Welcome to the January 14th meeting of the Planning Commission.

Please remember to turn off your cell phones.

The parking validation for the garage under City Hall is located near the rear of the chambers.

If you're able at this time, we will start with a salute to the flag.

I pledge allegiance to the flag of the United States of America,

and to the republic for its name, one nation under God, indivisible, with liberty and justice for all.

all right tonight we have a special meeting a study session but first we'll start with roll call

so let's see vice chair bigford commissioner borosio commissioner bondall commissioner

Cantrell, Commissioner Cow, here, Commissioner Casey, Commissioner Escobar,

here, Commissioner Nguyen, here, Commissioner Oliverio, Commissioner Young, here, and myself here.

We can move forward. Okay, we'll move forward with a report on the cost of residential development

in San Jose. Staff, do we have a presentation?

Yes. Good evening, Commissioner Manir Sandhir, Deputy Director of Planning with Planning,

Building, and Code Enforcement. I'd like to welcome Eric Sullivan, the Director of our

Housing Department with the city here to present on the cost of development study. Just to tee

it up for the commission, the cost of development study is something that the city does every few

years to evaluate how the development industry is acting and that can help inform policy decisions

that are made by city council and perhaps sometimes recommended by the planning commission.

This study was led by the housing department but was also in partnership with planning building

and code enforcement as well as the office of economic development. So with that I'll turn it

over to Eric Sullivan who is also joined by Jared Ferguson our principal planner. Thank you.

So, Eric Sullivan, Director of Housing for the City of San Jose.

And as Minira had mentioned, we've worked with Jared and the team at PBC and OED and

a number of other departments comprising this study to look at the cost for the development

of residential on both market rate and affordable housing.

So this presentation was part of an overall study session that we gave to Council that

was a three-hour session.

So I'm going to move through the slides a bit quickly today so we can have time for questions and answers at the end of it.

And I'll go through the first part, which is the market rate development, then I'll get into the affordable housing side afterwards.

And I'll try to get through it in about 20 minutes so we can really even get enough time for questions and discussions.

So first off just a quick background we hired a consultant EPS and CSG

Advisors to put together this analysis for us along with city staff from many departments

So I'm just

So some quick history here so we went through a number of outreach hearing from in addition to the

expertise staff that put together the modeling for this. We also work with a number of constituency

groups and stakeholder groups, including from labor, business, developers, as well as policy

advocacy organizations. And some quite important takeaways for the context of this, this is based

on hypotheticals. So we had some underpinnings of actual deals that we had on the market rate side.

We had a few deals and then built models based on that to show this increase in cost.

And then on the affordable side, we looked at a much larger data set of about 200, but primarily at the application stage for low-income housing tax credits.

And so I just wanted to place that as contextual considerations.

As we brought forth to council, we looked at the factors that the city can control and the factors that are city outside of control.

You know, with any development initiatives, city governments, you know, have little bit of tools, but where do we apply those tools to best incentivize for bringing projects forward and addressing some of the headwinds within the current market?

And so this is just a quick recap of just purpose and scope of VPS and how we utilize this study for our incentive programs.

So just a quick overview on the analytical framework.

You know, the overall for the market rate approach is looking at revenue cost expenditures.

So in addition to the few hard data sets that we had, we also looked at aggregate data sets,

COSTARS and Redfin, that contributed to the modeling out of the analysis.

And so here's the quick takeaway.

It's just some quick rounding.

As we looked at these performas, what this slide is quickly communicating to you,

that the aggregate data sets and the overall assumptions built into the model when compared to

the actual real deal data numbers because we had a small data set for this we were within a margin

of variance and so we feel confident that this assessment is true to form within current market

conditions and so I'm going to place that you quickly in sort of the five different building

types that we looked at first is our townhomes and our stat flats and then we looked at podiums

wraps and towers and you'll see a theme throughout this presentation as we move through it that our

townhomes and our stat flats generally feasible based on the analysis when you start getting into

your wraps your podiums and your towers it becomes much more challenged particularly your tower

development building type. And so what this chart quickly shows to you is the

cross-section overlay here. So at the top you have your townhomes, your stack flats,

your podiums, your wraps, and your towers. And then what is the types of density

that lay down based on again a set model type for the hypothetical to which we

overlaid the data making these assumptions. So that laid the groundwork

upon which we built the model.

So then we also looked at particular areas within the city.

So it was not a comprehensive review of every neighborhood.

It was our targeted growth areas in the downtown, the west, the north, and the southeast.

And so that was the scope and the particular criteria for which we built out this analysis.

So there are a number of factors that kind of go into addressing feasibility.

Obviously, the biggest being where is the market today?

What are the financial currents within the marketplace that really drive, particularly these days,

whether or not we can get a project to move forward into construction?

Then two, what are the different labor and material challenges that we're experiencing,

particularly now with the inconsistency of applicability of federal policy on tariffs?

We're seeing a lot of fluctuations across the cost of materials.

And then three, looking at issues around labor as well as prevailing wages.

I will note one of the findings here is that we're not able to make final determination

regarding the impacts of labor and prevailing wage on market rate products because of just

of a lack of data and needing to do additional study.

And this was discussed at length during the council session.

And so some quick recap of the results.

So first here is, in general, there are impacts that the city's waiver of incentive fees,

and we're actually coming to council, collaborative memo, PBC, housing, DOT, PR&S,

to waive some additional incentives because part of the findings of the study indicated

that waiving some incentives, some fees, and some taxes allows to catalyze projects into construction.

And then two, there are challenges, though, as I had mentioned, based on building type.

Your towers and your podiums, very difficult to build even with some incentives

and some targeted waivers of fees and taxes.

Your townhomes and your stack flats, they're still financially feasible.

You're able to get to a targeted ROC or return on cost for market rate investments.

And so one of the ground very quickly, the commission here and some basics of the formulation

here, which is how do we assess whether or not a project is feasible?

And that assessment in a very simplified form is built on a basic formula.

What's the project value minus its cost and your effective residual land value, which

is the land value that you get when you take your total cost minus your project value.

That formula in a very kind of simplified form allows us to determine feasibility.

