As part of the city’s first-of-its-kind housing crisis workplan, Mayor Sam Liccardo is proposing temporarily slashing construction taxes on high-rises in half and redirecting the other half to an affordable housing fund.

To reduce financial burdens on housing developers amid rising construction costs, Liccardo also proposes allowing developers to pay fees and taxes at the time of certificate of occupancy. That change could potentially reduce financing costs on a development by up to $1.5 million.

“The rising costs of development — land, labor, and materials — have stalled several housing projects from construction in San Jose, as home builders cannot obtain financing because their pro-formas cannot meet the hurdle rates demanded by investors and lenders,” Liccardo wrote in his memo.

The mayor worried that building housing towers in downtown will become even more “far-fetched” once an exemption to the city’s “inclusionary housing” ordinance – which requires setting aside a certain number of affordable units – expires in June 2021. After that, the high-rise housing developers in downtown will be subject to the ordinance.

As part of the discussion Tuesday, Councilmember Raul Peralez suggested dispersing affordable housing throughout the city – not just in one district. The downtown district is home to the most low-income housing, Peralez said, and residents are starting “to feel the oversaturation within their neighborhoods.”

“Continued shortage of affordable housing in certain areas will further segregate our communities, deepen our growing economic inequality, and threaten the cultural livelihood that makes San Jose the great city that it is,” Peralez said.

In 2017, Liccardo implored city officials to respond to the state’s housing crisis. Last year, the City Council adopted the first workplan that aims to spark housing development.

Councilors on Tuesday will review the 34-point workplan. Of the initiatives underway since the council adopted the plan last year, eight have been completed.

Many of the workplan’s initiatives are also near completion, including:

Making additional residential units available in North San Jose (spring 2019).

Developing anti-displacement and diversion strategies (fall 2019).

Leveraging private money for affordable housing (in progress).

Exploring the creation of a land trust (research to be completed mid-2019).

The workplan also has 12 initiatives that the city plans to undertake later this year or next, including:

Establishing minimum height and density requirements, as well as eliminating parking requirements in the downtown area (to be initiated fall 2019).

Expanding the downtown boundary (to be initiated spring 2020).

Behind on housing goals

In a meeting packed with housing updates, councilors will also review San Jose’s progress toward building housing for all income levels.

A report under review Tuesday sets out guidelines for San Jose to meet its state-mandated housing production goals. Between Jan. 2014 and Oct. 2022, San Jose must produce 35,080 housing units – that breaks down to production of 3,986 units a year.

But data released in the annual housing production report shows that San Jose is behind its goals. Last year, the city issued 2,973 – over 1,000 shy of the city’s annual goal and a four percent drop from the previous year.

Affordable housing permits in particular were well-below the goal. The city last year issued 1,446 affordable housing permits, which was only 61 percent of the way to its goal of 2,370 permits. For market rate housing permits, however, the city issued 1,527 – 94 percent of its goal of 1,617.