Housing: Our Greatest Challenge

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Villas on the Park would provide 78 studios for homeless people in downtown San Jose (Photo courtesy of PATH).

We’ve seen the least progress on housing affordability out of all of my priorities, yet it has become the issue with the most significant impact on our collective quality of life. More troubling, San Jose is not unique; every other mayor on the West Coast shares my sentiment. Unlike many priorities where we’ve made demonstrable and lasting gains — rebuilding our police department, resolving pension reform battles, funding street repair, expanding airport service, or improving emergency medical response — every step forward on housing has been countered by two greater, retrograde forces: inadequate supply and ever-pressing demand.

That is not to say that we cannot point to victories and — with the help of many partners — successful initiatives. There are several. Yet nothing better illustrates the seemingly Sisyphean nature of the task than the data on our “success” — relative to most other metropolitan areas — in combatting homelessness. From mid-2015 to June 2018, a constellation of partners — the County, City, Destination: Home, several non-profits, and the community — housed 6,040 homeless individuals, and the overwhelming majority of them have remained successfully housed. This is a tremendous testament to collaboration, perseverance, and bold action by many.

Yet homelessness remains as tragically palpable as ever, and no one would dare claim victory. As fast as we’re able to house people — we housed 1,350 homeless individuals in San Jose alone in 2017 — rising rents and human crises push just as many out another door.

Of course, homelessness defines only one — though the most dire — circumstance resulting from our affordability crisis. The inaccessibility of rents and home prices diminishes the quality of life of hundreds of thousands of our residents. I’ll begin by discussing my approach for tackling the affordability crisis more generally — by building affordability by design, identifying more funding, protecting tenants, and pushing for regional solutions. Then I’ll focus on homelessness, and the work we have ahead to house more of our homeless neighbors.

Affordable Housing: Local Solutions to a Regional Problem

Our crisis resulted from decades of under-investment in housing and imbalanced development throughout Silicon Valley, a region which has produced 6 times as many jobs as housing units over the past decade. Although San Jose’s experience contrasts with that of surrounding cities — we actually added many more residents than jobs in this period of economic expansion — we recognize our responsibility as the largest city in the region to get more housing built. To catalyze construction, I set out a plan in late 2017 to construct some 25,000 homes in San Jose over five years, with at least 10,000 of those being rent-restricted and affordable.

Our first full year of the program saw almost 3,000 homes permitted for construction: a pace above San Jose’s historical average, but one that must accelerate substantially to meet our goals. Another 8,000 apartments and houses lie somewhere in the development pipeline, and in the weeks ahead, Planning staff will report the status of those projects publicly. In the next year, we’ll focus on improving development processes and boosting capacity to move more projects to construction.

Of course, constructing a home is not the same as ensuring that it will be affordable. Many have urged greater restrictions through rent control, and we tightened our own rent control laws in 2016 to prevent annual rent increases greater than 5%. Yet state law exempts the vast majority of apartment units from rent control, including and most importantly, any newly constructed units. We typically need to subsidize the development to justify restricting rents under state law.

As I’ve described below, I’ve pushed with many partners to identify more resources for public subsidies. Yet that approach alone can only help at the margin; it requires billions of dollars to subsidize of rent-restricted housing to make a meaningful impact on affordability in a city the size of San Jose. Given the federal government’s abdication of responsibility for affordable housing, we need to look for other tools as well. One critical pathway lies in enabling housing to be more “affordable by design,” by clearing red tape and unnecessary restrictions at City Hall.

The simplest way to ensure “affordability by design” is to build smaller units. We’ve eased regulations and fees to incentivize construction of micro-housing for both rent-restricted and market-rate apartments throughout our Downtown. The nation’s largest “co-living” apartment project soon to break ground, yielding more than 700 micro-units with many on-site amenities, and a similar “dorm-style” high-rise completing construction on San Carlos Street. By embracing a “Smart Growth” approach locating more of those high-density apartments close to transit and jobs, we can reduce the cost of living for those who forego an automobile — which consumes more than 20% of a Silicon Valley household budget. We’ve reduced fees and expanded capacity for more high-density housing in Downtown, and in the year ahead, I’ll push to increase the height limits of Downtown development to enable greater concentrations of housing units near Diridon Station.

Reducing fees and streamlining regulations for the construction of “granny units” or “in-law quarters” in the backyards of our single-family homeowners will also yield more small-unit, “affordable by design” housing. Our efforts in 2017 to do so has nearly doubled the number of building permit applications in the last year.

