San Jose: Mayor proposes new ADU program to boost housing

To boost San Jose’s supply of affordable housing, Mayor Sam Liccardo wants to reward homeowners who are willing to build and rent accessory dwelling units to low-income people.

In a new memo co-signed by fellow City Council members Sylvia Arenas, Magdalena Carrasco and Pam Foley, Liccardo has proposed creating a program to offer forgivable loans and waive fees for residents willing to construct and lease accessory dwelling units — also known as ADUs or granny flats — to low-income renters for at least five years.

If the City Council approves the program — possibly this summer — the city would allocate about $5 million for it, with as much as $20,000 available to eligible households to cover permit fees and construction costs.

“We need to disrupt the market to find a more innovative way of getting housing built in our very expensive city,” Liccardo said at a news conference Wednesday morning at Advantage Homes, which sells prefabricated ADUs in San Jose.

There is “untapped potential” to add such housing in the city’s sprawling neighborhoods, Liccardo wrote in the memo, but construction costs, city fees and financing can deter homeowners.

In 2018, San Jose received 350 ADU applications, up from 49 in 2016. But the city issued just 190 permits. As of the end of April, San Jose had received 212 applications in 2019 and issued 104 permits.

Rick Schertle understands the hassle residents face. The teacher is converting his garage in downtown San Jose into housing, but he and his wife have had to pay thousands of dollars in fees.

“It’s pretty intimidating,” Schertle said, adding that a forgivable loan sounds “really appealing.”

And he has no problem with a restricted rent, he said, because part of the reason he’s building the unit is to give back. Schertle bought a home in San Jose in the late 1990s when it was still possible to get a decent mortgage on a single teacher’s salary. Now he’s watching as a younger colleague flees for the Central Valley.

“I want to build this for her, to be able to bless somebody like a teacher or someone in the service industry,” he said.

Several years ago, the mayor laid out a goal to build 25,000 homes, including 10,000 affordable homes, by 2022. But the city has struggled to get affordable homes built. And while San Jose is set to devote around $100 million to about a dozen affordable housing projects that will add more than 1,000 units across the city in the next few years, voters in 2018 rejected a housing bond that would have directed more funding toward addressing the city’s housing crisis. Some families are being priced out.

“Their children are being uprooted, they’re having to leave their friends, the schools that they love,” Carrasco said.

Encouraging more people to build granny flats or convert their garages into housing are lower cost and faster ways to tackle the issue.

In the memo, Liccardo suggests devoting up to $5 million to the program and having a partner such as the Housing Trust Silicon Valley manage it. Residents, he suggested, could get up to $20,000 to cover permit fees and construction costs, with a portion of the loan forgiven on an annual basis in exchange for five years of rent restrictions. People wouldn’t be allowed to put units on Airbnb or similar sites during that time, either.

“There’s definitely a gap of financing out there,” said Vianey Nava, who manages the ADU program at the Housing Trust.

And addressing that gap, Nava said, will help more people who are interested in putting a granny flat in their backyard actually get one built. Around 120,000 homeowners in San Jose are eligible to build ADUs, but last year, Nava said, few were completed. After San Jose relaxed rules around ADUs in 2018 — reducing lot size requirements and allowing two-bedroom granny flats — interest climbed, Nava said.

“All these small things, they’re all tying together,” Nava said of last year’s changes and the mayor’s new memo. “Now people feel a little bit more confident about investing in the process.”

The mayor’s memo could come before the City Council as early as June, but even if it is approved, it likely would be months before such a program is up and running.

“I’m really hopeful that our council colleagues will be just as supportive,” said Arenas, whose parents rented out their garage for extra income.

Liccardo said he wants the city to consider expanding the program using private funds in the future and to work with organizations such as the Silicon Valley Leadership Group to explore the possibility of putting together a short list of ADU manufacturers who can offer all-inclusive packages, with the aim being to “rapidly scale” production.

While they may be known as granny flats, and plenty of people build them for aging parents or grandparents, San Jose residents are also building ADUs for boomerang children and disabled family members who may be ready to move out but not far away, Nava said.

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Where in the Bay Area are Newsom’s ‘Project Homekey’ funds going? Carl Guardino, the head of the Silicon Valley Leadership Group, said he has an ADU on his property that is currently occupied by a young couple “trying to afford the Bay Area.” Before that, an elderly woman lived in the unit before moving into an assisted living facility.

“I think we’re going to see much greater interest in San Jose and beyond for a thoughtful ADU effort than we might even imagine,” Guardino said. “People are concerned about the crisis and they’re looking for a new approach to helping solve the crisis. And accessory dwelling units are going to be part of that solution if we do it in a thoughtful, coordinated way.”

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