Following years of frustration over the inability to approve housing projects in North San Jose, city officials say a new state law may help transform one of the city’s most critical economic hubs.

San Jose city leaders and planners have long aimed to make a low-slung, industrial corner of North San Jose into a walkable jobs hub with tens of thousands of new homes, hotels and retail all connected by a light rail line tucked roughly between Highways 237 and 101 and Interstate 880. But a longstanding legal settlement with the city’s neighbors that phased and capped growth has stalled that vision.

That may be about to change due to SB 330, a new state law set to take effect Jan. 1, which will do away with housing development caps across the state. In North San Jose, that would mean the city could bypass the legal settlement, making way for the production of thousands of new residential units in the near term, according to San Jose officials.

“Advancement of housing capacity in North San Jose is one of the most impactful work items that will move the city towards its goal of having 25,000 housing units built, under construction, or entitled by the year 2022, but the complexity and changing nature of the regulatory environment continues to change and cause revisions to city’s work,” Economic Development Director Kim Walesh, Planning Director Rosalynn Hughey and Department of Transportation Director John Ristow wrote in a memo on the issue this week. “The elimination of housing caps by SB 330 means that residential development may move forward without changes in the policy.”

A 2005 city plan for North San Jose made room for 32,000 new homes, 27 million square feet of research and office space, nearly 3 million square feet of retail and commercial space. It envisioned at least 83,000 new jobs cropping up in an area already home to some of Silicon Valley’s major names, like Samsung, eBay and Google.

As part of the legal settlement with neighboring cities, Santa Clara and Milpitas, as well as with Santa Clara County, San Jose was required to roll out its ambitious plan in four phases, in which developers could build 8,000 new homes for every 7 million square feet of commercial space built. The 2006 agreement came after Milpitas and Santa Clara raised concerns that unbalanced growth in North San Jose may cause development impacts — like traffic congestion — to spill into the two cities.

While San Jose’s first 8,000 homes have long been claimed by developers, commercial development hasn’t kept pace. The city has green-lit multiple office and industrial developments in the area, but few have started to rise. That’s left city leaders unsure when they may be able to unlock the next phase of housing development, despite fielding interest from developers and other companies that want more housing to rise, including tech titan Apple Inc.

Frustrated by the halt in new housing approvals, city leaders six months ago considered revising the area’s existing development policy to speed things up.

Initially, city officials thought compressing the phases from four into two would give San Jose more flexibility to reignite housing production before completing all of phase one’s commercial development requirements, according to Chris Burton, deputy director of the city’s Office of Economic Development. But now, officials have changed their mind, instead deciding to move forward with the plan as-is due to SB 330.

“There are certainly challenges there, but more importantly are the changes in state law that really focus on the housing crisis, and actually opens up new opportunities for residential development and actually represent a better opportunity for us to meet our goals,” Burton said.

The state law could shepherd in affordable housing on 87 acres of Apple-owned land. The Cupertino-based iPhone maker last month announced a landmark housing commitment, promising $2.5 billion worth of grants, loans and land where housing could be built to help tackle the Bay Area’s home shortage.

The problem — which may be solved with SB 330 — was that the company’s promised land sits in North San Jose, where new homes can’t currently be approved.

Apple will still need to convince city leaders to rezone its property in San Jose to allow housing, even with SB 330. Today the land is entitled for 4.15 million square feet of office and industrial space. In a city where homes outnumber jobs, converting employment land to housing is a big ask, but it’s not impossible, Mayor Sam Liccardo told San José Spotlight in an interview last month, before the memo about SB 330 was released.

“There’s still another 24,000 homes for them… that could be built out under the plan,” Liccardo said. “The question is really how and where.”

City officials will discuss the new law and potential update to the North San Jose development policy at Tuesday’s City Council meeting.

Contact Nadia Lopez at [email protected] or follow @n_llopez on Twitter. Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.