All right.

Good morning, everyone.

Happy Monday.

Happy holidays.

Welcome.

I'm pleased to call to order this study session on the cost of residential development in

San Jose here on the morning of December 8th.

We will start with the roll call.

Kamei, Campos, present.

Tordios, here.

Cohen, here.

Ortiz, present.

Mulcahy, here.

Duan, here.

Candelas, here.

Casey, Foley, here.

Mahan, here.

Yivacorm.

Great, thank you, Tony.

Well, good morning to everyone and welcome.

Thank you to folks who've come together to help educate us

on the challenges facing development of housing in our city,

a topic we've discussed quite a bit in recent years

and probably strategically one of the biggest challenges

we face as a city because we know investment in housing,

housing production, and that balance of housing and jobs

is upstream of so many other challenges

around affordability and quality of life

and people's ability to really have a foothold here

in our valley.

So I'm going to turn things over to our housing director, Eric Solivon, and his co-presenters.

We'll have the staff presentation, which is very substantive.

We'll hear some perspectives from industry experts, and then we will turn to the council

for discussion and questions, and then we'll save a little bit of time at the end for public

comments.

So thanks again, and Eric, I'll let you take over.

Thank you, Mayor.

So Eric Sullivan, Director of Housing, and with me today is Jason Moody from EPS and Nicole Graham from CSG Advisors.

And I'll just briefly open up this presentation to provide some quick background on this study session

and how we reach to this report that we'll be providing out today as presented by Jason and Nicole,

provide some important context, and then hand it off to Jason and Nicole to go through.

by way of quick framing we will first go through the market rate cost of

residential development analysis followed by some brief slides on office

to residential conversions and then we will kick it over to Nicole Graham to

get into the affordable housing cost of residential development and then we'll

wrap it up from there with our panel as the mayor had articulated and so first

just to provide some quick context you know the CSG and EPS were charged with

doing this analysis and getting into a robust data set and so part of some of

the divergences from prior studies just represents the more rich data set that

we're able to look at as we began conducting a far more sort of data

driven analysis regarding each of these sides both market rate and affordable

housing and I will note that part of the differential and part of the data set

really comes forward and understanding that there are still limitations to a

lot of that data set and as we begin to think about where we see those

limitations and understand the broader context that without there's no single

study that can capture all the ins and outs of challenges of residential

development, but we feel this analysis very much encapsulates a lot of the primary challenges.

Leading up to this event, we had a lot of community engagement, getting more impact

and reviews and thoughts from both our labor unions, our developers, affordable developers,

market rate developers.

You'll hear from affordable and market rate developers later today during the panel.

And by way of quick context setting, I'll just note a few things here before we dive

into the details.

First off, in considering just the challenges of forecasting out any cost of residential

development, there's always gaps in the data.

And so we acknowledge there are some gaps in our data.

There's some determinations that we could not reach based on the data set that we looked

at.

and looking at hypotheticals that are created we looked at current market

costs we looked at projected costs in particular area so we encapsulate all of

the cost of development challenges across the entire city we looked at

specific building types across the wide array and then four areas of particular

growth within the city and three is we look at considerations for policies of

how to address these challenges identified within the cost of the

residential development study I just want to further contextualize that there

are some factors that are outside of the city's control cost of land market

financing material and supply chain challenges which represent the majority

of the challenges to cost of development or items outside of city's control and

where we can have impact and where the administration as one team continues to

make improvements is areas around policy and programs around impact fees

taxes and permitting and so with that as context I'll now just quickly summarize

the charge the EPS we asked them to look at the various different types of

market rate development take from that data rich analysis both public data and

on private data and underpinning to model out what would, based on five particular building

types across four particular areas of growth within the city, what do we see as challenges

coming forth with costs of development, and to ground it in some really difficult data

sets and mathematics to see where the challenges are.

And after we go through that analysis, there'll be a brief section of slides that I'll jump

back in that reflects just a similar perspective of you, but draws from a different data set

coming from one of our partners, JLL, who looked at some of their existing deals just

to add essentially bookends to the analysis to have as much robust information as possible

to inform decision making going forward.

And so now I'll turn it over to Jason to then go forward from here.

Thank you.

Again Jason Moody, I'm a managing principal at Economic and Planning Systems.

It's a firm that's been doing real estate economic analysis in the Bay Area for over

40 years and I've been with the firm for 30 years.

We work with both public and private sector clients so we have a pretty good balanced

perspective on these issues.

Again, I'm going to be focusing on the market side of the equation.

And first I definitely want to congratulate you for wanting to roll up your sleeves and

get into the details.

A lot of the slides are very detailed, and so just as a kind of stepping back so we don't

get lost in the details, I want to kind of frame the analysis.

First of all, we're looking at the 2024-2025 market, so it's a snapshot.

Numbers will change over time.

We've used revenue and cost assumptions for our analysis based on third-party sources

to CoStar, Redfin, Marshall and Swift, these are various sources that are pretty reliable.

But they definitely provide generic estimates.

Every project will be different given the unique circumstances.

So I think that is an important framing of our work.

We also did review development pro formas for recent projects in San Jose, and just

to make sure that our third-party sources were truth-tested, and we found that we're

pretty much in the range.

I won't go through this in detail, but the EPS proformas are compared against the proformas

that we reviewed from real projects, and they're all kind of in the range.

Again, there is a variability, but in some cases we're a little higher,

in some cases we're a little lower.

So we believe that the basic numbers are pretty well truth tested.

Just a few pictures are always fun on a Monday morning.

I wanted to just to describe the type of projects that we looked at.

There's a wide range of projects that are out there and we have tried to kind of make

them more generic and divide them into various categories.

We did not look at single family homes.

We looked at on the for sale side, we looked at town homes and stacked flats as you can

see pictures of them right there.

Those are kind of relatively simple projects to build.

The costs are a little bit lower than normal, and they're relatively lower density.

Obviously higher density is single family, but lower density than the next, the rental

type.

And these are for sale, but there's no reason they have to be for sale.

This is just the way the market is providing these units when it comes to new construction.

So you could technically be renting one of these, but most of the time they build them

as for sale units.

These are the rental types that we looked at.

Again, same caveat here.

You could actually build these as condos, you just don't see it much.

So we didn't really look at it.

These are typically delivered for a variety of financial and institutional reasons as

rental product.

And we have the podium, which is kind of a parking on the ground floor and residential

on top of it.

The parking is kind of in the middle with the residential wrapped around it.

And then tower is the highest density by far of all, you know, 12 stories, steel construction,

the most expensive type of product to build, and these are examples of what they look like.

And getting into the details on the product types, we really had to make assumptions for

each one about density, about the number of units per acre, about the number of stories

in order to put it into our model and provide financial analysis of them.

All those factors really do affect the cost.

Average unit size, these are all numbers that go into our model, and admittedly all those

numbers are not uniform, but we have to make an assumption for the purpose of quantifying

them, and the assumptions we make are pretty generic and in line with what you typically

see in San Jose.

I won't go through these numbers in detail, but suffice it to say, the parking's a big

number, important number, and the number of stories.

We did look at everything in terms of a two-acre site, mainly because we wanted to do an apples-to-apples

comparison across the product type.

So we assumed that you would build on two acres.

And so on two acres, you can see the townhomes, you're going to get about 40 units for a two-acre

site.

For the stacked flats, you get about 100.

This is the second row, about 106 units.

And then the podium and the wrap are kind of similar in terms of the density.

And then the tower is the most dense, 470 units.

But you can actually go more than that.

It's just the example we used.

We also have divided up our analysis into various parts of the city

because certain things will differ.

The two things that mostly differ in the city are going to be rents.

you get higher rents in certain locations than other locations.

And then your impact fees do vary within the city as well.

So those are the factors that we, construction costs really won't vary by location per se.

They vary by product type and location.

The yellow highlighted areas are the areas that we looked at.

And that's mainly because that's where most of the kind of change areas are happening

and most of the type of development we're looking at is occurring in those areas.

Again, just to reiterate what Eric said, there's a lot of factors that will affect the feasibility,

both on the market value side of the consideration and on the cost side of the consideration.

So this is a snapshot that we did, but these conclude mortgage interest rates, land costs,

market capitalization rates, prices and rents, obviously really big factors, and then labor

costs, construction, financing, taxes, et cetera.

So because there's all these variables, we did some sensitivity testing to test what

happens when you move those variables around to see how that will affect the feasibility,

and that's an important part of our analysis.

So quickly on the study results, and we'll be coming back to this again and again, but

I just want to quickly go over it.

I think that from a policy perspective, the biggest issue we're trying to understand relates

to municipal code section 1410 which does allow the city to waive certain fees and taxes

if it is necessary to achieve financial feasibility for a project.

And so what our analysis found at this point given where we are on the market today is

that the for sale town homes and the stacked flats really don't need any assistance at

this point in time.

And again that's a generic general conclusion.

There may be projects that do, but for the most part they shouldn't because of where

we are in the market.

Those tend to be the lower cost development types.

So they can tend to go forward under current market conditions for the most part.

But the rental product, the podiums, the wraps, the towers, the market rate projects are negative.

They may be eligible for waivers because of this.

They just aren't penciling right now.

And of course that is grounded in what you probably see out there.

not a lot of those new projects coming out of the ground so our our findings

are consistent with what we know to be the case we found too that the taxes and

fee waivers may be able to tip the scales for some projects because they

do represent a significant opponent not the significant they can represent around

10% of costs and so you can you can deck and tip the scales for some of the

projects but again lots of variation by location so that's an important factors

and also modest improvements in the market conditions will also tip the

scales and we could see the the podium and the wrap becoming more feasible if

you know you get reduction in real development costs or increases in rents

in the range of 5 to 15 percent could change the dynamics the tower is going

to require a significantly more substantial change in market conditions before that becomes

an achievable product type.

We're thinking more in a 10% to 35% range on the price side, or that could also be achieved

through reduction in cost or a combination of those two.

So quickly I want to talk a little bit about the framework of our analysis, the development

feasibility framework. The visual is kind of a very simplistic portrayal of what we

look at and it's very simple. Our analysis is like what's the value of the project, how

much does it cost to build it, and if the value is higher than the cost then you have

a positive residual land value. The term residual land value is one we keep coming back to.

It's really essentially what the land is worth before you develop anything on it. So, and

The project value is really a function of prices and rents.

Sale prices for for sale and rents for the rental product.

The project cost, again excludes land for purposes of our analysis, really is a function

of hard costs, which is the vertical development, you know, materials and the labor.

The soft cost, which is referred to as things like architecture and design and marketing

and financing and a lot of soft costs that we throw the contingency in there.

And so those are real costs, but they're not the come in before you actually start developing.

The third factor that we look at is fees, taxes and fees.

So you've got hard costs, soft costs, taxes and fees.

Taxes and fees are the ones that you have some control over.

You really don't have too much control over the other ones.

And so that's why we divide them up in that way.

Well, maybe I'll say one thing.

