Community & Economic Development Committee (ced) - Regular Meeting

Present. Here. Here. Great.

We need to review the work plan. A couple of items will be postponed till June 16. We need motion to do so. I see no one in the audience, to make public comment, and I'm assuming that's the case. I see some staff people over here, but no one here. So does anyone care to make a motion to

So moved.

Move these items. Items. Great. Thank you. Let's vote on the work plan. Great. Thank you. We have no consent calendar. The first report is a housing balance status report, and I know that Eric Sullivan has both of our reports. So take it away.

Okay. Great. Thank you. Thank you councilmembers. Eric Sullivan, director of housing.

And so the first presentation that we'll go through is the housing balance report. So as part of the housing element, we looked at where within the context of the entire housing portfolio, where does it fit our work around multifamily rental housing specifically. And then as I'll talk through at the end here, some of the challenges we have and how we're going to be addressing them and getting to broader data to ensure that our housing balance report in fact covers the entire housing portfolio and housing stock within the city. And so I'll go through a couple of quick slides here then we can open up into presentation as following this is a conversation regarding our middle income strategy as well. So first and foremost here.

Okay. Oh, that's the second presentation. Can we go back to the first one? Okay. So in this presentation here, we will cover first what is the context of this report.

So it's an analysis of our existing multifamily rental housing stock looking at both our rent subsidized units, which are units that have vouchers on it typically in order to subsidize the cost of the rent, to our income restricted units, which are units that have a cap on the incomes that are eligible to join the unit. So think of it as our low income housing tax credit units. And then three, our market rate units. Because as you'll see further on down the slide to look at the impact of our multifamily rental housing stock, we have to look at all three sides of this to get a comprehensive picture as to the balance of the entire housing stock. And then we looked at sort of location unit types and affordability levels, and we'll go through some analysis of that as well throughout this presentation.

And then looking forward, what are some of some particular strategies that we're going to look to identify in order to improve the entire data outlook we can have in understanding the challenges in this market. Yeah. So first, into kind of place set, as you've seen this slide many times before, we're looking at our housing stock within the green arrows. So those where we look at preservation of some of our units at affordability, and then looking at the entire affordability scale from PSH units through to homeownership as within the multifamily rental space, we also looked at some components of homeownership as we attempted to include some of that data, but realizing going through the data analysis we don't have a sufficient data set on the homeownership side. So it's one of the challenges that we'll look to fill in in terms of a data gap.

But this is the segments of the housing criteria that we are looking at as for the purposes of this report. So here's a quick snapshot as to where the rental segment types are. So first, as you'll see about 37% or just shy of 40% is our market rate multifamily units, then our rent stabilized units or those units subject to the apartment rent ordinance which the housing department manages about 40% of that overall housing stock, then the income restricted units which are units typically tied to low income housing tax credits that we've produced over the last two decades or more is about 23% of that overall housing stock. And so you can see the bifurcations of how this housing talk is set up. And then within the global housing stock, right, so when we look at the totality of the 340,000 or so units within the city of both single family, multifamily, restricted, affordable, homeownership, overall the multifamily segment represents about 17%, almost 18% of that total amount of housing units within the city.

So then here's a quick breakdown based on council district noting our three primary blocks, market rate units, apartment rent ordinance, therefore restricted units, and then our restricted affordable units. You can see that across the 10 different council districts, there is very broad diversity as to where this housing stock exists and how as we think through the implementation of our various policies, our siding policy, our anti displacement policy, our execution of our rent stabilization strategy for

the preservation of units, we have to look at each of the districts in sort of

different lights and different priorities as we think about how best to maintain and bring further balance across our entire housing stock portfolio, and then specifically for this presentation our multifamily rental housing stock. So this is another breakdown of looking at that affordable housing stock from a different snapshot based on restricted and affordable stock, and where does that restricted affordable stock exist, and what is the current sort of pipeline of units that we foresee kind of moving forward breaking that down again within the confines of the different council districts to provide the snapshot as to how to think about where our affordabilities are and where we need more affordability, where is that range of affordability across the housing stock, And then three, and looking at the diversity of needs across the different council districts, you know, where's their opportunities to expand both overall housing stock and affordable housing stock. And so some key takeaways here as part of this report that you receive, one is rent stabilized and income restricted units comprised, you know, big percentage of this multifamily housing stocks we saw on that second slide. So as we think about income restricted units and the necessity to preserve that affordability, that continues to be a clear call from this analysis.

Two, as we look at more production, you know, 2024 having zero market rate multifamily productions, one, we need more in general housing stock to meet our RENO goals, but two, that also has a ripple effect. And that ripple effect is that when we have a lack of production at one end of the continuum, it has an impact on other ends of the continuum. Because those higher income families who can't move into other units, can't move into homeownership units, roll into class b or class c properties because we have less supply available, therefore driving up the rents for all families across the board. And so the since the housing stock and the housing market within San Jose, like most municipalities, is a connected series, the lack of production at any point, whether our extremely low incomes where we need the most production, as well as on our market rate side, it has a ripple effect across each points on the continuum. And then a third and final takeaway is looking at preservation.

