San Jose City Council Study Session on Cost of Residential Development – December 8, 2025

On December 8, 2025, the San Jose City Council held a study session to examine the cost of residential development, focusing on both market-rate and affordable housing. Staff from the Housing Department, along with consultants from EPS and CSG Advisors, presented detailed analyses of development costs, feasibility, and policy levers. The session also featured perspectives from market-rate and affordable housing developers. No formal votes were taken, but the discussion laid groundwork for upcoming policy decisions, including updates to the Inclusionary Housing Ordinance and incentive programs in January 2026.

Public Comments & Testimony

• Hadia Fane (Life Services Alternatives): Thanked the council for the study and highlighted the need for housing for adults with developmental disabilities, noting LSA's work since 2002.
• Alison Singalani (SV at Home): Urged the city to base policy decisions on transparent data and robust analysis, particularly regarding inclusionary housing feasibility, and called for a holistic approach to interconnected policies.
• Allie Saberman (Housing Action Coalition): Supported maximizing fees that are financially feasible for development, mentioned work on condo defect liability and a state housing bond, and emphasized the importance of streamlining approvals to reduce costs.
• Alex Szwak (property owner, District 2): Described challenges on a 72-home plus ADU project, including delays in receiving a CEQA exemption determination, and requested a city liaison to help mediate issues.
• Keira Kazanzas (Silicon Valley Council of Nonprofits): Noted San José's success in building affordable units at low cost to the city, questioned future funding sources without Measure E/A or IHO fees, and supported Councilmember Campos' memo for deeper analysis.
• Rigo Gallardo (NorCal Carpenters Union, Local 405): Supported fee waivers and streamlined entitlements but insisted these benefits be paired with fair wages, apprenticeship opportunities, and safe working conditions for the workforce.
• Dan Mount Sear (small builder): Echoed concerns about small infill sites, noting that only 13 building permits were pulled out of 110 entitled projects this year, and urged the city to address the cost and process barriers for these sites.
• Harvey McCown (NorCal Carpenters Union): Thanked staff for stakeholder engagement, supported fee waivers but not at workers' expense, and cited recent labor compliance findings of potential exploitation on housing construction sites.
• Julian Lake (Bay Area Council): Cited a RAND study showing California costs 2.3 times more to build apartments than Texas, attributed to high impact fees, expensive entitlement processes, and bespoke building codes, and urged reducing impact fees for multifamily housing to stabilize rents.

Discussion Items

Market Rate Housing Analysis (Jason Moody, EPS): The study evaluated five building types (townhomes, stacked flats, podium, wrap, tower) across four growth areas using 2024-2025 market data. Key findings:

• For-sale townhomes and stacked flats are feasible under current conditions.
• Rental podium, wrap, and tower projects are infeasible; fee waivers could make some podium and wrap projects feasible in higher-rent areas.
• Towers require a 10%–35% improvement in rents/costs to become feasible.
• San Jose's impact fees and taxes (6–10% of total costs) are competitive with neighboring cities, but lower rents in San Jose (e.g., 20–30% less than neighbors) constrain feasibility.
• Hard costs represent 65–70% of total costs; labor is 30–35% of hard costs.
• Office-to-residential conversions are case-specific and may be aided by fee waivers, parking reductions, and streamlined approvals.

JLL Market Insights (presented by Eric Sullivan): Using a different data set, JLL projected that with 3% annual rent inflation, wrap projects could become feasible in about 2 years, podiums in 9–10 years, and towers require much longer or more significant market changes.

Affordable Housing Analysis (Nicole Graham, CSG Advisors): Analyzed 194 proposed affordable projects statewide (20% from Santa Clara County) from 2023–2025. Key findings:

• San Jose's cost per net square foot (~$1,050) is in the middle of the Bay Area range ($840–$1,440).
• Per unit cost (~$675,000) is lower than the Bay Area average ($770,000), driven by larger project sizes (173 units per project vs. 112 average).
• Smaller unit sizes (66% studios/1-bedrooms) raise cost per square foot but reflect a focus on special needs and homeless housing.
• Across project types, San Jose costs are lower than the Bay Area average for each category.
• The city's costs align with other Bay Area counties and are not outliers.

Panelist Perspectives:

• Josh Burrows (Urban Catalyst): Noted that San Jose produces less housing per capita than neighbors (5–10 times less); cited soft market with foreclosures and flat rents. Property taxes constitute nearly half of operating expenses. Recommended fee deferral to certificate of occupancy. Highlighted Washington state's successful tax abatement program that spurred 50,000 units.
• Xii Li (Alpha X Capital): Emphasized that small infill sites (0.14–0.46 acres) face different cost structures than the study's 2-acre assumption. Per-unit fees disproportionately burden starter homes. Requested a scaled fee framework for sites under 0.5 acres to enable gentle density and missing middle housing.
• Nevada Merriman (MidPen Housing): Confirmed study findings; noted that fee waivers (e.g., park fees) act as loans and enhance competitiveness for state/federal funds. Urged aligning city funding cycles with state tax credit and bond programs. Every $1 of city investment leverages $6 in external capital. Highlighted the need for predictability to avoid cost escalations from delays.
• Andrea Osgood (Eden Housing): Shared success story of East Santa Clara Avenue project (68 senior units) receiving 9% tax credits. City provided $7.8 million (14% of capital stack). Recommends syncing city NOFA with state cycles to avoid timing gaps that cause delays and cost increases.

Council Discussion & Questions:

• Mayor Mahan noted that of 22,000 entitled multifamily units (2020–2024), fewer than 7,000 pulled permits, indicating feasibility gaps. He thanked colleagues for the Multifamily Housing Incentive that enabled 2,000 units to break ground.
• Councilmember Campos asked whether the study analyzed the impact of constructing on-site inclusionary units (not just in-lieu fees). Staff confirmed the study did not analyze specific programmatic impacts.
• Councilmember Tordillos asked about differences between podium and wrap typologies, why townhomes are not being built more despite feasibility, and whether design standards or off-site improvement costs are significant. Staff noted ongoing work on fee structures; Josh Burrows cited off-site improvement uncertainty as a major cost.
• Vice Mayor Foley and Councilmembers Casey, Mulcahy, and others discussed the role of building more market-rate housing to relieve pressure on affordable stock, the impact of tech job locations, and the importance of addressing the full housing continuum.
• Mayor Mahan raised the idea of property tax abatement as a bold lever. Panelists confirmed that property taxes are a large operating expense and that even short-term abatement could dramatically improve returns, especially for towers. Councilmember Tordillos noted Washington state's abatement models for multifamily and inclusionary units.

Key Outcomes

• No formal decisions or votes were taken; the session was informational.
• Staff will bring forward policy updates in January 2026, including revisions to the Inclusionary Housing Ordinance (IHO), the Multifamily Housing Incentive program, and a Downtown High-Rise Incentive program.
• The Building More Housing focus area continues to work on land-use policy, development services improvements, and linking capital with land.
• Councilmember Campos' memo will be resubmitted to the Rules Committee for further consideration, including requests for analysis of inclusionary housing feasibility, small infill economics, and parking/design impacts.
• Several speakers and councilmembers emphasized the need for comprehensive data, transparent analysis, and engagement with community and labor partners to ensure equitable outcomes.