You may have some control over the hard costs, depending on how you deal with prevailing wage.

So essentially, those are the assumptions that go into residual land value.

And so we use residual land value throughout, and just so you know what it is, it is a lot

of developers have other metrics that they use, but this is kind of a very well-accepted

metric and one that allows us to make apples to apples comparisons across project types.

And here is the results of this analysis across location and by product type.

And the red indicates a negative outcome.

In other words, the residual land value for a two-acre site is negative.

On the non-red, all on the for sale product, is a positive result.

So I won't get too focused on the specific results, but you can see it's not working

right now.

And this graph is assuming no fee waivers, no changes that the city is just requiring

folks to pay all the city's fees and taxes.

Now I won't get into the details of this.

This is the detailed hard cost number.

I think the most important thing to take away from this, hard costs generally represent

about maybe 65 to 70 percent of a project's total cost.

Broken down within the hard cost, you have materials and supplies and labor.

Labor is about 30 to 35 percent of hard costs.

Now that number can vary, but it's kind of a good rule of thumb.

And the materials is the rest of the hard cost.

Again, hard costs are not total costs.

Hard costs are just about 70 percent of the total cost.

So within the hard cost numbers, big drivers of that are parking is a really big one, and

then obviously this type of project that you're building.

The hard costs for the tower are much, much more expensive than the hard costs for the

lower density products, because the lower density is primarily wood, versus you're

getting into concrete and steel as you get into higher density, and that's just more

technical work, more expensive labor costs, and more expensive materials.

The city impact fees and taxes, again, as I mentioned, that's a big part of the equation.

This is kind of a quick summary.

As you see, there's a range there because there is differences by location and by product

type, but the range is between 5, let's say 6 and 10 percent of total project costs, or

about $37,000 to $72,000 a unit.

So that's not insignificant, but it is what it is.

When we look at how you compare from other cities, you're actually very, you're pretty

competitive.

So I don't think your taxes and fees are inordinately high relative to your neighbors, your immediate

neighbors.

You're all on the lower end.

This is the town home, so you're a little bit on the lower end.

The brown is the fee, the school fees, and the purple is your fees.

You don't really control the school fees, but you certainly control the purple part.

And this is the podium side of the equation.

Again, similar thing.

You are competitive.

I would say something on the bottom here that Eric suggested we throw in there,

which is the average rent per square foot.

And it kind of shows you while your fees are lower than your neighbors,

kind of has to be because your rents are lower than your neighbors too so that's

the rents the big factor in the value of a project the marketability of a

project so you know if you had really high fees and very low rents that's

almost a no it's non-starter so these are you do need to be on the lower end

just because you don't have the same the market rents that you can achieve in

these other markets. So here is the same graph I showed you earlier, but it's showing you

if you waived all the fees, not the school fees because you can't waive those, but all

the other fees. And it shows you that by doing that in today's market you actually can switch

a couple of the product types into the positive, depending on like in the location where the

rents are a little higher in West and Central District.

And you can maybe, in some cases, move the needle, as we said,

and make some of those projects feasible in today's market.

You really wouldn't be able to move the needle in the tower

because there's too many other factors involved in that feasibility equation

that you can't really affect it materially.

Again, you don't need to do anything for the for-sale product at this point in time.

This graph is kind of showing you the same outcome, but it's showing you, and this is

for townhomes and stacked flats, so I don't want to spend too much on time on that because

there's no problem here, but it's just showing you that you're getting about 525 residual

land value per unit for the townhome and 80 for the stacked flats, and it's kind of showing

you as the prices go up, the residual land value goes up, which is a pretty obvious relationship.

Now this is the equation for the higher density and you can see here that it's not as good.

You need the monthly rent on the bottom and the residual land value on the left on the

vertical axis shows you that we're a negative territory in the current environment.

So you need to move up to a higher level of around $4.20 per monthly rent per square foot

before you get into positive territory.

So this is a visual portrayal of the earlier table.

Cost reductions can also help you in the reduction in the feasibility equation.

So one was rents.

This is another look at it from a cost perspective.

And here is this kind of typical project, 10% reduction in the cost for a podium, 8%

production in the cost for a wrap.

Those will actually yield you a feasible result.

30% reduction for tower.

So that's kind of where we are right now.

That's a pretty hard reduction.

That's a big drop in costs.

A lot's going to have to happen before those costs come down by 30%.

So it's going to be a combination of both prices,

rents, and costs to get the tower to work.

Got to move them both in a different direction.

Okay.

Did I just look at this?

Yeah, I think I'm going to see.

Yeah, okay, I didn't go forward.

Okay, there we go.

So now I'm just going to get into drilling down a little bit on the impact fees.

We won't spend too much time on the slide just to say that your impact fees vary by location

and by product type, and your primary fees are your inclusionary and lieu fees, your parkland fee,

and your school fees.

And then you also have construction taxes.

And so that's just kind of a summary of all those.

If you want to review that later or ask questions, we can come back to it.

So development impact fees by location.

This is, again, this is not a comparison across cities.

This is just if in your own city, the central area has the highest fees,

and the townhomes actually pays a higher per unit fee than the other product types.

The tower is actually a lower per unit fee, which is probably good.

Other soft costs, as I mentioned, soft costs are around 30% of the total,

so this is actually a really big, important factor in feasibility.

You have architecture and engineering.

You have permits and fees.

Those are different than impact fees.

we're talking about those are the building fees are much lower cost you have taxes during

construction you still have to pay property taxes and other taxes and you have financing

costs which has gone up a lot lately because of interest rates it's a big number actually

it's the biggest number on the table financing it's a big one insurance a big issue these

days particularly for the for sale product is becoming more onerous number and then you

marketing and leasing is just kind of that's pretty obvious and we throw

developer fee and contingency into the soft costs and then now we're looking at

average rents by your by your by location and we compared our analysis

with the city's has its own study that they do on this topic regularly and the

on the far right is the numbers from your own study and in the left is the

ones that we looked at and again we're kind of in the range.

We looked at it by every location.

Your study is kind of a citywide look so we're consistent.

Rents comparisons by, this is getting back to the point we made earlier, rents comparisons

by neighboring jurisdictions tend to be a little lower across the board by product type.

It does look like your stacked flats is competitive, but the rest of them you're lower than your

neighbors.

So that again comes back to that feasibility issue here in San Jose.

You know it's more of a, I mean it's good to have low cost because people can afford

it.

It's kind of a catch 22.

You don't want cost to go up too high because it makes it unaffordable.

But that's where you stand right now from your neighbor's perspective, a competitive

market perspective.

So quick takeaways on the market rate housing analysis.

Townhomes and stacked flats feasible under current market conditions.

The multifamily podium are infeasible, but fee waivers may be able to make some projects

feasible.

Overall, San Jose remains pretty cost competitive from a fee perspective and also from a rent

perspective.

And I, oops, I just jumped too quickly.

I'm going to go quickly back to office to residential conversions.

This topic is getting a lot of attention these days,

and it's mainly because the pandemic really did hurt the office market significantly.

And so there's a lot of offices that are underperforming.

You know, at the same time, the pandemic hurt downtowns,

and downtowns are underperforming.

So there's this potential there for kind of a win-win

where you might be able to convert these antiquated office buildings

that don't have a lot of tenants, aren't achieving,

and make them into residential

and then also provide more vitality to downtown.

So it's kind of a really,

you can see why this idea is getting a lot of attention.

It makes a lot of sense intuitively.

But it is one thing,

the fact is it's not really as simple as,

oh, this makes sense

because there's a lot of intricacies involved

in a successful conversion that we need to consider.

The main things being the building's physical attributes, the market and financial factors,

and then the local regulatory framework for whether or not you can actually do this or

not.

Those are the three things that we looked at.

In terms of physical determinants, we can get into this in more detail, but it's really

about the shape and configuration of the building.

How deep is it?

How many windows?

Are the windows—did the windows all need to be replaced?

How high are the ceilings?

You know, where are the columns?

All these things, as you can imagine, make sense.

And it does relate to code, too, because you really don't want to have a bedroom without a window.

You don't like having interior bathrooms.

You know, these things all affect.

You like to have operable windows.

So a lot of offices just are not well equipped for that type of stuff.

So they just are not lend themselves.

Generally speaking, the newer office buildings with all glass, those are just going to be harder to convert from a physical perspective.

They were built as offices.

they weren't built as residential buildings.

The older buildings tend to have some qualities

that might make them more amenable to this

from just a physical perspective.

I won't get into the detail, but these are just two examples,

and if you guys want to come back to this, we can,

about what makes a good building

versus a challenging candidate for an office conversion.

But again, the one on the left is kind of an older building.

It looks like, yeah, you could see that becoming a residential.

The one on the right would be harder to convert.

The market factors is, I think, in a nutshell, generally speaking in normal markets, office

rents on a per square foot basis are much higher than residential rents.

That's just the way it's been for a very long time.

So for an owner to say, I'm going to convert to residential, they've kind of given up

on the office market.

They're like, it's never going to come back.

So I'm going to go for the next best use, which is residential.

Even though we know that residential rents per square foot aren't as high as office,

least I can get someone in there and fill it up and get some revenue.

But there's a lot of offices, particularly the new offices, they're still holding up

hope that the office market's going to come back and they're going to get those higher

rents.

So that's a big financial, you know, whether they may have a lot of, they might not have

a lot of debt, they may be able to hold it, they can ride out the period.

Sometimes you have an owner that's in distress, they basically go bankrupt and then the bank

takes it over and they can do a little bit more with it.

they can start making moves.

But if an owner can hold out, they probably will hold out.

And I think another big factor just financially is this is a new concept, which means there's

more risk and uncertainty, and so the lenders and investors are a little more cautious about

financing a conversion project.

They don't have enough test cases, comparables, to make them feel comfortable about whether

something is going to be feasible or not.

The policy levers here, there are some policy levers in your disposal.

There are some obviously state life and safety requirements that you can't do much about,

but you can obviously do things about impact fees, parking, open space and amenity requirements

that are designed for residential may not be applicable to these office buildings and

you can waive those and then the streamline approval.

So there are some things and some building code stuff that you can do that could move

the needle on some of those projects.

So takeaways on this office conversion concept.

We didn't model it because it's so hard to model because the costs can vary significantly

depending on the building.

So it's really a case-by-case look.

So we don't have any broad conclusions to say, oh, this will work always or it won't

work.

interventions can make some feasible, and so I do think it's a worthwhile endeavor to

kind of identify and quantify opportunities for this in San Jose and think about where

it might happen, because it could be a win-win in certain circumstances.

And now I'm turning it back to Eric.

Eric Greenberg Great.

Thank you, Jason.

And so to provide for this next set here, what we ask is, Jason and I have both mentioned,

doing a hypothetical modeling around these costs of development doesn't capture all things.

And so we wanted to provide just a similar approach, but based on a different data set

that was brought forth that JLL had did, and to share that with you.

Because you'll see a lot of similar trends as what Jason had described, but a different

set of cost factors because they looked at sort of an existing set of deals that they

have done within the area.

