inclusionary housing ordinance,” said Anil Babbar of the California Apartment Association during a news conference hosted by the SVO. “If we want the community to thrive, we need to build more housing for those employees who want to continue to call San Jose home.”

According to a new report discussed at Tuesday’s meeting, it actually can be more expensive to build affordable housing than market-rate housing for various reasons, including that they are typically more dense and require certain types of steel or concrete that are more costly than wood and they tend to have more public or common space. A city review of one West San Jose prototype found that at market rate, each unit costs about $677,000. If they were built as affordable homes, each unit would cost $788,000, however. And affordable projects rarely pencil out financially for investors without significant city subsidies.

“Investors can go elsewhere with their dollars,” said Councilwoman Pam Foley.

Mark Tersini, the KT Urban developer, echoed Foley, saying investors are choosing to back projects in places like Seattle and San Diego instead of San Jose.

Councilman Sergio Jimenez said in a new memo he wants city staffers to study how things like zoning restrictions and parking requirements affect the development of affordable housing.

Regardless of what it takes to build, advocates of affordable housing say the city needs to do more to help people.

“Not everyone’s an engineer,” said Karen Kindorf, who said she came close to being homeless after losing her husband last year. “Something has to change.”