So when you look at a pro forma for a market rate development, you know, and I want to

separate that from affordable housing development, which I'll discuss a bit later, a market rate

development is really looking at what is that return on costs or that IRR, that return on

investment capital. So being able to get to that return really sets forth whether or not the

feasibility of the project can proceed. So based on that basic formula, we then did the cross-section

between your product type to where in the city. And you can see podiums, wraps, towers start to

go negative pretty quickly. We're not able to get to that sufficient residual land value.

And I would discuss also, as you'll see briefly here in a few slides, in addition to the residual land value, another component of that is our existing market rate rents.

In San Jose, our rents at the market rate level are far below our competitive municipalities.

The city of San Jose's growth in market rate rents is relatively flat.

And I'll discuss that more here in a bit.

This is in a quick slide an overview of hard cost by building type and you will

see the dispersion across the different buckets leading into construction. So

materials and supplies roughly 65 to 70 percent labor roughly 30 to 35 percent.

You'll see a relatively consistent trend in that breakdown on the affordable

housing side where there is a requirement for a hundred percent of prevailing

wage. So part of the analysis also looked at where is the variations on the scale of building

types. And one of the findings is that as you get to your towers and your podiums and your more

complex builds, you're seeing much more of prevailing wage union labor as opposed to downward

on your more simplified townhomes or stacked flats, less as a default use of labor on these

projects. And part of the outreach that we had received in talking with developers is the more

complex builds just requires more of that high-skilled labor. And that delta variance between

union and non-union rates is continuing to shrink. And though we cannot make any findings

of determination related to the impacts of prevailing wage, we can say this is what the data

has articulated and we need further review. Another impact is obviously as I mentioned the

few levers that the city can push forward. One is taxes and fees. Overall our per unit impact of

taxes and fees is roughly $37,000 to $72,000. That sounds incredibly high out of context.

You put it within context to our local municipalities. It's actually quite average or below.

Nonetheless, this per unit impact when your unit costs are roughly about $500,000 to $600,000 on the market rate side,

roughly $800,000 to $900,000 on the affordable housing side can have significant impacts.

So as I mentioned, when you start looking at our cost structure compared to area municipalities, you'll see San Jose is relatively low.

our area municipalities, Cupertino, Sunnyvale, Santa Clara,

substantially higher impact fees and units.

But as you will also see, their rent structure is also much different.

And I'll show that in a few slides here.

Here is sort of the impact on those higher cost builds.

Raps and towers, again, San Jose towards the lower end.

Some of our immediate surrounding neighbors on a per square foot basis, much higher.

But then as you start getting into and looking at the fees wave, we can see that some of

the letters that we are able to push has a difference.

And we're able to catalyze some projects into construction in some areas, grounded in that

same basic formula of getting to residual land value and then our overall impacts regarding

grants, which I'll discuss in more detail.

what this slide shows is so let's looking at it on a scale where do we get to

feasibility and what do we need to reach in terms of per square foot sale price

or rental rate price in order to make these projects feasible and you will see

at the current trends the city is not able to reach and able to move some of

our higher products such as towers and podiums but townhomes and stack flats as

shown in this slide are doing pretty well we're able to get to significant

production because they are feasible compared to podiums wraps and towers

which you see that mark goes the other way there's a continuing challenge in

that per square foot cost and then that return on capital you were to achieve in

both residual value and overall rents.

This just again shows just another look at how that reduction in feasibility and some

of the challenges there and the work we continue to do to foster an environment to try to incentivize

more of these projects to go forward.

And then looking at it in terms of a breakdown around our different zones and where we're

at in terms of construction taxes and our different fees and the impact that has across

the project modeling for this assessment.

And so now as these next couple of slides just kind of really speak to the impact of

taxes and fees across the different building types, showing it as you can see where you're

able to get central in your podiums or in your towers, you know, significant kind of

impact compared to the different building types in other areas.

And then soft cost comparisons another arm of this.

As we primarily looked at the hard cost side on the previous slide,

this slide then gets into soft cost analysis. You can see for an example

insurance costs are continuing to be a challenge for all building types as well

as looking at overall just architectural engineering costs as with most kind of

services costs continue to rise. So now let's get into a little more about the

rents because the rents is where you start to see some differentials between

again the city's ability to not only attract capital to invest into

construction but to get to that return on that RC that ROC return on costs and

that IRR targets in order to return on residual capital, we have to be able to get that rent

structure to support that debt.

As you'll see through some of these slides, San Jose, again, sort of stands apart.

Our rents and sale prices are below where our competitive cities are in the immediate

surrounding area.

So the challenge to the attraction of capital for the actual project then tied to sort of

what is the ongoing rents we're able to reach is where you get to for those higher, those podiums,

those towers, you get to some significant challenges. And so the key takeaways here are

really that, you know, our lower cost bill, our lower skilled bills, your towers and your stack

flats, they're doing pretty well in this marketplace. But we need to provide and look

add more targeted incentives for our podiums and our wraps, getting to the types of density

we want to see within particularly our downtown area requires some additional intervention

that the city can do, but also acknowledging there are natural caps based on market conditions.

And so now this is a quick overview that we did about Office of Residential Conversions.

I'll speed through this pretty quickly here.

this was just a requirement of our title 14 under our municipal code to get to

some incentives for office to residential conversions so we quickly

just looked at sort of different types not all office buildings are built the

same typically your older office buildings are more doable for conversions

to residential Italian Bank is one initiative project that we're bringing

forward to council on January 27th because that fits well within the

marketplace of conversions. But your more modern office buildings, your Sobrado

Tower as an example, probably more difficult to convert. So as we look at

different ways to apply tools to incentivize these conversions, we have to

consider some of the existing constraints within the marketplace. So

the policy framework that we're bringing forward is where do we waive some fees,

Where do we look at other streamlining that we can do to incentivize more conversions?

And in general as we'll see on January 27th, there are a couple of projects that are ready to go and the

incentives will be a targeted intervention in order to move them into construction and to produce just about 500 units out of those conversions.

So I wanted to this next section here. It's just a broader view.