And some of the key takeaways from the marketplace that JLL had shared are the following.

The first is that overall, as everyone knows, the Silicon Valley has a much higher, you know, incomes across the board as we're the center of tech.

And tech is having quite a run just in the last couple of years, particularly from the work of AI.

But two, with that take also comes some inherent challenges.

And that is looking at how best and how reliant that the region is on tech and therefore a heavy dependence there.

And so that is just a cause of just concern.

Three, within the broader context here, is looking at what is the impacts of those industries,

those high incomes on our residential market,

and thinking about sort of what is the history and challenges within Silicon Valley

that has a history of undersupplying housing.

So we have high incomes and high-tech firms that continue to grow

who are still underperforming in our overall production of housing.

And then that continuing supply challenges create some of the challenges that we're seeing today,

as Jason had walked through regarding the cost of development.

So as we look at ways in which we continue to have both lower-income homes as well as higher-income households

and the challenges that those markets present, it creates a real high barrier to home ownership.

One of the understandings from the analysis is, as we looked at the growth of townhomes,

is that you'll see in some of the rent analysis is that we don't have a lot of home ownership

product that's coming new to the market. We have historically nearly 70% of single-family homes,

but as more of those families kind of transition, as new families come in at higher incomes,

that transition from rental to home ownership, that continues to be a gap, particularly for

middle-income households. And then lastly, as we continue to see some of those continue to impact

growth, rent growth, as Jason had mentioned on the market rate side, continues to be relatively

stagnant. So JLL then took this analysis and said, okay, based on the similar set of hypotheticals,

your wraps, your podiums, and your towers slash high-rises, where do we need to see the growth

in rents in order for these projects to have essentially market affordability and feasibility

with limited action taking from the city.

And what they've shown here is a projection that says,

based on year-over-year inflationary increases of roughly 3%,

which is right.

If you look at our housing quarterly reports that we produce

and you compare quarter three 2021 market rate rents

to quarter three 2025 market rate rents,

It's just a little bit above 3% year-over-year inflation.

So that's typically how San Jose has grown on the market rate side in terms of market rate rents.

So based on that steady growth of just year-over-year inflation, we would get to feasibility for a wrap a couple years out.

So we're a little behind because, as Jason had mentioned, our market rate rents don't see that continuous and more robust growth as we see in our neighboring municipalities.

In addition, if you start to look at that for podium builds, more structured builds,

you can see that that cost per square foot, again assuming that standard 3% inflationary

growth, that brings us sort of into natural feasibility of these projects without any

actions from the city closer to nine or ten years out based on that growth of per square

foot market rents.

And then our most complex builds are high rise slash our towers.

Again, a book end here to understand sort of the challenges of the two cost factors

going into this.

Your growth in your rents and your residual land values that's inclusive of that project

cost.

There are some challenges here in order to get towers within our downtown to come forward.

And this is part of the sort of an alternative view based on a data set, again, limited to

to just the data set that JLL had, but it shows on a bookend perspective that our growth

areas within downtown Fort Towers is certainly challenged, and we'll need to consider some

of the policy considerations going forward where possible to address and spur some more

of those projects into construction.

And so that's a quick summary.

So the takeaway here is that as we think about on the market rate side, the work that administration

is doing, one, on the four-year plan that Chris Burton is leading, how do we then think

about sort of the different factors that go into this in wanting to spur more new construction,

more of a tower, more higher density product, as well as continuing the growth of some low-density

project that has market feasibility today in our townhomes and wraps.

Two, we'll be bringing forth on Housing Day on January 27th, updates to the inclusionary

housing ordinance as well as our incentive programs we have for the multifamily areas

incentives or downtown incentive program, our conversations around how best to spur

some office residential conversions for those projects that fit.

So the different policy aspects that, as I mentioned at the outset of the presentation,

we can take to try to spur some of these actions into construction and then three the continuing

work of the focus areas you know as we have the building more housing focus area the work that

PBC is doing around land use and policy the work we're doing around development services and then

how best we are creating stronger bridges between land and capital to spur some of these projects

projects going forward.

And so that's the quick summary of the market rate side.

And now as we're tracking just about on time here, I'm going to make a transition over

to our affordable housing side and what are some of the challenges we'll see in that

space.

And so going forth here, similar to how we charge the EPS with the task, we asked CSG

to do a similar kind of review.

other quick findings you'll see kind of labeled on this first line and Nicole Graham from CSG

will kind of take us through some of this analysis. You'll see some very brief summary of some of the

takeaways you'll see. One is you know our affordable housing costs are fairly consistent within the Bay

Area. You'll also see that we also produce far more affordable housing in comparison to our neighbors.

Our square footages tend to be a bit smaller, a little more costly because of our shift to

more special needs particularly homeless housing units in the last few years and

our per unit cost reflect some efficiencies you'll see some takeaways

coming forward on the affordable housing side the mid-rise development the four

to six stories that tends to be the type of product that comes forward within the

affordable housing space with again a strong leniency towards ELI units which

have the city has produced far more than our surrounding neighbors and then

forth here just it represents just a much broader share in the Bay Area of

our affordable housing product we have seen a significant growth in the spur

in the development of affordable housing in the city more needs to be done but

as CSG jumped into this analysis they looked for a much more robust data set

than we've done in prior years with this study to get a better understanding of

grounding this analysis and those takeaways and so what you'll see here is

a lot of the numbers that were pulled were at the time of tax credit

application which again has a variance to when a project actually comes out of

the ground or gets to construction completion so there'll be some

variances and Nicole will talk through that and three you know a lot of the

city and the county focused on building housing for special needs you know high

need populations and homeless housing and so that's where you'll see some of

the variances of our higher per square foot cost we've done a lot of work

within the space over the last couple of years in building out more ELI affordable

units with certainly more work to be done so now I'll turn it over to Nicole

Graham from CSG. Great thank you. Okay good morning. I'm Nicole Graham with CSG

Advisors and as mentioned we prepared the affordable housing component of the

cost of development study. So today I will walk you through what what was a

a lot of data and trying to still that down to some key conclusions about the development

costs in San Jose for affordable housing developments and how that compares to the rest of the region.

So getting started, across California we reviewed data from 194 proposed new construction projects.

These are all affordable housing developments.

These are tax credit applications that are submitted to TCAC, the allocating agency.

And those applications comprise over 20,000 units.

So it's a pretty robust data set.

And about 20% of those units originated from Santa Clara County.

So about 4,200, 4,300 units in Santa Clara County were among these applications.

Those applications for Santa Clara County we brought in from 2023 to 2025.

And the balance of the applications that we pulled were from the rest of the Bay Area

and also Sacramento, Los Angeles, and San Diego counties

just to provide a point of comparison elsewhere in the state. The applications

provide really a wealth of information about where the project is, housing type,

units, square footage, a breakdown of development cost, a breakdown of funding

sources, operating expenses, like these are very detailed applications. So we're

fortunate and able to getting a lot of that information. We did also have access to some

cost data for older projects in the city. We ended up excluding those because they were

just a little too old. We didn't feel that they were representative.

Okay. So, as mentioned already, right, all of this information comes from these applications.

And this is important because applications are submitted usually around six months before

construction even begins.

And so that means that these are not final construction budgets, and they're certainly

not actual as-built costs.

And that's the big limitation of the data, right?

So things are going to move a bit between the time of application and project completion.

And in fact, in our practice advising on, you know, thousands of developments,

we often tell people that the only thing that we know with 100% certainty about any project budget

is that it's going to be different than the final cost, right?

It's usually a little bit higher.

Sometimes it could come in lower, but it's always different.

And so using this application stage data, though, gives us a couple major benefits.

First, we get a much larger sample size with nearly 200 projects statewide from which we

can see trends and distinctions among the projects.

And then the second benefit of using this data source is that every jurisdiction is

using the same application template, right?

So this is very different than if we're looking at individual developer proformas where people,

You know, one developer might report things one way.

They might collapse certain costs onto a single, you know, cost category in ways that another project doesn't.

So it's very, it's much harder to draw sort of apples to apples comparison among those projects

if we were taking things from multiple sources.

So having a single source where everyone does it the same way is a much better way to draw conclusions.

And let's see.

The one thing we want to note is that, as I mentioned, we were bringing in projects from 2023 and 2024,

as well as applications submitted through mid-year this year.

But we wanted to make sure that we were treating all of those applications the same.

So we did escalate costs from 2023 and 2024 projects to $2025 to keep things consistent,

which makes sense because costs are rising, but they're going to rise everywhere.

So that's going to be similar for San Jose or Oakland or Los Angeles.

Another note is that our numbers that we provide, we're going to be referring to total development costs per unit and per square foot, per net square foot.

These costs exclude acquisition.

And so I want to point that out because, of course, acquisition is a key cost.

The reason we pull it out from our numbers is because that information is reported very differently among applications.

So particularly if land is provided by a local government, which is quite common or is publicly owned for another reason,

right, the value of that might come in as like a dollar or some very minimal amount.

And so it's really not a great thing to average out across projects.

And finally, the reported costs may not include some additional fees that are triggered by city funding contributions.

So while the application should include the full cost or the full expected cost, there may be some costs that those aren't capturing.

Okay.

Now let's get into the findings.

So we will look at San Jose's costs from several angles per net square foot, per unit, and by housing type.

And we'll be comparing that to the rest of the Bay Area as well as to key areas in California.

So here we're looking at San Jose's development costs in the context of the broader Bay Area.

What this chart shows pretty clearly here, we see San Jose on the far left,

And the average cost per net square foot of about $1,050 sits right in the middle of the regional jurisdictions.

We see Solano comes in quite low at $840.

It's really an outlier here, and we'll get to that as we go through.

And Contra Costa and Sonoma, close to $1,000 per net square foot.

San Mateo and Santa Clara, very close to the San Jose average of $10.50.

And Santa Cruz and Alameda, a little higher, right, $11.41 and $1,215 respectively.

And then there's San Francisco at $1,440 per net square foot.

It's an outlier similar to Solano, just on the other end, right?

So those two really bookend the rest of the counties, which have a lot less variability between them.

As a note, no applications were submitted in Marin County during the time period that we looked at.

So we don't have Marin included for that reason.

Now, the data shows that the San Jose's costs mirror the Bay Area construction environment as a whole.

And in fact, if San Jose were its own county, it would rank as the fourth lowest in the

Bay Area if we're looking at these, you know, net costs per square foot at the top here.

So in this top chart, we're showing each of the counties organized from the lowest cost

per net square foot to the highest.

And in the bottom chart, now we're switching to per unit.

And we've maintained the order of counties, but you can see things go up and down, right?

So there were a little bit all over the place.

And San Jose's per unit costs now, on a per unit basis, align more closely with Alameda

and Solano.

And on a per unit basis here, it's ranking second lowest behind Alameda.

So it's interesting, right?

we see that Alameda has the lowest cost per unit, but the second highest cost per net

square foot.