We’ve also sought to encourage more innovative ways of reducing development costs to make units more affordable. We’re opening our codes to enable pre-fabricated, modular construction, such as First Community Housing’s project on Keyes Street. We’re investing in the re-utilization of used shipping containers for housing on Evans Lane. We’re exploring the construction of “floating foundations” for apartments to be built by a developer on a flood-prone lot in Alviso, an idea that could save millions on land costs.

Delay drives cost for home builders, so accelerating the permitting and development process can reduce downstream costs for everyone. Although t we’ve made some progress by moving more than three dozen permitting processes on-line, we have many more improvements to make. This year, Council supported my call for the formation of a new Housing Construction and Development Services Committee to better engage with City staff, our homebuilders, and the public on strategies to expedite housing development. We’ve just invested millions in new software to digitize and automate more processes to improve speed, accountability, and transparency.

In the year ahead, we’ll also review our city’s blueprint for development — our General Plan — with opportunities to revise it in several important ways. Lifting restrictions on housing development in North San Jose, as I’ve urged, can unlock opportunities for another 8,000 or more homes along the light rail transit corridor, and near BART. I‘ve proposed incentivizing the redevelopment of less desirable commercial parcels in many neighborhoods — liquor stores, massage parlors, bail bonds businesses, and the like — by upzoning land to encourage housing density atop neighborhood-serving retail. Reducing or even eliminating parking requirements in Downtown and very urban, transit-oriented sites can also reduce the cost of development dramatically. We’ll discuss these and other proposals very publicly through our General Plan review process.

Under State law, cities can only impose rent restrictions on new construction by subsidizing the housing. That means we need public money to ensure the affordability of many new apartments in a housing market with demand as strong as ours. Despite the state’s elimination of redevelopment agencies, we’ve committed many millions of City dollars for affordable housing construction in my tenure, including more than $40 million in 2016, and last month, another $100 million. These funds come overwhelmingly from sources legally restricted to housing uses, such as inclusionary housing fees, or housing RDA loan repayments. As a result of those investments, we’ve got more than 900 rent-restricted apartments under construction or in development, and another 1,144 funded units in the pipeline.

These roughly 2,000 affordable, rent-restricted units will help, but hardly suffice for a city of nearly 1.1 million people in a housing crisis. Finding the dollars needed to build more presents no small challenge, but I’ve pushed to find more innovative ways to find those dollars in our current context of budgetary scarcity.

Prior to becoming mayor, I led an effort to make San Jose the largest US city to implement a citywide “inclusionary housing” policy, requiring market-rate developers to either make at least 15% of their units rent-restricted and affordable, or pay fees for the City to use for affordable construction elsewhere. After a half-decade of litigation from developers went all the way to the California Supreme Court, we prevailed, and in 2016, we finally implemented the policy. By 2020, we hope inclusionary housing will generate some $20 million annually for more affordable housing.

We’ve also sought help from partners. In 2016, I stood with Supervisors Dave Cortese and Cindy Chavez to support the launch of the County’s successful Measure A campaign, and the County has already matched $19 million in City investment with $51 million in County funds to build 436 rent-restricted, affordable units in San Jose. In 2018, I lobbied in Sacramento with a delegation of other big-city California mayors for $500 million emergency funding for homelessness that has landed San Jose more than $ 11 million for “tiny home” construction and rental assistance. A couple of weeks ago at Seven Trees Community Center, Governor Gavin Newsom and I discussed his budget proposal for a matching fund for “missing middle” workforce housing, seeking partnerships with the private-sector employers. I committed to push another $10 million into San Jose affordable housing projects that align with the Governor’s program, to put us into the best possible position to leverage state dollars here at home.

Other efforts were not so successful. Last November, I led a $450 million affordable housing bond, Measure V, the largest that any U.S. city had tried that year. While securing 64% of the voters’ approval, the measure still fell short of the two-thirds support required for passage under state law. We’ll go back to the drawing board and try to find another way to prevail in 2020.

In the year ahead, we’ll keep pushing. We’re undertaking the required studies now to explore a commercial linkage fee that would generate dollars for affordable housing from commercial development. I’ve proposed such a fee in the Downtown area, where Google and others are building millions of square feet of office space, and we’ve imposed a requirement that 25% of the housing built near the Google campus be affordable. We’ve engaged with large tech employers to explore new public-private investment strategies in rent-restricted housing for working, “missing middle” residents. I’m engaging with local tech companies and private sector partners to explore more streamlined approaches to affordable housing financing, to reduce cost and delay in the construction of “missing middle” affordable housing. Stay tuned.