So as we looked at sort of the challenges within council, we also wanted to hear other perspectives about this.

So as I mentioned, you'll see that the cost per square foot, you know, San Jose is at about $4 and change.

Other municipalities, closer to $6, $7 per square foot on that target.

And so we asked JLL to provide sort of an alternative view.

Take a look at sort of the 100 plus deals that they have done in the area.

and give us some of their thoughts on what they see within Silicon Valley.

And so these kind of quick six hits just give you a sense of grounding within the marketplace.

The first is, you know, Silicon Valley, overall, high GDP, high household incomes.

But as you look to and go through items 2, 3, 4, 5, and 6, you'll see some yellows here,

which is, you know, continuing reduction in the use of office space by tech firms.

So some returns coming, so a positive and negative.

Also challenges around overall kind of continues to be very cost prohibitive to live here.

So that's a downward pressure as we, again, continue to have challenges around overall housing supply.

The Bay Area also operates at considerable amount of shortage.

And so as we look at that cost pressure, we're not seeing that growth in rents despite that high demand.

And that's due to, as we mentioned, just the cost of construction capital attraction.

And the last two items really just speak to the overall marketplace.

And, you know, some opportunities coming up with the growth of A&I, but also some challenges to how do we move this forward.

And so we asked JLL, based on sort of the projects you see, and using a similar building type technology,

you know, from your towers, this is looking at first your wraps,

what would the city need to get to on a per square foot basis based on current inflationary trends,

which is assuming a 3% year-over-year growth.

and what they showed us on their analysis on existing deals,

again, sort of a proprietary data set,

their projection was for your wraps,

we'll need to get to, from what is now roughly $4 and change,

$4.40 to $4.60 per square foot.

We'll need to get to, they're saying, closer to $5.30, $5.40 for your wraps

in order to make it as attractive capital investment,

which is based on, again, assuming our 3% year-over-year inflation,

is about year 5.

This gets a little more challenging for your podiums

because now it's out about roughly year 9 at 581 per square foot.

Then for your high-rises, it's your towers, we're not within the mark.

And what this slide indicates is our rent structure,

Our RRC, our IRRs for market rate development are challenged, both with headwinds from the marketplace and some of the tools we can get to implement incentives through construction and V-tax waivers and reductions can help.

but generally the rental rate environment on the market rate side

and the challenges to construction capital attraction

as we're seeing essentially an artificial cap in market rate developments.

My department oversees market rate incentive programs as well.

They're basically being capped at $200 million or below.

So really to get to your towers like the Miro and the Faye,

those are $300 million projects,

we've got to see significant kind of increases in our rents.

Right now, we're not seeing that.

And JLL's assessment on this was that's based on sort of status quo,

3% year-over-year inflation.

You're not going to see that product type for quite a while.

So some takeaways here.

We are doing a lot of work.

PBC is leading the work along with this commission

on the four-year review.

We're making updates to our IHO and to our incentive programs on 27th.

We're continuing the collaborative work between housing and PBC to expand and foster a broader environment for housing production.

But there's limited tools that local government can bring to the table.

Now, for a second time, I'm going to quickly go through the affordable housing side.

Again, similar takeaways.

One of the items I will kind of point out here, there's been a significant investment

to build out more units within San Jose for deeply affordable, which is certainly needed,

certainly admirable.

At the same time, it has made our cost per unit much more expensive.

So as I mentioned at the top of this program, we looked at a broad set of data set, about

190 or so projects, most at the application stage. So there's a big delta sometimes between

cost at application stage versus cost at actual certification of cost post-construction.

But we also compared ourselves every other areas in Santa Clara County and then the overall

nine-county Bay Area. This is a quick overview of sort of the methodology we use for getting

to these comparisons to look at affordable housing development headwinds. And then some

additional context here that identifies what are some of the significant challenges to sort of

acquisition costs in the affordable housing financing side because of the structured financing

of it, usually through the vehicle of low-income housing tax credits, you have a different financing

stack than you do on the market rate side. So significant cost factors like land acquisition

really play a substantial role. So some quick cost findings here. As I mentioned at the top

of the affordable housing section, you'll see San Jose's cost per square foot higher than the

average for sure. Part of that challenge is again just the significant investments that went into

ELI units.

In addition, our

those smaller units are driving up our net square foot.

We produce more affordable housing than all of our comparable partners

within the region.

And that's due to the county's work around measure a

the city's work around our funding streams to advance some more.

And our costs are generally consistent,

consistent, maybe a little on the high side with our other peers.

When we started looking at our development comparisons to Bay Area, Sacramento,

then down in Southern California, you can see our developments sort of had more units.

We had more concentration.

We also have smaller units, again, with an emphasis being on our smaller bedroom sizes,

so our studios and one bedrooms.

Then you start breaking down these costs.

the affordable housing side you can see a prime driver there is looking at our

hard costs then our soft cost comparables tend to be a bit higher on

the affordable side mainly because of the complexities of the capital stack

getting that are necessary to fund developments that have very low rent

revenues so because it's highly subsidized

Breaking this down on net per square foot, you would see again overall sort of non-targeted housing, meaning those not going after, you know, extremely low incomes, what is your per square foot values there, and then comparing those square foot values, and San Jose is closer on par with our other comparable municipalities within the state.

And so some key takeaways on the affordable housing side is we're tracking with Bay Area.

San Jose as a city has produced a lot of affordable housing that has come online.

And it represents a significant portion of all the development just in the Bay Area, just about 40% of it.

So we've done a good job of bringing affordable housing forward.

And as we look at, this is just a quick diagram of the housing continuum.

You know, the housing department touches each one of these arrows from our work around prevention

all the way to market rate development and home ownership.

We've got various programs to try to, similar to market rate, move the market forward, but

those programs have some natural caps to it.

And so how we're building more housing continues to be our focus area challenge in working,

housing and PBC working together to advance this work around improving land use regulations,

development, service processing,

and our work around where do we identify some of the gaps

between linking land and capital

in order to advance more construction.

And so that's just a quick update.