So it just sort of demonstrates how things are, those don't align.

And there's a really good reason for that, right?

So these differences across the Bay Area are just driven much more by the product type

and the unit size really than by city-specific conditions.

So as we go to the next slide, right here, we can really see why the per square foot

costs vary as they do compared to the per unit cost.

And it's here we've overlaid the unit sizes on top of the per unit cost data.

And so this relationship becomes really clear, right, which is that the smaller the unit,

average unit the higher the cost per square foot. It's not a perfect

relationship but it's real close. So San Francisco and Alameda with the smallest

average unit sizes around 530 to 570 square feet, those counties are also the

ones with the highest cost per square foot. Solano with the largest average

average unit size, right, we saw previously that one shows the lowest cost per net square foot.

And San Jose is right in between, right? The average net square footage is quite a bit smaller

than a suburban family development, but larger than an urban SOR style project like those in San

Francisco. Overall San Jose does produce more small units, studios and one bedrooms,

than a lot of the other jurisdictions and that tends to raise the cost per net

square foot because all of those units, whether it's you know a 500 square foot

unit or a 900 square foot unit, they all need a kitchen and a bathroom and those

Those are the highest cost components in the unit.

So that is what really drives the result, which is that the smaller the unit, the higher

the cost per square foot.

And let's see.

So now we'll look a bit more at the composition of what is being built.

San Jose developments have more units per project.

This was an interesting finding that on average 173 units per development being proposed,

which is quite a bit higher than the Bay Area average of about 112, and the 113 unit average

across the jurisdictions and applications that we studied.

So that's a meaningful difference and does help explain some of the relatively efficient

cost per unit numbers that we see in San Jose. As mentioned previously, Wright San Jose produces

a higher share of studios and one bedrooms, about 66% of all units compared with 55% across

the Bay Area. That's driven in part by the focus on supportive housing, also available funding

tools, but really it underscores as well why the per net square foot costs in San Jose

are going to look like they do, right?

So smaller units are being built in this city.

Now, this slide breaks out the components of the costs.

You know, so here we're widening our lens beyond, you know, to include, we're including

beyond the Bay Area, right?

We include here San Diego, Sacramento, Los Angeles.

And we see that San Jose's total development cost of about $675,000 per unit is, you know,

really in a very normal range here, right?

So it is lower than the Bay Area average of $770,000 per unit.

But remember that much of that is based on the size of units being developed

and a lack of economies of scale that results from the developments comprised of fewer units.

So in San Jose, because there are larger units developed at a given time,

that helps drive down that cost per unit number.

Yet San Jose's costs are certainly markedly higher than those in Sacramento, Los Angeles, or San Diego.

Again, that's just sort of a known difference between the Bay Area and elsewhere in California.

And we can also see just different composition, right?

The hard costs are about $484,000 per unit in San Jose.

You know, that's a result of the type of developments being built in San Jose.

You know, lots of studios, one bedrooms, and larger projects.

And then other costs, such as soft costs, financing reserves, and developer fee,

those also track pretty closely between jurisdictions.

So again, pretty consistent story here.

San Jose does not appear to be an outlier from the data that we reviewed.

And let's see, this last data slide breaks out cost per square foot by housing type.

And here again a few things jump out.

So first, San Jose's cost per net square foot is lower than the Bay Area average for all

of the different project type categories, right?

So large families, special needs, seniors, non-targeted, SRO, there aren't SRO projects

included from San Jose or Santa Clara.

But in all of these other cost categories, they do come in lower for the San Jose developments that were submitted during this time.

And second, what drives San Jose's overall profile, their cost profile, is the mix of what's being built here, right?

So two product types really dominate the non-targeted housing at about 1,100 per net square foot

and large family housing at about 938 per square foot, per net square foot.

And remember, again, like those large family housing units will be lower because the units are larger.

Together, these two project categories, large family and non-targeted, account for 94% of

the square footage represented in these applications.

So this is really the story is that these two types of developments are really driving

the cost conclusions that we're making.

And that's going to change.

One thing that we did see in going back to past studies is the composition of projects

changes from year to year.

So it's not, you know, our conclusions may be different for several different reasons,

but one of those is just the nature of projects submitted in any given year.

And that's going to be itself a result of other things that may be happening related

to funding availability and chasing points in applications and trying to make sure that

you're meeting your private activity bond limitations, right?

So there are so many different things that go into what developments are going to be

proposed.

But looking across the jurisdictions, right, we see that those two cost categories that

comprise most of San Jose's projects are also the lowest cost categories wherever we look,

right?

So in the Bay Area, across the state, large family and non-targeted are the lowest cost

per square foot.

The large family ones, we've sort of discussed why that is, right?

The higher the square footage of the unit, the more efficient, well, the more space that

you have that is not high cost.

So you're adding a bedroom and the marginal cost of adding a bedroom is quite low.

But the non-targeted housing also tends to be lower across many jurisdictions.

Those projects tend not to have additional requirements of special populations.

So they avoid costs of extra space, extra services, extra operating reserve needs that

are required to earn the points and get an allocation of that particular housing type.

And then another conclusion from here we found is that right San Jose compared to the county,

right, is providing 100% of the senior and non-targeted.

So all of the developments that, all of the applications submitted for Santa Clara County

in those categories were from the city.

So the city is definitely contributing a high share of the region's affordable pipeline

in those counties, in those categories.

And then, let's see, compared again with Sacramento, Southern California, of course,

San Jose is undeniably higher cost, but that's a Bay Area story, not a San Jose specific issue.

Did you want to do that? Okay. Okay, so key takeaways, right? So I think we've, you know,

we sort of covered this a few times, but just to run it home, right? The cost of affordable housing

development in San Jose really tracks well with other Bay Area counties. We see

a story here that makes sense based on development, the developments being built

or at least proposed and that makes makes sense. We also see a high cost per

net square foot that's driven again by this smaller average unit size in San

Jose so when we compare that across again it appears to make sense from from our perspective

and then also as soon as they represents a large share of affordable housing developments in the

bay area and so this I will turn it now over to Eric thank you okay thank you Nicole and so we've

provided a lot of detail and analysis I'll just kind of bring it back up you know to a 10 000

foot level you know overall what we're looking at today as we think about this

on the housing continuum is we're on the sort of the right end of this continuum

our blocking of rent restricted and rent stabilized units our PSH units and the

different financing programs that we have across that entire unit set and then

on our market rate side and our home ownership side and the small set of

programs that we utilize to incentivize development there and that's what we're

kind of focused on within this cost of development for residential development

study additionally a lot of the work that we're doing collectively as

administration and as a team is furthering under our building more

housing focus area continues to look at as I had mentioned early on the

presentation our land use policy and regulations and a lot of the work being

driven forward under that focus area and the focus area scorecard as well as

looking at the areas which we have you know how we're meeting our housing needs

with our long-term goal and what are the ways in which we make continuous

improvements through the work of the focus area around development services

and then how do we expand and continue to find more mediums for linking capital

and land and the different types of programs that will be bringing forward

specifically on January 27th we have a series of policy initiatives coming

forward to council and so that and this is just a quick summary of the timeline

overalls we look at the work as I mentioned in January 2026 will have the

IHO come forward as well as incentive programs that multifamily housing bond

policy so a number of initiatives to begin taking the information and the

data set garnered from today and putting that into some practice beginning in

January in spring we will have an update of the focus area for building more

housing followed by June the continuing work the PVC is doing around the general

four-year plan and then in August just the Planning Commission transmits its

recommendation on the four-year plan to City Council so this analysis that we

provided today on the market rate side then on the affordable housing side is a

good foundation setting for the work we have coming forward in 2026 and so

that's the quick summary and we'll end it there the appendix as you see

throughout the presentation is just some additional data and analysis we won't go

through that as we'll begin now our transition to our panel. We'll take a brief minute.

Great. Thank you all very much. That was very enlightening. We'll just take a moment to

switch who's in the box. Thank you.

Okay.

So I'll just quickly introduce

our panel and then we will make a few comments themselves.

So with me joining us in the box today is Joshua Burrows from Urban Catalyst, Xii Li

from Alpha X, there are two representatives of market rate development, and on the affordable

housing side we're on to be joined today by Nevada Merriman from Midpen Housing and Andrea

Osgood from Eden Housing.

and I'll pass it off first to Josh and then we'll go around.

Thank You Eric and counsel Josh Burrows Urban Catalyst. We have 300 units under

construction here in downtown West and 900 units processing through

entitlements and growth areas here. I've also been involved in the delivery of

multiple high-rises in downtown San Jose. I participated in this housing

discussion various forms over the past 15 years with multiple councils I

appreciate staff and the consultants for their work on this study update and I

concur with their key takeaways this is an extremely critical point in time and

councils direction will have a lasting impact on the growth trajectory of our

housing future here I'm happy to opine further in the Q&A but like to share

some random insights into both our our market and also the study to spur a

discussion. I've always said that San Jose is does a great job in housing

production in general compared to our neighboring cities on a volume basis

however when you do look at the arena numbers on a per capita basis our

neighbors are producing five to ten times the amount of housing per capita

than we do that's just then that's a local metric just something to think

about in context our neighboring cities have some same construction costs pretty

much same land price pretty similar impact fees and taxes as you've seen

however they do have 20 to 30 percent higher rents two times the sales prices

for townhomes and that affects investment here and that was mentioned in

the study rents have basically flatlined here in San Jose that was also shown in

the study. Right now there's some really bad comps and foreclosures hitting our

sub-market on rental projects. These are projects that were built for, let's call

it, $650,000 per unit and they're selling now at $450,000 a unit. There's

new projects as well that are being sold for less than the loan amount on the

construction loan. That means that all the investors cash was wiped out and the bank is

taking a haircut to offload the project. This happened to us as well back when we had four

sale condos downtown and high rises. The last ones that were delivered were in 2007 and 2008 if you

don't count silvery towers. That's a really long time ago and it's a great example of what creating

a negative cycle can look like.

So I just want to provide that context of kind of like what's going on on the rental

side that affects investment in our city or folks that want to invest and deploy capital.

There's only a handful of market rate developers breaking ground, which I think is bad for

a city of our size.

Having four to five projects breaking ground is not a bellwether for a huge increase in

housing production.

um my opinion is there should be a dozen projects going on in major projects going on in each

district in our city specifically in a city that has 90 of its land as single family homes

um construction costs have somewhat stabilized this is a subject of this study over the past

years so I just want to say that that's not like the highlight of the study this year it's pretty

much stabilized post-covid as far as supply chain and materials so that's that's a good thing

The study talked about different variations of non-high rise product, whether it's four

to eight stories.

I know they studied two-acre sites.

I will say that probably the maximum density you can get on an eight-story building is

kind of like what we're doing, 350 units per acre.

That's where we, this would be maximum.

So this is where you do like automated parking on the first floor, parking only on the first

floor, then you have a full seven stories of residential.

So we're doing that on our projects.

Not a lot of people do that.

