San Jose Planning Commission Study Session on Development Costs, Legislation, and CEQA - November 25, 2024

The San Jose Planning Commission held a study session on November 25, 2024, to discuss the cost of residential development, the city's development fee framework, long-term work plan, legislative updates (including the builder's remedy), and CEQA exemptions. The meeting also included a public comment period.

Public Comments & Testimony

• Maya (member of the public): Expressed interest in city improvement, noting that she has lived in San Jose for seven years and sees room for improvement. She mentioned the Burbank Theater area and suggested mixed-use development with studios and one- and two-bedroom apartments, as well as parking solutions. She also noted she has followed the Arts Commission and found it interesting.

Discussion Items

• Director's Opening Remarks (Chris): Thanked commissioners for their time and discussed the current moment in development, including the impact of state legislation on housing facilitation, the post-COVID office market collapse, and the importance of focusing on land use decisions within policy frameworks. He also addressed the role of the commission and encouraged open communication with staff.
• Cost of Residential Development Study (Jared Ferguson, Principal Planner): Presented an update on the cost of development report, which began in 2018 to understand the economics of multifamily housing. The study uses conceptual prototypes (low-rise, mid-rise, high-rise) and shows that all residual land values are negative, indicating projects are infeasible even with zero land cost. Key drivers include a 27% increase in construction costs since the pandemic and rising interest rates. No market-rate high-density multifamily projects broke ground in 2024.
• Development Fee Framework (Jared Ferguson): Outlined efforts to simplify and standardize fee administration, including aligning timing of payment, geography, and metric (square footage). The framework is being developed through a working group with multiple departments, with a draft policy expected for feedback in early 2025 and potential adoption by spring/summer.
• Citywide Planning Work Plan (Ruth and others): Presented a dashboard showing 23 active projects with 19 staff. The long-term horizon extends to 2031, with mandatory state-mandated work (e.g., safety, open space, environmental justice elements) dominating capacity. The team is operating at about 92% capacity in the current fiscal year, and funding from permits is declining, raising concerns about future staffing.
• Legislative Update (Danny, Principal Planner): Discussed the builder's remedy (AB 1893 and AB 1886), which clarifies the definition of "substantial compliance" with housing element certification and vests the builder's remedy at the time of preliminary application. AB 1893 writes the term into law, provides density maximums and minimums, lowers affordability set-asides (e.g., 7% for extremely low income, 10% for very low income, or 13% for lower income), and includes provisions that allow developers to choose which provisions apply, rendering projects infeasible. Danny expressed concern that these laws can allow development on employment lands and favor market-rate townhomes over affordable projects near transit.
• CEQA Exemptions and Review (David Keon, Principal Planner): Provided an overview of CEQA exemptions, focusing on categorical exemptions (e.g., existing facilities, replacement/reconstruction, small structures, and infill development). Infill exemption (Section 15332) is the most common for substantial projects and requires consistency with general plan, no more than 5 acres, and technical studies to demonstrate no significant impacts. Exceptions (e.g., hazardous waste sites, historic resources, cumulative impacts) can kick projects out of exemption. Danny also noted that builder's remedy projects are attempting to use the infill exemption, but the city disputes this because they are not consistent with general plan designations; AB 1893 may allow it for CEQA purposes, but this is unresolved.

Key Outcomes

• No votes or formal decisions were taken; the session was informational.
• Staff will continue to develop the fee framework and bring a draft policy to council in early 2025.
• The citywide planning team will use the workload dashboard to communicate capacity constraints to council.
• The legislative update clarified that many builder's remedy projects may be appealed to the director's level, but could come to the planning commission if appealed by the public.
• Commissioners asked about pre-negotiating with labor unions to address CEQA litigation, and about exploring city financing (e.g., bond measures) to support housing development.