The balance of this is way more detailed,

and I'll just kind of stop right now,

so I certainly want to open it up for discussion.

commissioners do we have any questions comments

commissioner Casey

thank you chair

if you go back to slide 22 real quick

I was trying to understand the podiums

why are there so much lower cost in West San Jose

versus the rest of the city

it would seem like construction costs and things like that would be pretty similar across

um

uh yeah why were the podium costs so much lower in west san jose versus the rest of

the city? So this slide is really getting into the impact of taxes and fees when they're waived.

And so we took model projects within each of these different areas to then project out their

costs. Some of the variations you'll see in west versus central has to do with the driving cost of

land acquisition and land values. But wouldn't the west, I mean the positive number here shows it's

good it's a return right so wouldn't land in the west be more expensive than in central

the way we modeled this out uh we weren't able to show real costs so we didn't have hard deals so

where we uh detailed out what is some of this land cost it did not show it showed that through

some impacts we were able to reduce some additional costs because this factor test is showing the

impact of fees and taxes and those being waived, not necessarily a product type to product type

comparison within the different areas. It's what's the impact of waiving those fees and taxes.

Because of the variances of the way our fees work, our park fees are higher in certain areas,

lower in certain areas, similarly with some of our other taxes and fees. So this is more about

speaking to that variances in those municipal fees and taxes as applied, and then overlaid on top of

that, sort of what is the cost for getting to construction within those particular times.

Just one other variable to add there too is typically rents are higher in West San Jose,

and then you see the biggest discrepancy there with South and East. So, you know, as you get into

West San Jose, you're kind of closer to Cupertino, and, you know, we're not getting to those levels,

but that's one of the other drivers there on kind of the other end.

Okay, so something like that would make sense.

Because it's hard when it's not kind of apples to apples to understand.

The rent makes complete sense that rents are typically higher in West

than they would be in Central and things like that.

So that helps there.

Okay, and then on slide 40, 41,

we talk about the rents increasing over the timeline.

That's where they did the study for us

in which it would finally become profitable.

I think that's where we have the stars.

Yep.

So rents will be increasing at that,

but aren't all the underlying costs going to be increasing

kind of at the same rates?

So I'm not sure how we really bend the curve there.

Correct, and that's what this slide is articulating,

is that we're not able to really bend the curve.

You'll see at the top corner, it's pretty small,

so it's a little difficult to see,

the ever-increasing costs of both on your rent slide,

and then, I'm sorry, on your revenue slide,

and then also on your expenditures.

side. So as those two increase year over year, and you're seeing some increases in your rents,

your costs are still continuing to go up as well, which is why the feasibility period,

based on this analysis, is looking at years 9 and 10 and to where those stars. Like,

if you're able to kind of get those into comparison. What JLL had assumed within this

cross-structure, and you can see that somewhat in the table at the top left-hand corner, is,

okay, if you are taking status quo, you're doing nothing based on where we're seeing kind of rent growth,

and then some adjustments on the expenditure side, though they're increasing.

There are some natural caps that build in here.

You'll see, look at market valuations, some changes there.

There is some separation there.

But overall, it becomes not able to sync up your revenues to expenses until roughly years 9 or 10,

based on their set costs for this type of a podium build.

Okay, thank you.

Yeah, it's just not, it's hard to decipher exactly the assumptions that went,

Obviously, it's a summary slide, but there's the underlying assumptions in terms of growth rates between the two and things like that.

Okay.

Do we have copies of the slides, and is there supporting documentation behind them so we can dig a little deeper into the numbers?

Yeah, so there's an entire report that's published on our website, and you can see kind of the layout for that.

For the slides that we have provided from JLO, we just took their slides and their data and provided this alternative.

for all of the hypotheticals that we put forth,

you can see the accompanying report,

which details the data set and the underlying equations.

Okay, thank you.

Commissioner Cowell.

First of all, thank you very much for the presentation.

This is helpful.

I guess the first comment I would make is that

maybe it's because I'm new to this

and not familiar with all the jargon in the presentation here,

but when I first reviewed this presentation,

I knew I had a lot of gaps in knowledge and understanding,

and I tried my very best to follow along your presentation,

and I find myself still struggling to understand a bunch of maybe basic things

that perhaps others may know more about.

So I don't know if I could spend some time with you or your team separately to beef up my own knowledge

and maybe not take the time of the commission to go through, you know, slide by slide certain questions that I kind of had.

Yeah, so that's the first comment I'll make.

Sure. Yes, Commissioner. Happy to sit down with you and walk through it.

I would very much appreciate that.

The second thing is, as I was following the presentation, I was really trying to, one, wrap my head around everything, which I admitted to struggling with.

But two, I also was interested in seeing, based on this presentation, where are the next steps and the recommendations to move forward.

I thought there were a couple slides in the presentation that either directly or indirectly alluded to that.

And I was curious to know from your perspective, if you wouldn't mind either summarizing it or pointing back to the slides that are relevant, what are the most important recommendations moving forward?

And I think where I'm trying to put everything together is, you know, you have a lot of great information in here that I, one, need to shore my knowledge on, but two, where are those recommendations, where are the points in which the planning commission can be helpful in supporting with decisions or, you know, where can the commission play a role, right?

Is it just to, as like an FYI, like, hey, this is the information we wanted to share with you all this evening.

Is there something actionable on our end?

And kind of I want to see where the differences are between in this particular presentation, like where the planning commission has a role, where the city council has a role.

I think I'm still struggling to figure out what those actionable items are.

I hope I'm making myself clear saying that.

Sure, yes, I'll talk about kind of the key takeaways

and sort of some next steps in coming from the presentation.

Then I'll get ready to talk about sort of the manner,

the role of kind of the planning commission.

So in the presentation, you'll see there are a couple of slides

toward the end of each of the sections that articulates

what are the actions, though limited, that the city can take

in order to further incentivize some construction.

Some of that is the work we're going to do around expanding incentive programs.

So on January 27th, we're bringing it forth to council the Downtown Office of Residential Conversions,

expansion of our Phase I multifamily housing incentive program.

We've underwritten a bunch of projects that we're very confident the incentive programs will help tip the scales

into moving them into construction.