I'd say standard maximum is probably 250 units per acre, where people do like three stories

of parking and then five stories of residential.

However, not that many people do eight story buildings.

They typically do four to six and you see that on the affordable side as well.

We're still seeing fees that are on a per unit basis in the city.

This means it's not agnostic to unit size or the amount of humans actually creating

the impact of a fee living in a unit.

So it's the same fee whether one person lives in a studio or 10 people in a 10 bedroom apartment,

for example.

Another recommendation is looking at deferment of fees to certificates of occupancy.

the actual impact happens humans move into a building that's when the impact

happens that's another recommendation and then property taxes close to half of

the operating expenses for market rate projects or property taxes they're one

of the biggest drivers to return on cost which is how you attract investors and

banks happy to talk more about the state of Washington's program and what they

did on this subject to spur 424 projects and build close to 50,000 housing units in their state.

And then lastly, AI is happening and growing here. It's a little bit in our city, definitely in our

neighboring cities. As you see, millions of square feet get leased up by AI companies.

One of our goals as a market rate developer is to keep the tech worker out of our existing class

B and Class C apartment housing stock, which San Jose has a robust amount of, but we need

to continue to build market rate to house those workers so they stay out of that product

and keep them naturally affordable.

Thank you.

Thank you.

G.L.E. with Alpha X RE Capital.

Thank you for the opportunity to speak.

I appreciate the chance to offer perspective that represents the small

and medium-sized infill community working in San Jose established neighborhood.

I think the analysis is really valuable, but there's a key distinction between the study assumption

and also the reality of the infill development in San Jose.

The study evaluates the feasibility using two-acre site, which for townhome,

I think that's for a lot of larger builders, because those are allowing larger builders

to achieve lower vertical and horizontal construction costs, bulk pricing for material and labors,

and much lower soft cost per unit.

However, this does not reflect land supplies or the projects we're looking at in San Jose established neighborhoods.

Most R1 and R2 parcels are around 6,000 to 20,000 square feet, about 0.14 and 0.46 acres.

Even when lots are combined, typical infill site remain under 0.5 acres.

And this scale, realistically, capacity for this type of parcels are 6 to 15 units,

even when using innovative tools like small-lossed vision, duplexes, fourplexes,

and ADU kind of conversions, and some newly adopted state laws that are supporting starter homes.

The smaller infill sites facing very difficult, different development conditions than the two-acre site.

Larger builders do not pursue very small projects, such as 10-unit single-family

or smaller lots product around $20 million in revenue,

or even a 30, 35 townhome project are too small for them.

Those sites are too small to support their operational structure,

staffing, and financial models.

As a result, only the builders who can take on those parcels,

are small and medium-sized infield developers

who do not have access to large-scale purchasing power and production efficiencies.

Those construction costs on small sites are significantly higher because they cannot secure bulk material pricing, as I mentioned earlier.

In addition to the traditional townhomes, we're also designing starter home product, homes that are affordable by design,

with smaller living area, efficient layout, and high-quality designs.

those units are tended to meet the needs of first-time homebuyers, younger families, and essential workers who are currently priced out of the market.

However, the per-unit fee structure becoming a disproportionately heavy burden on those smaller homes.

When each unit is a moderate in size and designed to be more attainable, applying the same fixed

impact fee per unit as large high cost homes can undermine the entire purpose of delivering

naturally affordable starter homes.

The cost really means the feasibility assumption based on a slightly larger scale development

that doesn't apply to the smaller parcels.

and mostly commonly found in the San Jose established neighborhood.

Without adjustment, the city is risk leaving thousands of potential gentle density homes

and starter homes unrealized.

At the same time, small site infill offers major advantages.

Projects can build faster and fit naturally into existing neighborhoods,

requires no major infrastructure upgrade and help delivering

for missing middle housing and attainable starter homes

that larger builder development often do not provide.

I respectfully ask the city, the council,

to take small site development into consideration

and explore a scale fee framework for parcel

under a half acre or even under one acre.

Supporting small site infill is one of the most efficient paths

for the city to have meaningful increased housing supply

within on the existing neighborhoods especially for starter homes and gentle

density housing types that align with the city's goal and then alpha we're

doing more than 60 there is 60 more than 60 units and our construction this year

and then we have about 200 units in the pipeline we're hoping to build more and

if there's more opportunity for us we're happy to take on more jobs thank you

Good morning. I'm Nevada Merriman. I'm the Vice President of Policy and Advocacy for MidPen.

I had the opportunity to present three years ago, so I first commend the city for circling back on this topic.

And a little about MidPen, we manage 14 properties. That's more than 1,200 homes.

In addition to that, we have one project in the pipeline at VTA Capital Station in South San Jose.

And I appreciate the city's efforts to address the issue head on.

Uh, with the particular orientation that really there are some items that are within the city's

control to change.

And I, I want to also state that over the years we've, we've made policy recommendations

to the city and when the time is right, staff has taken, seen an opportunity and they've

taken it.

Um, so, uh, very appreciative to that.

In general, much of the report is confirmatory and that MIDPEN's experience is in line with

the findings, particularly true on the cost per unit findings.

I want to focus my comments on the place where we could see the greatest impact.

It's not addressed in the study, but I ask for consideration there.

And we'd welcome the chance to discuss further areas.

We'll provide some comments to staff in more detail, particularly with respect to fee waivers,

reductions or deferrals, which we see as a major part of how the city of Sunnyvale and

other local communities, the particular information presented here did not take into consideration

that Sunnyvale, for instance, waves the fee a hundred percent for park fees.

And that acts in our financing as the exact same as a loan of that amount.

So it's really powerful and it allows us to be more competitive, if that's correct.

So across our deals, I looked at everything that we've closed.

more than 20 deals over the past three years and what we see is that the studies findings

are consistent with the city mentioning roughly 10 percent of the subsidy coming from the

city we see 15 percent coming from a combined city and county level of investment we also

see 18 percent on average from the state and over 50 percent from the federal government

So my comments are really about how do we get more competitive to go after that state funding,

which then in turn unlocks the federal funding.

So it would be an enhancement to the city's current approach to have some greater understanding about that

and greater alignment.

For every $1 of local investment, we raise about $6 of external capital.

That's a ratio of about 6 to 1.

$1 of the city go out and be able to find 6 additional dollars.

and building that robust affordable housing pipeline depends on having a robust predictable

source of funds. It is dispersed on a schedule consistently for all sources and that's really

recognizing that we have a real business cycle that is outside of our control. For instance,

the Midpen property, the VTA capital station looks to be competitive for the state financing

affordable housing sustainable communities program which comes from cap and trade it was a big part

of the newspaper that particular negotiation 800 million dollars a year it's probably the only sure

thing in affordable housing right now to go after that and so cross your fingers we don't tempt fate

but we hope any day now that we will see bringing a significant level of investment to the city

and the city's working to consider this and potentially enhance our how competitive we are

before we try to go into the state administers federal money basically tax credits tax exempt

bonds so they start that competition cycle in February so we have the risk which is consistent

of all of our community partners that somehow we miss getting an award you know we get bumped by a

council cycle we get one day too late and then we have to miss out on February altogether then we

have another chance in the spring and another in the summer but we want to make sure that we have

all the bites at the apple and because we can't exactly predict when we're going to hit but we

want to go in as strong as possible when we can the current policy trends towards the city being

the last in money I will share that everybody wants to be the last in and and so that's not

possible for everyone to be the last in and I would say excuse me really you know what this

comes down to connected to your study is that delays and us being able to start construction

because of the lack of alignment of all the funding sources needed it results in

cost because we have to then budget for this uncertainty so do we know if we

don't think the project's going to be able to be competitive till April

because we haven't received the city funding relative to February when do we

when do we think we're going to start is it going to be 12 months later 18

months later most of the state's competitions are front-loaded

throughout the year so you get into no man's land right about now and that

That costs money.

So construction, there's no contractor that holds their pricing for us.

They say they love us, but they don't do it.

There's no bank that can predict what the cost of their money is going to be.

We've got to make sure after we get the tax credits that six months later we're able

to close and we don't have to go back to anybody.

So at the cost of tax credit application, one consideration is that there is this cost

for escalation embedded in there.

And if you're able to get it all aligned under the stars, you won't need that.

So it would bring your costs down.

There's another cost as well, though.

The cost is that we aren't bringing the homes online as fast as we can.

So that's your societal cost of either locking up your money more than you want to

or continuing to see some homes not come online.

So last but not least, the federal government, with their one big beautiful bill,

doubled tax credits.

It's a tax credit.

That's the biggest public policy tool that they have to incentivize the development of low-income housing.

And it's unprecedented.

I've been going to D.C. for eight years advocating for this.

You don't see tax bills happen very often.

And with that, it means that California, they predict, is going to be able to fund about 200,000 more homes.

So that's an increased bond volume cap that's significant.

They're going to try to push about twice as many deals through the system.

I'd urge the city to look at that and consider how we can be ready.

Not everybody is going to be ready.

This all just happened in February.

If you can be competitive, it's a great time to go in.

And the city really plays that critical role.

The existing tax credit pipeline within the city, if it's not competitive for state sources,

you know it has this predictable outcome of leaving money on the table for the city so

the staff has pursued enhancements and we hope that they will continue to pursue enhancements

and very grateful for a talented crew that's digging in with us as we speak in real time so

thank you thank you Nevada Andrea Osgood chief of real estate for Eden housing very similar to

Midpen. We are a nonprofit, have been around for 57 years, and we own 13 properties and over 1,100

homes in the city of San Jose. I want to thank you for doing this studying and paying attention to

this important issue and for implementing past suggestions from previous studies such as allowing

affordable housing developers to move forward with other bond issuers on projects. That's a real cost

savings and has helped many projects move forward. I wanted to share some good news about Eden

property in San Jose that is in our pipeline sort of hitting on many of the policy points that

Nevada very eloquently laid out but with a story of a project in your community. So some of you

may know that Eden has partnered with the county on the East Santa Clara Avenue project that is at

at the old San Jose Medical Center site

that's owned by the county in District 3.

And we were selected by the county along with CORE

to complete a campus that includes three affordable projects.

The initial phase is going to be 68 units,

senior units by Eden Housing.

And we're happy to report that we just got word last week

on Thursday that we are getting pulled off the wait list

for 9% credits and have to turn around really quickly

and accept those on Wednesday from the state.

So super huge and exciting news for us.

And the project.

And this project has pretty typical costs

as discussed and detailed in the study before you.

And the city is providing about $7.8 million

in financial support, both in fee waivers and a loan.

Thank you very much.

This represents about 14% of the total capital stack.

and county resources cover another 20% plus the land,

and then tax credits, 40%.

So the tax credits, you can see,

are a really important part of our capital stack.

And as Nevada noted, tax credits are,

in addition to being this incredible resource,

the changes at the federal level mean

that they're going to be more available nationally.

So with that in mind, I would sort of encourage

and echo what Nevada said, which is do as much as you can

to sync the city NOFA process with state funding cycles.

