"Many of these cranes are here specifically because of the fee reduction program. In the absence of it, the investor risk, the volatility of the markets, actually make it very difficult for these high-rises to pencil out," said Eddie Truong, director of government and community relations for the Silicon Valley Organization.

Truong added, "Most people think builders in general have a very large cash reserve to invest in residential high-rises. If you can't demonstrate with a business plan that you can get a reasonable return on investment, you're not going to get investor funding or lender financing from the capital markets."

Construction, land and labor costs have been rising in San Jose and sky high rents appear to have hit a ceiling, limiting that potential return on investment. Development costs for high-rise apartments average $651,000 per unit, according to city staff.

An opinion piece published by Silicon Valley Organization's President & CEO Matthew Mahood argues that developers have to promise at least a 5% profit to secure lender financing. As it happens, a project feasibility study referenced in the agenda item before the San Jose City Council argues the same — that high-rise developments in the downtown core are not generally feasible without the current fee reduction program.

Liccardo was solidly behind extending the incentives. In a statement released last week, he argued that “Exceedingly high construction costs will prevent any residential builder from getting the financing to build a high-rise in Downtown for several years—despite a housing crisis that screams for more housing."

The statement added, "Either reduce fees and get housing built, or we sit on our hands and hope for some miracle to solve this housing crisis for us.”

Affordable housing advocates skeptical

Google, sensitive to criticism of its role in creating the region's housing crisis region-wide, has pledged to pay for 5,000 affordable housing units. But as Truong of the Silicon Valley Organization puts it, "Google alone is not going to solve our housing crisis."

To meet state mandates, San Jose was supposed to build 14,231 market-rate homes between January 2014 and October 2022.

While the city is well on its way to meeting the target for market-rate homes, San Jose has permitted just a fraction of its target for affordable housing.

Meanwhile, the average rent for an apartment in San Jose is $2,790, according to Rent Cafe.

In 2010, San Jose required that all new residential developments of 20 units or more set aside 15% of those units for sale below market rate. Developers could also pay a fee in lieu of creating affordable units. That 15% figure has become a de facto floor for the discussion that affordable housing advocates are trying to have in downtown San Jose.

At a press conference outside City Hall last week, Sandy Perry, president of the Affordable Housing Network of Santa Clara County, called the proposal to extend tax breaks a “tone deaf" handout to wealthy developers. "Our housing policy should not be based on what benefits the profits of millionaire and billionaires," Perry said.