That's sort of the immediate work and the more long-term work around the four-year plan

and our focus area housing goals about where do we identify ways in which to link more projects

to capital and what are some other bridges we can help build to move some of that financing forward

and then i'll ask man Aaron yeah so you know i think it's just it's helpful context for the

commission in the larger aspect of kind of the policy realm of what's the city doing you know

doing overall to to kind of incentivize and how we can increase housing production and then

as it relates to directly to you and the planning commission and land use you know as you you're

also serving as the task force of the you know the general plan four-year review you know just

keeping in mind the economics as we think about decisions around land use you know we're looking

at how we grow residential capacity you know one of the outcomes or findings in this report right

you saw the stack flats in the townhomes as those being you know housing product housing types that

don't you know need any additional incentive from the city and so something that you know is a work

item of the four-year review is how do we provide other opportunities or places for those types of

housing developments to occur.

That's a topic that we've talked about both

through missing middle and then growing

residential capacity through that four-year review

process.

They are linked

sometimes directly, sometimes indirectly.

Having that context

is helpful as you're looking to make

those decisions around land use to understand

the economic context.

I don't have anything

further to add. I think Eric and

Jared covered the intent here.

with the cost of development study,

it really is to help inform the policy choices

as well as how the city council can incentivize

certain types of development.

Got it.

And perhaps the last comment I'll make for now is,

Commissioner Casey, I think,

alluded to this earlier in his comments.

As I understand it,

from very much a layman's perspective here,

different areas of San Jose command different rent prices.

And for example, the slide that I think it's slide 30

that I'm glancing at on my laptop

for average rents and sale prices,

neighboring city comparisons,

it looks like the city of San Jose

is lower relative to Santa Clara,

Sunnyvale, Cupertino, Mountain View.

but my hunch would be that across the 10 districts that if we broke the data down by district it would be very different.

I wonder if in these kinds of presentations do you have the data already available by district

and is that something that's easily accessible to the planning commission or is this, you know,

because you have a variety of graphs that look like this, right?

You're comparing San Jose in aggregate to these other nearby cities.

But I would venture to say West San Jose District 1 where I'm at,

you're going to see something a lot different than D3, D4, so on.

And I think it would be very interesting to be able to see that data by district,

but I don't know if that's something that you all commonly do,

have it readily available or is this a major lift for the department?

So on our housing department website, we're able to provide what is the updated data sets

based on the quarterly report that we produce on behalf of the city, where current rents

are in most districts.

I can't say all districts.

Some districts are primarily ownerships.

There's not much rental.

So COSTARS or other aggregate forms of collecting that data may not bring it up.

but the majority of that will be listed.

And comparing sort of San Jose,

sort of our high point areas

versus comparable to some of the high point areas,

Cupertino and Sunnyvale,

there may be closer disparities between the two

than what was displayed in the presentation

because we focused on just four particular areas

of the highest growth areas within San Jose.

But we do have that data based on kind of district breakdown

majority of that districts on our websites because only share that

information with you so you can see that the underlying assumptions within the

presentation for something compared to the other districts of district 1 and

generally hold true and again it's also based on so where we're seeing a lot of

the growth in the development as well so that's another overlay into this

analysis is where some districts grow faster have more new construction

projects than others and so in order to not try to boil the entire ocean on this we looked at those

particular districts with the most growth just one of the macro thing to keep in mind too is you know

you're looking at rents and the rents outside are higher in those other jurisdictions the

challenging part for us is that we still pay the same costs so the cost of construction in those

other jurisdictions is the same as we pay but they're having those higher rents so then we

start to look at those models, it's more feasible potentially in those areas.

And so that's our challenge.

It's been our challenge over time.

And across the Bay Area as well is the cost of construction is just so high, especially

when you start to look to other regions.

Eric talked about how looking at affordable construction in Southern California and how

some of those costs are lower there.

And so that's been a major challenge over many years for us as well.

Got it.

Thank you very much.

Commissioner Bandol.

Thank you, Chair.

Thank you for the presentation.

So per the cost of development study,

it shows that podiums, wraps, and towers are

a bit difficult to build right now. Even when we waive the fees, it's just

not pending and canceling it all right. But what is possible is

townhomes and stacked flats.

So my question really is with the amount of land

that we have available in San Jose,

which is not a whole lot,

do we take what we can get now

or do we wait for a better day

when the podiums, wraps, and towers are feasible?

So if we're in search for density, right?

So townhomes and stacked flats have less density.

Do we build those now or what would your point be?

professional opinion be to kind of wait on it or take what we can get?

My lane in sort of housing production and finance is sometimes a different lane than planning,

right? So planning has to think about what is the future of the city that best balances out

our, you know, total revenues and our total costs, right? Lower density product,

though it adds more units to it over time tends to be more higher costs that's also balanced

against if you build out the wrong types of density or you build out density with other

challenges you know that can have a similar structure i have no definitive kind of recommendation

part of the considerations of the planning commission and i think of council overall

is to weigh these tensions because there's no definitive right or wrong

answer we need production today there's no question about that some of our

challenges around affordability has to do with a lack of supply and a lack of

supply is across the entire AMI scale if you look at our quarterly housing

reports that we produce you'll see just in rent increases that market rate rents

as I mentioned are staying relatively flat to inflation, pretty much scaling a little below

inflation on a year-over-year basis. Class B properties, which tend to be Class A properties

that are much older, about 15 to 20 years older, those rents are up 400 basis points above inflation.

That's because you're getting a lot of individuals who are coming to the city who don't want to pay

sort of Class A rents go into Class B and increase those cost pressures considerably,

which means you're raising rents overall to class b which is a huge part of our overall housing stock

class c properties which is your affordable properties built intentionally around affordability

those rents are relatively flat because they're relatively stable in terms of their structured

financing of keeping the rents relatively low then your class f which is your your sort of

A lot of your apartment rent ordinance

to the very low class properties,

like those are also seeing a spike in rents

because if they're pushing down from class B

down to C, down to F,

we're seeing that the demand for housing

is now showing up in the weight of our rents.