Both the city's soft gap funding, or not the city,

but the state's super NOFA program, which is soft money for projects

that need additional gap financing and aren't ready to move forward

to the tax credit phase, so that's like the cap and trade dollars,

and the tax credit rounds.

The tax credit rounds are for those that have all of your gap financing ready

and you want to just get that last trunch.

This will help leverage the city's dollars to better compete

for these critical resources, which as I noted cover up to 40% of a project's total cost.

For our East Santa Clara project, the city's funding cycle was a little bit off this past

summer and was not ideally timed for that tax credit application.

And even though we had indications that the project would score really well, we didn't

have an official word in time for the TCAC application for the tax credits.

But thankfully, we were able to work out an interim solution with the Housing Accelerator

fund to make that application instead and proceed on a bridge funding commitment so without that

somewhat unique partnership we would have had to wait another six months to apply again

potentially adding additional costs and escalation financing costs and carry etc so i just wanted to

provide that very real example but we're very excited about the partnership with the city to

bring these units online and many more in future years.

Thank you very much.

So with that, we now open it up for questions and answers.

Thank you.

Great.

Thank you all very much.

Really appreciate both the reports on market rate and affordable housing, the very data-rich

understanding of what's going on in those markets and specifically in San Jose, vis-a-vis

other cities and then of course hearing from our market rate and affordable industry experts

offer some additional context that's really valuable i'll offer just a couple of comments

and then turn it over to colleagues this is as i mentioned foundational to our success as a city

one of our five focus areas is building more housing and cost of construction particularly

relative to the rents that we can get in our market has become the single most significant

barrier in fact I was kind of shocked to look at the HCD data which of course we report to them

but they've got a nice dashboard for it between 2020 and 2024 so five year most recent five years

that have been completed we entitled 21,993 multifamily units almost 22,000 units in those

five years it's a pretty substantial number but just about 7,000 have pulled building permits

so a little less than a third which I think points to it's not that we aren't zoning for housing or

saying yes to housing in fact as far as I can recall this council has ultimately said yes to

every housing project that's come before us in my time here as far as I can recall but fewer than

a third are securing the financing they need to actually put a shovel in the ground and

build the much needed housing that they desire to build.

So I think the presentation's covered everything.

One thing I did just want to highlight is, and this was mentioned in the first part of

the presentation, I want to thank this council for making the bold decision to approve the

multifamily housing incentive late last year that as we had hoped and sort of modeled out

did allow groundbreakings this year on over 2,000 units that were on the bubble because as was

pointed out it's not binary it's a spectrum and there are projects for a variety of reasons land

costs or whatever else that are kind of along a cost spectrum and when we reduced our fees or

some would say right-sized our fees through the multifamily housing incentive,

we saw five different projects totaling just over 2,000 units move forward this year.

So thank you, colleagues, for being responsive to that market data.

And I highlight that because, one, while we don't have the ability to meet our goals in the housing element unilaterally,

it's not something we can just vote on and make happen, it's really the market.

We can create conditions and that the margins have a real impact.

And in January we'll have a number of policies coming back to this council

that

Really get at the heart of at least our part of the cost of construction including the inclusionary ordinance

The multifamily housing incentive once again, and then the downtown high-rise incentive none of which on their own will guarantee housing but

contribute to creating that overall

environment

Okay, so about all I want to say I did just want to comment on the really thoughtful

Memo from our colleague Councilman compost want to thank her and her team for putting this forward

As I think folks know

We did not agenda as action and generally at both budget study sessions and these these but these study sessions don't

Agendize action taking because they're mainly for learning and asking questions and having discussion

But I think it's a great conversation starter.

Many of these are items that really warrant further analysis, some of which I think have been previously directed.

But it's worth reading.

I think it's all good content.

I will note on Rec. 4 that we eliminated parking minimums, which I didn't hear reference today.

But that, I think, was a big step and a bold step.

I think we were the first big city in the country to eliminate parking minimums.

so at some point would love to hear more about how how that's going it doesn't

seem to have completely changed the equation but it's every every little bit

helps as as will single stair which we we recently talked about and we'll see

what that analysis comes back with so we won't be able to take action today but I

think it is a good conversation starter and just wanted to thank Councilman

Campos for the memo and recognize that it's it's on the agenda for everyone

okay so with that I'm gonna turn to colleagues for questions and comments

and my screen will cooperate we will start with councilmember Campos

thank you mayor and I want to begin by really thinking staff the consultants

and everyone in the box who participated and helped prepare us for this cost of

residential development study. As we know, previous studies have concluded that

there are certain types of multifamily buildings that aren't financially

feasible in San Jose and I look forward to, as the mayor alluded, upcoming policy

decisions that will help us improve the feasibility of high-density housing in

our city. I do have one question because this conversation is really important in

context of the inclusionary housing ordinance that's coming to Council next

month and I'm curious about how the study analyzes the impact of the inclusion

inclusionary housing in Luffy can we please get clarification if the study

also analyzes the financial impact of constructing the inclusionary units at

at the AMI is required in the inclusionary housing ordinance so not just the in-loop fee but the

actual construction what is the analysis of that financial impact look like in this study

so thank you councilman for the question so the analysis didn't get into any specific programmatic

single programmatic impacts on either the affordable side or the market rate side so it doesn't speak

to your question regarding what is the impact of inclusionary housing like in-loo fees we didn't

get into that type of analysis we didn't this really much focused on what is the world of cost

factors that are driving residential development it didn't speak specifically to programmatic

requirements or whether or not those programmatic requirements had a direct causal link to the cost

of development. Thank you for that response. We know that the actual construction of inclusionary

units is different from paying an in-lou fee, and so having that financial impact to the project

not having been analyzed leaves us with some unknowns, and so I encourage my colleagues to

think about the information that we're going to need to make policy decisions that are necessary

to improve the financial feasibility of multifamily housing,

and at a minimum, future studies should include sensitivity analysis

that help us better understand the impact of various parking ratios.

We know that we have eliminated parking,

and also as a city have a public transit first policy,

and so including that, the impact of reducing the time that it takes

for projects to go through the development review process,

As we heard this morning, there's a lot of opportunity in this study to understand the different types of housing, as we heard small site infill development as well.

It's all critical information for us to really think about how we're going to address the feasibility of housing at next year's meetings.

and the memo that I've added into the record I will be resubmitting to the

rules committee for consideration so thank you again for answering my

questions great thanks councilmember appreciate it let's go to councilor

Tordios thank you mayor and I also want to start by just thanking councilmember

Campos for her very thoughtful memo here some of the questions that she

highlighted are things that I raised when we saw the last 2023 cost of development survey before

the planning commission particularly kind of looking at these smaller scale infill housing

opportunities and I think that's an important one to look at moving forward just because it ties

into some existing city policy work streams things like our missing middle housing policy our small

multifamily housing ordinance that'll be coming back to council in the next couple of years

and some of the ongoing things like the general plan for your update where we'll be looking at

what neighborhoods make sense to zone for that additional capacity.

So understanding the cost profiles of that type of infill development,

I think would be really valuable.

You know, we heard from Alpha X that they're looking at,

even if they're doing kind of starter homes or townhome development,

that they're very different in scale.

The cost structures are different for these types of projects.

So I think that's important to incorporate into the city's understanding

and also just highlighting the way that single stair might change some of the

economics here.

one way or the other. I was looking at just a couple example projects from Seattle and you see

things like for sale condos that are single stair on very small lots. So you could see something

like a 10 unit condo complex on less than one seventh of an acre. You know, very different from

the for sale typologies that we studied here. All the way down to the very high density small lot

infill possibilities. There are projects that are 20 units on a tenth of an acre or even smaller

sites in Seattle using single stair. So there you start to get to densities that are higher

than the tower scenario studied downtown but on really small infill sites. So I think we could

probably just expect that the economics of these types of housing would be different.

So we'd be curious in future versions of this study to dig into that a little bit more,

see if there's anything that could just shape the council's thinking in terms of forward-looking

policy making. I had a couple questions really quickly. One was just for staff

helping me to better understand something that I thought was interesting

between the breakdown for podium versus wrap. I thought that it was interesting

that you know those two typologies we were looking at the same far, the same

density, the same amount of parking but with the wrap structure two stories

shorter. So is it just the case that that would basically mean that the lot

coverage would be higher in the wrap versus the podium typologies? Yeah the

wrap is generally a lower density doesn't get you can't achieve the high density

because of the configuration of the of the building it tends to be a little

cheaper to build on a per square foot basis but the trade-off is you need a

bigger site to make it work so there's a minimum size for a wrap that you would

need to have for the site and you for a podium you could typically actually

squeeze that on a pretty small site if you need to, but you can't do that for a wrap.

Okay, so in the table that was in the study where they kind of had everything being equal,

that was just kind of for the purpose of comparison?

It was apples to apples comparison, yes, correct.

Gotcha, thank you.

The next question here is just, it was interesting, I think, potentially slightly different from

the last cost of development study that we saw was that some of the lower density for

sale typologies that we looked at, townhome stacked flats, showed actually being kind

of potentially market feasible.

So the question here is just if we think that there's this housing typology out there

that actually pencils out, you know, why are we not seeing more of that type of housing

get built in the current market?

Do we have any guesses?

Well, I can tell you that Bay Area-wide those are being built a fair amount.

I don't know enough about San Jose's unique circumstances in today's market to say why

that you haven't seen more townhomes being built here.

it could be a variety of factors financing is probably my guess and it

might be site availability and zoning but maybe Eric can thank you and I guess

to Josh's point you know if it is the case that our neighboring cities can get

you know 20% higher rents or significantly higher sale values given

the limited resources of some of our developers they might just be focusing

development opportunities and our neighboring peers that seems like a

logical explanation because the money is going to follow the highest return.

Yeah, that's exactly what I want to add on.

I think a lot of builders, they will choose a higher sales price or higher rent price cities.

So with the same construction cost, where similar construction costs and even lower fees,

they probably will choose other cities instead of San Jose.

But we want to build more in San Jose.

Thank you.

The next question I had was potentially for either maybe for Josh.

One thing that I've heard from some of our partners in development before is just this notion that some of the other requirements that the city has also imposes costs.

Things like our design standards, things like daylight plane requirements, facade articulation and material requirements, private open space and balcony requirements and new development.

Curious from your experience if you view any of that that wasn't necessarily directly studied here as having any potential for cost improvements.

Yes. So those are the unknown things, right, that aren't like a specific fee that's super black and white. And it's nebulous as you go through the planning process.

I'm less concerned about like the exterior skin or you know balcony requirements and things like that.

A big kind of open box is off-site improvements.

So like the city has a lot of different vision plans for different corridors, streetscape plans,

that are, you know, Public Works manages these master plan projects for boulevards and all these different things,

future bike lanes, really great vision projects for the city.

And there's also, so in addition to that, implementing those types of things,

there's, you know, unknowns before you break ground or before you go through your entitlement process

of like what other things might come up,

new streetlights, other things.