In the last four years, we’ve also sought to strengthen legal protections for tenants facing evictions and rapidly rising rents, by requiring landlords to identify a “just cause” for eviction with any notice. We’ve reduced the escalator for rent increases in rent-controlled apartments to 5% per year, and we’ve implemented protections for tenants whose apartments are being converted to condos. We’ve required that landlords make utility charges to tenants more transparent, and created a “rent registry” to ensure compliance with fair rent laws. Where mobile home park residents have faced new threats from potential redevelopment, we have enacted ordinances to strengthen their legal rights. In what we hope will be a model for future redevelopment efforts, we’re facilitating negotiations to ensure that Winchester Park residents are made whole — and then some — by a landowner seeking to replace their mobile homes with higher density housing.

I have not made tenant-protection policies a centerpiece of my own efforts, however, because of their limited efficacy. Part of the challenge: state laws that pre-empt local authority constrain the ability of cities to protect tenants. More importantly, larger economic forces ultimately dictate outcomes in markets, like ours, vexed by a severe demand-supply imbalance, regardless of the intervention of City Hall. Take rent control, viewed by many as savior: in surveys of prominent American economists in the 1978 and 1992, more than 90% consistently viewed rent control as counterproductive to efforts to expand affordable housing supply — even liberal economists like Nobel laureate Paul Krugman and Alan Blinder, the top economic advisor in the Clinton White House. So, I’ve focused my efforts on getting more housing built — both rent-restricted and market-based, to get at the root of the affordability problem.

Our region — and indeed, every metropolitan area on the West Coast — suffers from this affordable housing crisis, and San Jose will not solve it alone. Yet there are plenty of ways to make it worse. For the five-year period in which Apple built a three million square foot campus in Cupertino, the city of Cupertino did not add a single housing unit; residents there now continue fighting construction of housing at the Vallco site. In Palo Alto, voters shut down an affordable housing development for seniors for fear that it would create too much traffic. Santa Clara recently approved a 9.2 million square foot office and commercial mega campus for some 17,900 employees, but the project will provide housing for fewer than 10% of those employees. Another separate 10.5 million square foot mega-campus is now moving forward in the same city. Each of those cities has vastly more employees working within its city limits than employed residents, an imbalance that will continue to exacerbate gridlocked traffic on 280, 101, and 85 each rush hour, as workers commute from San Jose and South County to these jobs-heavy suburbs. Meanwhile, San Jose remains the only major US city that has fewer workers than employed residents, making it a giant bedroom community, and threatening its fiscal sustainability. So long as jobs-heavy suburbs continue to embrace the boardrooms, but depend on San Jose to provide the bedrooms, our region’s housing crisis will worsen.

Through CASA — a set of regional housing proposals that I helped to craft with other local leaders last year — I’ll push for state legislation that will impose commercial linkage fees throughout the Bay Area that will incentivize more of our suburban cities to bear their responsibility to allow housing to get built within their city limits. Either the city builds more housing, or commercial developers pay higher fees, but either way, we generate resources for housing regionally. In my leadership role with the Valley Transportation Authority and Metropolitan Transportation Commission, I’ll also push to more closely align each city’s transportation funding allocations to housing development. In Governor Gavin Newsom’s recent visit to San Jose, he emphasized the importance of doing just that, providing critical support from Sacramento that we’ll need in this legislative session. I will push, along with my big-city colleagues, such as Oakland Mayor Libby Schaff, and San Francisco Mayor London Breed.

Confronting Homelessness

We’ve got much more work to do to get our roughly 4,300 homeless San Joseans housed.

Despite the seemingly intractable nature of this crisis in major West Coast cities from Seattle to San Diego, we have seen evidence of what works: housing. Ideally, that permanent housing also provides ready access to critical supportive services, such as alcohol and drug addiction therapy, job training, and mental health treatment. While seemingly obvious, it hasn’t always been so. What doesn’t work is what has been tried for decades without success: providing services to homeless people while they continued to live under bridges and in creeks. The wheel-spinning of past decades demonstrates that such maladies as drug addiction, mental illness, or joblessness cannot improve until a person is stably housed.

So, we’ve prioritized a “housing first” approach, emphasizing new housing development, rapid-rehousing programs, and rent stabilization. Where we’ve convened partners in a “collective impact” model, we’ve seen strong evidence of success: in November 2015, Supervisor Cortese and I announced the launch of the “All the Way Home” campaign, to bring 703 homeless veterans into permanent housing. With the leadership of Jen Loving and Maya Esparza at Destination: Home, combined with the work of the Housing Authority and several key non-profit organizations, and the participation of hundreds of landlords and two dozen faith-based organizations, we’ve housed 1,274 homeless vets, dramatically reducing homelessness within this important subpopulation.

The problem: as we house some, rising rents continue to push others out. So, we need to expand our collective impact approach and intensify our efforts. It starts with building more housing that homeless individuals — with a Section 8 voucher, a disability check, or a small income — can afford.