So that we're not seeing that class A growth

because again, the sort of the rent challenges there,

we are seeing that there is absolutely

a demand for housing across an income band

of roughly from down to 40 up to about 80, 90, 100 percent.

And so it creates a tension of,

do we take the production now that we can get

that we know is feasible,

or do we wait long term

and sort of have families continue to struggle?

I think part of that tension is, you know,

before the commission and before council

to figure out where to go

and where we as staff can advise on

where to have the proper interventions

and Muneer and Jared plays that.

You know, that's part of sort of the debate that we have

and why addressing issues around housing affordability,

I wish there was a simple answer,

but it's really about where do we balance

some of these tensions.

Yeah, if I could add just, I think,

from a land use perspective,

I think what we're trying to figure out ways to have both.

I think we're trying to think both in the near term

and the long term, right?

Because we're not just thinking about, you know,

the next five to 10 years of the city.

we're thinking in the next 30 to 50 years of the city.

Long term, we need to grow, and we need to grow infill and build more dense.

So I think it's how do we preserve those opportunities for in the future

for when we can build that higher density,

but also look for opportunities and ways to provide housing that we can build currently.

So that's what we talked about.

How do we find those land use or those land opportunities for those townhomes and stacked flats

while also thinking about what are those key sites along transit,

it, large properties that have good transit, good access, to preserve those for higher

density in the future.

And so I think that's the careful balancing act that, you know, we think is appropriate

through our general plan and as we'll continue to talk to you about through the four-year

review process in terms of where we add that capacity and what that capacity looks like.

Thank you both.

Next is commissioners Borosio and Cantrell.

Do we have a hard stop at 6.30 or what is that looking like?

I know this is one of the topics that is the top of mind of all the commissioners.

So what does that look like?

I think we can go a little bit over 6.30.

We started a few minutes late.

minutes late. And we also will need to take a 10-minute recess before we can switch to the

6.30 regular agenda.

So a little bit?

Yes, a little bit. Thank you.

All right. Commissioner Borosio.

Thank you. And thank you for your presentation. Two questions. One of the slides, and I forget

which one. It's mentioned, I think, in one of the second. It's a second bubble of three

approaches or three next steps is to waive fees is an approach can you restate other approaches

that can have a similar positive outcome and i forget the slide that that's listed and then

if we do de waive fees or decrease fees does that impact services that we provide to residents

in san jose so thank you for the question so the answer to both questions is yes and this is one

again another tension point where do we find opportunities just given that we're a government

based on fee recovery we have to have fees to provide services and programs at the same time

our fee levels are at a point where waiving reducing some of those speeds provides catalytic

impact to making projects go. When we brought forth the multifamily housing incentive program,

we intentionally underwrote a couple of projects to show the impact that the fee waivers can have.

And all those projects went into construction. And so for the first time since 2024, we had over

a thousand, so 2024, we had zero market rate starts. 23 was also a low period. In 2025,

we had over a thousand units that went into production.

So fee waivers can have a catalytic impact.

However, to your point, there's a tension there of reduction in fees

also leads eventually down the line to reductions in services and programs.

So to your other question about, so how, what are other alternatives?

Well, there aren't that many.

And part of what the initial opening slide spoke to is there's limited levers that we as a local government can take to move construction forward, whether that's on the market rate side or on the affordable side.

Because either way, whether it's providing loans or grants or it's providing fee waivers, we're reducing the overall availability of revenues to provide programs and services.

And so where do we bring those tensions into the best balance to meet our immediate needs around housing production while also planning for a more dense long-term city?

If I could add to it, one other thing that, one other lever that we do control that we're, you know, implementing that isn't necessarily reflected in this study, you know, from planning is how can we speed up that entitlement process, right?

And so that's why we've, you know, adopted our own ministerial ordinance so that, you know, when the conditions are right, you know, we can move forward those projects more quickly.

And so, you know, that is one other level we do control.

We talk about what's within our control or outside of our control.

So fees are one thing.

And then also our process and how we can improve that is one other area that we're thinking about as well.

Right.

Which developers would love, right?

Because then the cost of materials, you know, won't be unpredictable if something is lengthy, right, if the process is lengthy.

So, you know, keeping it as tight as possible is an incentive, right, in itself.

The slide I was talking about was slide 31.

And a follow-up, and closely related to Commissioner Cowell, is it would be nice to see by district where fees, where projects with fees, how much each district, the total amount of fees are collected.

and do those fees get recycled into the district

or do they get dispersed across the district,

well, across the city?

It would be good to see which districts bring in

a lot of money through fees and whatnot,

but my follow-up question,

it would be good to see if that money generated stays there

or how does it get redistributed out into the city?

so generally um fees when they're assessed on development do have to stay within that area or

at least the nexus of the charge of that fee so for in san jose in particular parks fees

have restrictions in terms of the proximity and what type of park they can be invested in

so they do generally have to stay in that area and then you know we do get in lieu fees for

for housing development and we have rules around you know how that gets invested into future

housing development if it's not built on site.

But obviously our policies and preferences

are that it get built on site.

So it depends on the fee

and program, how it gets, you know, if it's

available citywide, but generally

it needs to stay

in the area.

Great.

Which probably adds another

layer of complexity

and

to have a

well-balanced

development

map, right? Like every district should have

a lot of projects in the pipeline, a lot of projects being developed

just so those fees can develop

better parks, better services

because if it's in balance, if certain pockets

of the city gets modernized, gets developed

then they get modernized and developed

services and amenities while other parts of the city do not,

which would hurt, right, which would hurt certain parts of San Jose.

Thank you.

Commissioner Cantrell, and I would be remiss if I did not remind you that our time is limited here.

I'm generally long-winded, but I'll be brief.

First, I want to apologize for my tardiness.

If I miss these things, just say I missed it, and we can catch up later.

But I do think you're on the right track in a lot of places.

What you're saying makes a lot of sense.

I'm curious more about the details and when we might see those details.

You're right.