It could be multi-millions of dollars

and cost impacts,

but it's unknown out of the gate.

And so I think being able to have

a tighter control on that process,

working with the developers,

like the client of the city

or the customer going through the process,

trying to have a better handle on those sort of off-site costs.

Thank you. That's very helpful.

And I know Councilmember Coppice's memo also directed looking at some of the off-site improvement costs there.

So I think good to just kind of maybe zoom out, have a wider lens here,

whether we're looking at design standards, off-site costs, other elements that are in the city's control,

just trying to understand is that 2% of costs, is it 10% of costs, you know,

what is kind of being left on the cutting room floor there.

And then one final question quickly just for staff.

Both of our market rate developers here mentioned some concerns about just current fee structures being based per unit versus per square footage or per bedroom.

Is there any existing city work stream that's looking at kind of that angle of potentially tweaking some of the city's requirements?

Yes, so there is a work stream that's looking at those requirements and a global sort of impact that's being done with housing PBC within the CED work group

on looking at overall kind of fee structures within the city as well

amazing thank you

thanks councilman appreciate all the thoughtful questions let me turn to

vice mayor foley

thank you thank you for the presentation and covering all aspects of

development whether it be affordable market rate

small infill uh it was really a helpful analysis as we go forward

Councilmember Tordios, I appreciate all of your questions and your analysis.

Clearly, your Planning Commission experience is really going to be helpful on these issues as we go forward.

I look forward to a real in-depth discussion when we discuss all of these specifics in January

as to what we can do and what we can't do.

Really, I just wanted to invite everybody.

one of the focus areas that we have at the city is building more housing,

and that falls under the purview of the CED committee.

And on Monday, we will be getting a presentation

on building more affordable housing in connection with our focus group.

So I know there's five council members here who will be at that meeting,

but if you want to watch and see what continues the discussion there,

that might be helpful too.

It's 1.30 on Monday.

I just wanted to extend that invitation.

And really, you've given us so much to think about,

and it's important that we consider all ways that we can really get out of the way of development

and create more development, all types of development in the city of San Jose,

thereby bringing the cost and bringing the affordability up and allowing more people to rent.

Josh, I really appreciated your comment about the average tech employee and wanting them to be renting in a Class A type building and not a Class B or C because that puts pressure on the affordable housing project.

So the more of the Class A, the more market rate we can build, the more that opens it up for those who can afford lower rents, can only pay affordable rents to live there.

So I think that's something that we should all be keeping in mind.

Also, the effect of foreclosures on the real estate market and the financing capability.

I was also happy to hear, I guess, that the construction costs have stabilized

because we hear that that's one of the reasons that the cost of construction is,

cost of development is so high in San Jose is because of the cost of construction is going off.

but if stabilized, that's all over the county or all over our area too.

It's really the land act.

It's really the rent is really what's causing the offset between cost of development

because it looks like all things being equal in the Bay Area, costs are the same,

but the rent that you could generate in our surrounding neighborhoods

or surrounding jurisdictions is higher.

So not much we can do with that unless we build more and cause more affordability.

And, of course, financing pieces, the banks, the tax incentives,

all depend on whether you can turn some sort of profit or generate an income from it.

So I appreciate the conversation.

Really complicated, but it was really useful to hear.

Thank you.

thanks vice mayor appreciate those reflections councilman Casey yeah vice

mayor's comment spurred a question so the comps that we used in terms of market

rate and discrepancy and how much lower or not much lower is a reflection of

the location decision of folks wanting to be living near the tech centers and

job centers I would imagine so unless we bring more jobs and tech jobs here into

San Jose and or make this a fun viable place to live which we as a council

members can have an impact on I think those are two levers we need to

concentrate on pulling so just a parenthetical comment there thank you

yeah appreciate that it really is both sides of the equation let me go to

council member Mulcahy thank you mayor and thank you to my colleagues I really

have a lot of alignment with what I've heard from each of you so thank you and

Thanks for the report and the study session today.

Just wanted to raise one kind of tiny piece in this larger discussion.

I think it was Jason, when you were kind of walking us through kind of the lead

up to the bulk of the presentation, you sort of went to the town homes and sort

of said, Oh, you've kind of got that covered.

I just want to make sure we're not forgetting the fact that we're trying

to improve the entire continuum.

And if there are opportunities, even in those, you know, even a townhome product type that we're doing presumably well in, and I think, you know, there's data to support that we're doing okay because there's more permits pulled than, than units built.

Um, want to make sure we're not overlooking those opportunities where even if we are doing well, how can we continue to build on that momentum, um, that we have?

So thanks again for the report.

Okay, not seeing any other hands.

Just before we turn to public comment, I would ask about a really radical idea,

which is are we seeing any discussion in Sacramento about property tax abatement

or some other more kind of radical moves that might enable more housing to be feasible?

I think we'd, you know, even if we considered it, probably hesitate to go alone.

as a city only 14 cents on the dollar but if you were to include even a short

period of abatement including county and state you really changed the equation

but is there is there any discussion of that I was gonna mention there's always

been like background talks about like redevelopment agency 2.0 yeah things I

haven't heard anything on the state level like as far as a global incentive

program for housing in the state that being said when when I mentioned it

earlier I was not expect given the timing of everything and that the city's

hell-bent on producing housing I wasn't recommending that we go down a state

discussion path just from a timing perspective but even looking at just the

city and count and our colleagues at the county just combining though that

portion of the property tax would make a huge impact on return on costs yeah especially for

high-rises I'm thinking also work for multifamily but you know cost is so construction costs hard

costs the development costs lowering that like if let's say a certain percentage it has a certain

impact on the return, but when you lower the operating, when you either increase rents or

lower the operating expenses, that has like a crazy higher impact on that return on costs.

It's so, you'd be shocked how sensitive the models are. When we're going through and like,

okay, can we shave costs here? And then we shave like a million bucks off, figure out something

here. And then it doesn't move that needle. And then, okay, what about if we lower operating

expenses or like project that we're going to have a little bit higher rents and that like really

pushes the return on cost and it's that metric that that the banks use to figure out they're

going to fund the project and then third-party equity groups so it is a big lever we haven't

used it or looked at it in the city I'd always suggest stuff like incremental property tax so

whatever the city and the county is collecting today on the current vacant lot or single story

building stays the same. It's just the incremental for a period of time. Right. Nevada. Hi there. I

would just add, you know, I lead state legislative advocacy for a mid-pen, so the bill numbers change

every year, but this episodically comes up every couple years. It's a two-year bill cycle,

tends to die in the first year, but it's really a great thing to consider because, as my

colleague here mentioned there's not a lot that cities can do to incentivize

kind of in that middle that missing middle housing so things like adding

density getting cost out of the project in other ways and then looking at this

are really kind of the top handful of tools that you have available to you so

thanks for that and I just wanted to add that there are so though on the property

taxes right that is an ongoing operating cost as Josh mentioned right that's a

very big part of how lenders will lend to a project and what we see more and

more across the country are well the property tax doesn't go away and it's

certainly not going to be something that that Sacramento is like waving for you

know a lot of projects right what we see a lot of are these efforts to do where

a city agency or a housing authority or some public agency right can help create you know make a

project feasible not by subsidizing it directly but by playing an ownership role that allows those

property taxes to be waived or minimized so that that you know those operating costs go down quite

a lot and the it makes a huge difference in what is feasible and so we're seeing that a lot as a

as a way to address the missing middle,

combine market rate with some affordable 50-50

or different combinations that make sense

and can bring more units online through that approach.

And there are a lot of different structures

that are doing that now.

Yeah, I think it's really interesting.

Just give it, I mean, Josh, did I hear you correctly

in your earlier presentation that property taxes

are nearly half of your operating expenses?

That's wild.

And I referenced the state only because two-thirds of the property tax take is state,

and most of that comes back down to school districts.

City and county combined, I believe, are about 32%, which is meaningful, but only about a third.

Okay, well, there's some good food for thought there.

I also just want to highlight at the state level, Assemblymember Buffy Wicks,

who has been a real champion on housing, just created, really the Assembly created,

she'll be chairing a new committee on innovation and construction looking at

which we should all be paying attention to you know methods of bringing down

costs just through innovation so interesting to think about just before

we go to public comment I think we've got councilor Tordillo's another comment

yeah thank you mayor just wanted to plus one your comment on the property tax

angle there I grew up in Washington State so I've followed kind of some of

their legislative work over the years I think it's interesting that there they

have this kind of shorter term general tax abatement specifically just to

encourage multifamily housing development but they also have this

longer term abatement that applies to inclusionary units that kind of scales

with the number of units and the affordability level of those units so we

obviously have the IHO update coming up soon I think it's interesting to look at

what other states have done to try to offset some of the costs associated with

building on-site affordable units and given that we have a state legislature

that has been taking bolder you know housing actions recently could be a good

opportunity to revisit some of the statewide angles here and potentially incorporate it into

our legislative program for next year. Yeah, absolutely. Thanks for flagging that. All right.

It is just after 1130. How many comment cards do we have? Eight. Eight. All right, then. Let's do it.

Okay, when I call your name, go ahead and come on down. The first person to the microphone,

just go ahead and start speaking. The other people can line up behind them. Hadia Fane,

Allison Singalani, Alex Seawick, and Ali Sapperman to start.

I emailed this to them already, so they do have copies.

Sure, we'll hand them out.

She's got the annual reports that we'll give you after the meeting.

I was just going to reference something in the annual report.

All right, you may begin.

Good morning.

My name is Hadia Fane, and I represent Life Services Alternatives.

Before I make my comment, and I know I don't have much time, I do want to say thank you,

and I want to commend this governing body for this city for your consideration for this study.

And also, Matt, I was dear friends with Sam and Jessica, and I know why he picked you.

I appreciate your transparency and all that you're doing for the city and for my personally for my family. So thank you

I

'll make my story short. They're passing around

annual reports right now on page

three of that annual report

you'll see the history of life services alternatives, which I'm calling LSA and

and we provide housing and we provide programs for adults with developmental disabilities.

So as much as I'm in awe of all of you, I'm not here on my own behalf right now.

I'm here because of people who cannot speak for themselves.

They can't do much for themselves, as a matter of fact.

We started LSA in 2002 at what's now known as Rivermark,

and it was property and government land.

That property has been a space for affordable housing,

for senior housing, and then, of course,

for the individual we serve,

as well as for single-family affordable units.

It also happens to be, with intention,

on the property of, or next to,

directly next to Oracle's parking lot.

And in addition to that,

it's across the street from a Safeway.

In addition to that, it's been built up around the lands.

And I don't want to bore you with the details.

Many people know about Rivermark and know about that property.

What they don't know is that this is the genesis of our organization.

And since then, we've been able to open 16 more homes to house many, many more.

Thank you. That's your time.

Next speaker.

Please listen to this.

Thank you that's your time. I'd also like to call down Kira and Rego. Come on down.