We currently have 589 units of rent-restricted apartments under development with $150 million in City and County funds, each project providing supportive services for the homeless. The greater challenge, of course, lies in boosting the supply of housing affordable to someone having only a housing voucher, a disability check, or a small income. It is a problem with two dimensions: time, and money. First, we have a crisis today, yet housing development cycles take three years or more. Second, the solution for the County’s 7,000 homeless requires several billion dollars that we don’t have.

Necessity breeds invention. We set out, with many partners, to find innovative approaches to reduce costs and delay in getting housing built for homeless residents. We found that we could rehabilitate dilapidated motels for a third of the cost of building new apartments, so we converted more than 100 motel rooms at two sites for that purpose and will continue to look for more in the months ahead. We learned that for too many homeless who succeed in obtaining federal vouchers, homelessness will persist for another couple of months before they can find a vacant apartment in San Jose’s tight rental market. So, we’re building “bridge” communities, consisting of villages of forty or so “tiny homes” in two locations. We want to prove that we can build these communities quickly — in about six months, including site grading, and installation of electricity, sewer, and water — and add tiny homes at about $7,000 per unit, with the help of construction partner Habitat for Humanity. If they launch successfully this summer, we’ll scale the program to more sites.

We also found that too many homeless residents have federal or local vouchers but were still sleeping outside. One reason: federal limits prevent vouchers from paying landlords anything near the market rent for those apartments in this costly region. Housing Authority chief Kathrine Harasz and I successfully lobbied in Washington, D.C. for higher Veterans Administration Supportive Housing (VASH) voucher rates in San Jose in 2016. Last year, the Council voted to make more units accessible within the private market by mandating that landlords cannot discriminate against Section 8 voucher holders in making leasing decisions, an approach that has worked in several other cities.

Of all of these strategies, though, by far the most cost-effective initiative had nothing to do with building anything. Last year, we invested $750,000 in a Destination: Home pilot program to expand rental assistance and case management to 271 housed San Jose families who recently experienced a crisis — due to job loss, divorce, or health emergency, for example — making them unable to pay rent. What we’ve learned: covering two or three months rent can do far more to reduce human misery at a far lower cost than anything we could possibly do once a family becomes homeless. By investing only $3,000 per family teetering on the edge of homelessness last year, 96% of these households we assisted remained stably housed — results superior to virtually any other program we’ve tried. Leveraging one-time funding, I’ll push to expand that promising program through the budget in the year ahead.

We’ve also worked to improve the success of our “rapid rehousing” programs, implemented with the help of several non-profit partners provide case management with rental vouchers. Last year, 73% of participants who completed the City-funded program stayed stably housed, a substantial improvement on the efficacy of other programs.

We’re also exploring better ways to help the thousands who do not get housed, forging a more compassionate response with scarce resources to keep unhoused people safe and sheltered. We’ve opened four of our community centers as “warming centers” during the cold winter months to homeless needing a place to sleep at night. Working with the Winter Faith Collaborative — a valiant, determined group of volunteers from several churches — we eliminated City regulations in 2016 that prevented places of worship from establishing short-term shelters on their properties. Many families living in cars and trucks have an immediate need for a safe place to sleep, with access to bathrooms and showers, so we established a “safe parking” program at one City-owned site and are currently expanding to two more. We’ll continue to combine — and with more resources, expand — our short-term strategies to address the acute needs of our homeless population as well as we can.

Of course, nobody wants to use public resources to simply sustain homelessness; we need to get many work-ready homeless individuals on a path of self-sufficiency. This Fall, we launched a “transitional jobs” program with partners Goodwill and Downtown Streets Team, enabling homeless clients to earn at least $15 per hour cleaning trash and graffiti at more than 40 litter “hotspots” citywide. We have worked with some private sector partners, such as Normandin Chrysler, to expand the scope and impact of this program, which I will push for in the months ahead.

For the roughly 15 to 20% of our homeless residents who go to work each day, we also need to ensure that “work pays.” Past debates about increasing the minimum wage have generally devolved into “beggar-thy-neighbor” battles in which some cities increase the wage while neighboring towns position themselves as a more “business-friendly” destination. So, in 2016, I led a regional discussion with other cities through the Cities Association, to ensure broad agreement to accelerate increases in the minimum wage to $15 by this year. We have now reached that level, and the wage will adjust upward for inflation in successive years.

All of this work, while important, has sufficed to address only a fraction of this monstrous problem. We have far more work to do and will require all-hands-on-deck to achieve success. If you’d like to become part of the solution, please join our partnership with Destination: Home. This is difficult work, but only the really hard work is worth doing.

Mayor of San José, California

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