We need more tools than just a break in a oar.

a gas pedal? When will we get more clarity on what those adjustments are? How do you

reach those counterbalances that you're talking about in terms of weighting on higher density

or moving forward on gentle density in areas where there is availability and a developer

already owns it and wants to do something with it? When will we know more, basically?

And one other question quickly is, is rezoning parts of the city's single-family zoning on the table?

That's it.

So I'll answer the first question, if I understand, and then pass the zoning question on to my PPC colleagues.

So I think part of addressing the tensions and kind of knowing more is better understanding both directions from council

and guidance in this committee about where do we want to set some of those priorities.

There are no clear right or wrong answers with how do we address this.

It's about where do we take what we can get today in terms of production because we need the supply.

And where do we acknowledge that from a more land-year perspective,

hey, later down the line, maybe not too far down the line,

there could be higher density here that's going to produce more revenues,

that's going to provide that housing that we also need across a broad kind of AMI scale.

And I think part of that is really looking comprehensively and making those difficult

decisions because you never really know.

You know, markets change dramatically, even over just, I mean, just look at where we were

from 2021 to today.

increases, decreases in inflation,

cost of labor, cost of land,

dramatic changes.

So it's tough to plan for the future

and make decisions on let's delay a production

we can get today,

hoping the future actually pans out,

versus, all right, I know I'm going to,

two hands in a basket today,

you can get something today

as opposed to what may come in the future.

I think it's an ever-evolving tension.

I think part of the work that the housing department has been challenged with in coming back to council

and working with the various commissions is providing as much guidance as we can about, based on our expertise,

this can go today.

For example, we know multifamily housing incentives.

We're going to get production.

We underwrote projects.

We've seen it very thoroughly.

We've seen the sizing of those incentives to weighted it against what is the cost of reduction of services,

weighted against production for today

and density we need today,

and we've done that overview to move that forward,

more difficult questions will be,

so how far does that continue?

Because it is a reduction in services.

So I think it's a continuing conversation.

We find the points of intervention as best we can.

Yeah, so I mean, I think we're already looking

at some of those things now.

I was just reminded, you know, in November,

you saw the ordinance was actually just approved finally by city council on Tuesday to expand

where SB 9 type development is so that virtually everywhere throughout the city should be allowed

to achieve those you know kind of four units that SB 9 would allow so that's work we've already been

doing and then as we get into the conversation and with the task force you as the task force

and the four-year review our small multi-family program is looking at you know four to ten units

How do we continue to expand or look for opportunities to expand in those lower density areas of the city to provide those opportunities?

So I think those are things that we're going to continue to have the conversation around through the general plan.

I think where there is some tension and where there is more of a deeper conversation is if we have higher density sites or sites that were identified for significant growth and lowering those densities to meet where the market is.

And I think that's where there's sort of a more caution and debate around, you know,

what types of density should go on those sites now versus in the future.

I think I just have a few quick questions, so hopefully we can head on time.

And I'm close on time, and I'll try to keep them high level.

So, Jared, when you said that there's more caution surrounding these priorities,

can you further explain what you mean by that,

where that caution is coming from?

Yeah, I think, you know, this comes in, you know, we have,

and I guess maybe the clearest example of this is, you know,

when we were talking about some of the projects that came in under Builder's Remedy,

you know, looking at lower density around our BART station, our Berryessa BART station.

So allowing townhomes versus larger apartment buildings on sites around a BART station.

So those are the types of examples of where is it worthwhile waiting a bit longer for denser development to come

versus allowing what might be feasible today in sort of a lower density product to go forward on those sites

and reducing kind of those minimum densities.

You mentioned, Director Sullivan, you mentioned that there's sort of this balance between fees and services.

And, of course, I see that I'm on the District 2 Neighborhood Leadership Council.

And their objectives are different than, say, the real coalition, which I know you spoke at a few weeks ago.

And you said that there's not many other options.

Have we run numbers on these or looked at if there was a reduction in services,

what that would look like if we were to increase or decrease fees?

So what we brought forth, if I'm understanding your question,

is we, as an example with the incentive programs,

we've looked at what is the – let me just contextualize this a bit more.

When we do five-year budgeting forecasts, they build the fees based on the projections of projects that may or may not go forward, right?

So, they say, we expect of our bucket of 25 projects in the pipeline over the next five years, we project 10 of those projects to go forward.

Therefore, we get that revenue with that project, right?

So that is based on, in terms of looking at the outward, here is assuming the projects can go forward.

Part of the challenge is, and the design around the incentive program is saying,

we know these projects can't go forward, so we're not going to see that revenue,

so where do we reduce some of the revenues and fees that tie to that projection forward to get the project to go?

So we get some of the projects that go forward as opposed to none of the revenue of the projects that never go forward.

I think that's part of the balancing act.

So the cost projections are not really looking at where do we have an assumption of all 25 projects going forward and we get those revenues and what we can then spend on.

It's linking that to what's the assumptions we build into our five-year forecast to say of the 25, 10 will go forward.

hopefully and maybe we'll get that revenue and acknowledging that based on the cost structure

and the cost of development study you know we can say with high confidence those will probably never

go forward so it's not even revenue we can plan for or revenue loss because it wouldn't even be

recognized because the project's never created so where do we look at reduction in some of the fees

50 as proposed in the latest multifamily to say okay maybe that gets the project to go forward

and at least we get 50% of a project that went forward

rather than zero of a project that never went forward.

And that's part of the balancing act of the tensions

that we look to reconcile,

and it's difficult to say what would you fund otherwise

because, again, it's all based on fee generation

of projects moving forward.

But if they don't move forward,

you don't have the fees and revenues.

So where do you plan accordingly around those complications?

So theoretically, if the fees went down,

then more would go forward, right?

Correct, and at least you get 50% of whatever the balance is, right?

Right, but we wouldn't know where the cuts are going to come from.

Otherwise, when there's a reduction in services,

we haven't really divved deeply into which services would be cut, right?