Alison Singalani, Director of Policy at SV at Home. We appreciate the city's commitment to

strengthening San Jose's housing policies and agree that thoughtful updates can help us move

closer to a future where everyone has access to a safe and stable home through increased housing

production. To get there, it's essential that we ground improvements in transparent data,

robust analysis, and deep engagement with community members and partners across the

housing ecosystem. These tools allow all of us to make decisions with clarity, confidence,

and shared purpose. As we reviewed the cost of residential development study, we saw a valuable

starting point, but also an opportunity. The decisions you're called upon to make will shape

the daily lives of thousands of San Jose's residents and our community

deserves an approach that is rooted in full and clear understanding of what is

needed to make housing more affordable and attainable. This study can better

equip council to navigate important decisions ahead with more comprehensive

data and analysis shaped to support these specific decisions. We appreciate

that the Rules Committee recognized this need by unanimously voting to delay

consideration of proposed changes to the inclusionary housing ordinance until

after today's study session. Because proposed changes are tied to development feasibility,

it's crucial that feasibility for inclusionary housing units themselves, not just in lieu fees,

across income levels, be analyzed in a transparent and complete way. Without that, we risk making

changes without knowing if they'll achieve our shared goals or unintentionally limit affordability.

In the coming months, you'll consider updates to several key policies, including inclusionary

housing ordinance, mobile home ordinance, downtown high-rise incentive program,

tenant utility pass-through in the city budget process. These pieces are

interconnected and require a holistic approach that models how changes might

interact, centering the experiences of San Jose's residents most impacted by the

housing crisis. We're committed to working alongside you, together with our

community partners and residents, to build a stronger, more equitable San

Jose. We believe deeply in what's possible. Thank you. Thank you. That's your time.

Next speaker.

Good morning.

My name is Allie Saberman.

I want to thank council staff and the providers that are here today.

I'm here on behalf of the Housing Action Coalition.

And we represent members of different industry groups between land use consultants, developers,

architects, labor unions like the carpenters.

And we want to see the highest amount of fees that are financially feasible for development.

There's lots of fees that provide uncertainty and it's important to streamline projects

so that there is less uncertainty and inevitably less fees.

Councilmember Tor-Dios asks why condos aren't being built.

This is largely due to some loopholes like condo defect liability.

We're actually working on a state fix like right to repair.

I know Mayor Mahan brought up the idea of tax abatement.

actually working on this as well. SB 336 was a bill that the Housing Action

Coalition ran last year. It's going to be a two-year bill and it expands the

welfare tax exemption for affordable housing to include moderate income units

up to 120% AMI. So it's just a part of the solution but a big piece of the

conversation that we haven't talked about today is potentially supporting

the statewide housing bond which we expect to see. It'll be a great revolving

fund for our affordable providers because if we are adjusting inclusionary we would need to make

sure the affordable housing is still getting built thank you thank you next speaker also harvey and

dan come on down good morning my name is alex sywak my wife and i have owned a parcel in san

Jose and District 2 for the last 40 years. We're in the process of going through the

planning for 72 single-family homes, each to include an ADU. I've sent you our sort

of chronology in the last six months yesterday, and this morning I sent you what I would interpret

Governor Newsom's approach to his AB 130 that came into effect at the end of June.

So what we really need is a chaperone, a liaison person, an intermediary, a special master.

Three months ago, our $700 an hour land use attorney sent an explanation of why our project

is AB 130 eligible, which exempts us from CEQA.

We've yet to receive a response.

Two weeks ago, we got a word salad explaining why

scratchings from here and scratchings from there

don't apply to make our project CEQA exempt.

We really would like somebody, an adult,

to help mediate these issues.

In the explanations I sent over the last two days,

it's clear we are AB 130 exempt.

Thank you.

Thank you.

Next speaker.

Hello.

I'm Keira Kazanzas from Silicon Valley Council of Nonprofits

and also representing the Real Coalition.

As you likely know, the coalition sent a letter asking

for certain data, certain analysis and engagement,

which I will not reiterate here.

I do have a couple of notes.

You know, San Jose has been reasonably successful

compared to other cities in the region

at developing affordable units at very low cost

per unit to the city.

And this begs the question of how to continue

or enlarge that trajectory without Measure E, Measure A,

or potentially in lieu IHO fees

to provide the needed financial support

to ensure project feasibility.

Given, and also given that feasibility

of higher density development depends

on rents rising substantially,

the city's comprehensive plan for the housing needs

of low income folks is clearly more important than ever.

We do support Councilmember Campos' memo,

and I also want to thank specifically Director Sullivan

for offering another context for deeper community education

and engagement for our nonprofit coalitions

and the communities we serve.

Related to the cost of development

and specifically its connection to IHO policy

and we look forward to that deeper engagement.

Thank you.

Thank you, next speaker.

Also Julian, come on down.

Buenos dias, Mayor Mahan and City Council.

My name is Rigo Gallardo.

I'm a field representative with the NorCal Carpenters Union,

Local 405 here in San Jose.

Thank you for the opportunity to speak today.

The study before you makes something very clear.

The city has real tools at its disposal

to help get more housing built.

Identifying city control fees that can be waived

is an important step and we support using those tools

to remove barriers and move projects forward.

But the study also highlights another major challenge.

Entitlement costs continue to be a significant burden

for housing development.

If we want homes built faster and at a cost,

that pencils out, then addressing those entitlement hurdles is essential.

The carpenters are ready to be partners in that work.

We are prepared to collaborate with elected leaders and city staff on fee waivers and

on streamlining entitlement processes.

But we believe strongly that these incentives must be paired with fairness for the workforce

that builds this housing.

If developers receive financial relief and a faster path to approval, then the workers

who bring these projects to life should share in those benefits through good wages, apprenticeship

opportunities, and safe working conditions.

San Jose has a chance to set the standard.

Let's be the city where housing is approved efficiently, where building is financially

achievable, and where every project is built by workers who are treated with dignity.

By aligning incentives with strong labor standards, we can deliver housing that our community

needs and the good and good careers that our families can count on thank you thank you next

speaker

hi my name is dan mount sear i'm a small builder in san jose i did want to echo what uh alpha x

indicated as well as some other council members um for the especially for the smaller infill site

Yeah, the cost structure is considerably different when it's not a two-hanger rectangle when it's a

Smaller oddly shaped thing like that it changes things quite a bit

um, there's a lot of these sites and a lot of them are currently blight. I think it is an opportunity

that we need to

Take care of because right now I think the numbers my civil engineer gave me was uh there was like 110 entitled this year

13 pulled permits and three were completed.

So obviously something needs to help to break them loose

and I would just encourage that.

Thank you.

Thank you.

Next speaker.

Also Mark, come on down.

Hi there.

I'm Harvey McCown with the NorCal Carpenters Union.

I want to really thank the Housing Department for keeping us in the loop as a stakeholder

regarding the studies development.

And you know, if there's ways that our union's research department can help refine any aspects

of this analysis with our own industry insights and data, then our door always remains open.

And fundamentally, we want to be helpful and a pragmatic voice in supporting ways to make

housing development financially feasible in this city.

includes being a voice in support of things like fee waivers and exploring avenues for entitlement

efficiencies but only in a way that is fair and equitable to the local workforce. The reason this

is important is because there's also a very human cost of residential development and in recent

months labor compliance activity related to active housing construction in San Jose has uncovered

multiple potentially egregious forms of labor exploitation. And there was at least one brave

worker who came before council in recent months to stand here and speak to you about that upsetting

experience. So while we are genuinely really willing to be a pragmatic voice in terms of

supporting efforts to reduce development costs, we ask that this does not occur at workers'

expense and I'm sure we can find a way to do that. Thank you.

Thank you. Next speaker.

Good afternoon, Mayor and Council members. Thank you for this study session examining

the cost barriers that are facing multifamily housing in San Jose. My name is Julian Lake.

I'm a San Jose resident and I'm here on behalf of the Bay Area Council, which represents

around 400 of the region's largest employers.

Right now we are seeing a troubling pattern.

Even zone-entitled and fully-planned multifamily projects in San Jose and around the Bay Area

are stalling because their costs exceed their financial benefits.

According to a recent study by the RAND Corporation, it costs 2.3 times more to build an apartment

in California than in Texas, and the leading reasons in their study are within the city's

ability to influence.

The authors point to California's high impact fees on housing, our uniquely expensive entitlement

process, and our highly bespoke building code as leading reasons for this cost difference.

Construction costs remain among the highest in the nation, but what really pushes projects

over the edge are the soft costs and carrying costs embedded in our local development process.

When you look at San Jose's pipeline, you see dozens of shovel-ready projects that cannot

move forward, not because of lack of demand, but because every month of delay and every

additional requirement increases risk and reduces feasibility.

Some of these requirements are well-meaning, such as the requirement that developers build

a certain share of their building as affordable, but these requirements effectively require

the developer to lose money on large portions of their building, making it less feasible

for them to build and crucially, actually harming affordability for renters around the

region.

San Jose's impact fees are another part of the equation and

My request today is to apply the lessons that we've learned on reducing these fees

Citywide to multifamily housing. We need more housing to stabilize rents in general and

We hope that the Bay Area Council can be a partner in this work

Thank you. That's your time next speaker

I would like to recognize that the city has limited ability and powers.

The state has overriding laws that we all have to follow, and the macroeconomy is nothing

that we can flip a switch and fix.

So we are working with two big constraints.

What you do have is ability on your policies, and there are three areas I think the city

could be very helpful on.

One is fee deferrals.

As my colleague at Urban Catalyst described, we have to pay for the impacts.

And we're not arguing that, but what we are saying is when do we pay?

In order to build a high-rise, you must pay for 100% of the building before the first person moves in.

By allowing the impacts to be deferred, the fees to be deferred later on in the process,

allows capital management for developers.

It lowers our risk, and it doesn't impact the city because the building isn't done.

Nobody's using the services that we're being paid for, that we're being charged for.

That's one area.

The second one is process and clarity.

We talk about time.

I have a minute and 10 seconds.

Time is what is risk.

Time is what it takes to get a project through,

and it creates uncertainty.

Financing can fall through.

Things can change.

New building codes can come in,

and you have to redesign the project sometimes.

Having very clear and working with your staff

who are professional, who know what they're doing,

but to give them the tools to move projects faster

through the process.

And the third one is off-site improvements.

It is a black box.

If I can pay a million dollars for an acre,

but I have a million-dollar off-site improvement,

I can't pay a million dollars anymore.

And not knowing that at the beginning of a project

creates certain uncertainty and friction.

And I say friction as it's just inefficiencies.

So the three areas I think you guys could help us with

is deferring fees until the impacts are felt in the city

Two, working with staff to have clear guidance and quick feedback.

And three, a little bit more transparency on the goals of off-site improvements.

Thanks.

Back to council.

Great.

Thank you again to those who put together the report, all of our expert panelists, staff,

all our public commenters and colleagues for your close attention and great questions and comments.

With that, we are adjourned.

Happy holidays, everybody.

Thank you.