Right, because I think the framing around this as

what would we cut going forward is just is challenged because the assumption from the

baseline sort of five-year projections as an example around construction taxes so the crmp

tax they estimate that out over five years as we all do with all the departments of our fee

recoveries. The projection out is not, you know, Department of Transportation doing a thorough review

of housing projects that are going to move forward. No, they basically assume a percentage, 20%, 25%,

whatever that is. So it's tough to say they're reducing a future expense. The analysis is very

core to the five-year forecast. It's not based on the Department of Transportation analyzing

projects they're going to get from construction tax, right? It's just based on let's make a

reasonable assumption and hope they go. So we're taking sort of that hypothetical and saying,

do we want to acknowledging the challenges around housing production, get zero out of zero because

they don't go forward because of all the challenges we listed? Or do we want to say, hey, maybe we can

get 50% of those that go forward knowing we're going to lose 50% of the revenue in order to get

there. So I think it'd be difficult to kind of frame it as reduction in services because we

don't know any of that. It's all hypothetical when we do the five-year forecast for future

revenues of what we may or may not get from projects that may or may not go forward.

Could you potentially reframe that as a reduction in the amount of housing that's going to be built

versus a reduction in the other services that are provided by the city? Right. I think that's a

more accurate kind of comparison

because then it really

speaks to

I mean

budgeting is that. It's what do we think the future

is going to look like and where

rates are all going to be and

it's really about that balancing

act and tension between

housing production and revenues generated

and what can we do with those services and

where do we find to push some levers

to maybe get some of that revenue

and maybe you don't get 100% of it but you get

half of it, you get 70% of it, to try to get some firmer rounding in getting our budgets

to line up to actuals.

And so if it's framed as either we have more housing and cut services, and of course there's

the bedroom community, which is something, is there a push by city council or anybody

else to reduce other services and increase housing?

I mean, is anybody sort of pushing for that?

Well, I think there's a continuing conversation within council about the tensions and the tradeoffs.

Where do we find opportunities to incentivize, catalyze production today?

You know, hopefully the higher density product.

Acknowledging that we have continuing cost pressures, so we've got to get to more supply.

Put that against, well, we've got to plan out for a denser future, so what's feasible today is lower density stuff.

Does that need incentives? No. Can we incentivize higher production?

It's a balancing act between the various tensions of affordability today versus tomorrow, of production today versus tomorrow, of revenue generation today versus expenses tomorrow.

You know, Prop 13 has put a hard cap on one of our easiest sources, right?

Property taxes.

So now we're in fee recovery mode.

And a government is substantially funded by fee recovery mode.

So the fees grow high.

And at the same time, we have a need to provide continuing services.

So as I mentioned at the outset, there's no easy answers to this.

Here's the best data informer that you can have.

And as we look through project by project, you know, station by station, we make the most informed decisions that we can.

Yes.

Okay.

I realize we are a little over time.

I think this is one of the conversations that this commission has been wanting to hear and discuss for a very long time.

So I think to only give it an hour was a little bit of, is not the best.

Out of all the things that this commission does, I think this is one of the things that we are most interested in,

living in here, watching our families and our friends move away.

And then to only give it one hour, I think, could have been, things could have been planned better.

Thank you, Chair. We'll take that into advisement.

And I will say that we will have opportunity to discuss the residential capacity

and the future land use planning topics in the context of the four-year general plan review.

And we also welcome questions after the commission meeting.

If you have specific questions, please feel free to write them to myself or to our director of housing.

But my apologies.

I know we are at 645, and we have to take a 10-minute recess before the regular session.

If I could ask one last question, because I think this issue is one of the things that I think creates frustration

by the citizens of the city and I think makes some folks sort of cynical of City Hall.

Have you ever given this presentation and heard comments or discussion that made you say,

well, I've never thought about this.

Or when you give this presentation,

do you feel like it's the same presentation

over and over again?

Which, you know, I've heard great things about yourself,

but I've also heard it gives the same presentation,

sort of filibusters,

and we just are stuck in the same spot

that we were yesterday.

Do you think that there's ever been something

in this city that sort of gives you hope

or makes you say, well, you know,

maybe we could do this?

So in my short time here and coming here since May of 2024, there's lots about the city that gives me hope.

I think part of the challenges within San Jose and broader within California, and I can also speak to northeast cities.

I come from one, Philadelphia, Midwestern cities in Denver and Tulsa that I've worked in,

is that the local governments overall are challenged to try to fix the problem around housing production,

that they have limited tools to fix.

So when you look at the tools that local governments can bring,

regardless of whatever city or municipality that you're in,

we can't structure the markets to build housing in areas that we wanted to build it.

We can't structure the markets to say, have lower rents,

we're going to put hard rent caps, because then the units become challenged.

As someone who grew up in public housing,

has an entire three generations of family who grew up in deep poverty,

and public housing, federal government's pretty terrible at providing housing.

So where do you look at some of the challenges around the need for continued subsidized affordable housing

and the role that local government plays in building that out?

And so there are lots of ideas that come forth throughout my time here and in many other cities

whereby you hear those are great ideas, but how does local government execute and implement that?

That's where the rubber meets the road around the challenge.

And so we end up with a lot of dialogue around, is this a role for a local government or is it a role for a state government or federal government?

Conversations today around, let's extend out mortgages for 50 years.

A whole lot of challenges around that.

That's all going to, in my view, having done this for 20 years, on both the bond financing side, the development side, the affordable housing side,

is that just means more costs for lower income people over a longer period of time.

Right?

There's competing tensions.

Yes, you get some immediate savings, sure.

But I think it's an evidence of lots of conversation

about lots of ideas that are constantly recycled

within this industry.

And we can talk about the same challenges

around affordability.

I mean, someone who's been attending these conferences

for 20 years, there's challenges around affordable housing.

Yeah, there are.

But we're not, as much as the new ideas are,

the tools and the avenues for local government

to deliver on that.

become very limited and challenging.

And that's my general opinion.

I cannot thank you enough for coming and speaking to us.

I have nothing but reverence for the job that you do.

I cannot imagine a more difficult job or pressing job,

particularly in this city.

And I appreciate you dedicating your professional career

to attempting to address these problems.

So thank you very much, Director Solibam.

Thank you, Chair.

And with that, we will recess for 10 minutes and then begin the normal planning commission.

Thank you.

Thank you.