You know, income restricted units given that high percentage of the existing affordable housing stock that there is, how do we look at more and more strategies to preserve some units? And though we do not have a direct investment program now around preservation, we do have indirect activities that we do. As an example, some of that income restricted properties related to long housing tax credits at year 15, we create an opportunity to refinance it. And so we have a constant flow of deals coming to the department where we're able to waive, modify, restrict, expand, limit rent incomes. We do a lot of strategies that are sort of indirect investments into stabilizing and expanding the useful life of that housing portfolio.

And so looking forward, a few things to point out here. Number one, in terms of progress to date. So since the city had shifted over the last couple of years to funding more and more housing stock at the restricted affordable, we're seeing great growth. You know, despite the fact that twenty four twenty twenty four had zero market rate starts, we had over 2,000 units across 13 different projects on the affordable side that kept going and kept producing. And we'll be bringing more deals similar to the Berryessa deal last week forward here as we're continuing those investments in affordable housing while also pushing, some more production on the market rate side and also on the PSH side to get all points on the housing continuum kind of moving forward.

Two, as we look at long term affordability based on our existing dataset, and this is another gap that as we dove into the details of realizing we need to expand our collection of data here, but our best guess is that just over 2,000 of the income restricted units that are under construction, there's about 1,300 or so that are projected to come online this year alone, bringing on just about 67 permanent supportive housing units. That's gonna create more opportunity for throughput. And as we look at the data more comprehensively on that throughput system from the work we do around interim housing to transition into permanent housing, our work around prevention, connecting those dots and seeing more comprehensively how the flow of individuals through the housing continuum are going, we're gonna be able to have a much richer dataset to understand where we need some more push and pull throughout the years to ensure we're getting to continuity of transference throughout all the entire housing continuum and needing to preserve that long term affordability. As the last point here really touches on, we're looking at roughly about 285 units that we've thus far preserved through some of those indirect means that I've mentioned before, and there's about 1,200 units that are gonna start to expire on their fifteen year life tax that'll create opportunity for us to do things such as in some of these deals that we've done, we've capped rent increases where we couldn't have done that before, where we've looked at different ways to deploy city capital into these deals to limit the amount of rent raises because under the local housing tax credit program since it's adjusted upward based on AMI and our AMI levels continue to go up much higher than our peer cities in Oakland and San Francisco, we have to look at strategies and we have done that and continue to execute on strategies to try to limit some of those rent increases so that way our families and as an example income restricted units are not getting rent burdened.

And so that's some of the work that we'll do around sort of preservation of investments and how we continue to improve that dataset to ensure we're able to see a comprehensive picture across the entire housing continuum and how we're advancing our goals on getting to transference and movement through the continuum. I think that's the last slide. And that's the last slide here on the housing balance report.

Great. Thank you for that presentation. Do we have any members of the public who wish to speak?

There is no public comment.

Okay. Then let's go to council or the committee. Council member Ortiz.

Thank you so much, madam chair. Thank you, Eric, for your diligent work on this very important topic. And thank you for your staff, as well. Few questions. On page 10 of the report, it states that 16 developments with eleven ninety four affordable units could lose their affordability restrictions if no action is taken. I wanted to ask what specific steps is the city currently taking to preserve these units to hopefully extend affordability protections?

Yes. So this goes thank you councilmember for the question. So this goes to some of sort of the indirect things that I talked about in the right action. So as these units come and begin to their expiration beginning in '11 through 11/15 of their existing LIHTC compliance, we still have covenant restrictions that max and cut off the maximum amount of sort of eligible AMI families that are gonna be there. So we're preserving the residents who are there as well as our work around ensuring that residents are not displaced.

Two, since at year 15, a lot of these projects come back to the department since our permanent loans tend to run thirty to fifty five years. They look for refinancing of our permanent loans as they seek to resyndicate their low income housing tax credits. That creates opportunity. Opportunity for us as we've done with a couple of deals, Pesceo one, Pesceo two, and a few others where we've said as part of modifying our loan terms,

whether

it's for extending out terms, reducing interest rates, we want further restrictions on rent increases to cap it at 40% or 30% of rent income. Those are ways in which we can play in the space even though we do not necessarily have direct capital into it like we do new construction loans. So there's some actions that we can and we have taken and as we better understand some of the restrictions and dissect more of the global portfolio of units that are in our overall portfolio, which is about $742,000,000 at this point going back to the RDA days, it's going to create more opportunity for us to, through indirect means, create some and maintain affordability.

Well, I'm really happy to hear that answer. I'm glad that you are being innovative to identify ways in which we can continue to maintain, those units for some of our lower income, families. And so you're saying that the city has dealt with this type of situation in the past and we have experience addressing those concerns?

Yes. And a lot of it is hard negotiations with our developer partners to say that, you know, for those sites that are heavily rent burdened even though they're extremely low income, so they're below the 60% mark, a lot of the residents are 30% and below or in some cases 20% and below, we're able to cap future rent increases over a five, ten year period in order to lessen the burden by restructuring the ways in which our continuing capital in the deal gets structured. And so that is just department policy that we have implemented and as we roll out the next wave of our preservation underwriting guidelines as we look to potentially, you know, in the future preserve more future capital to come into it, that will give us further leverage to restructure some of these deals.

Worst case scenario, knock on wood, but these units are lost to the private market. What can we do to provide support to those individuals who may be displaced?

So few of the individuals will get subject to displacement because of the other restrictions on the units and because of the covenants that still run with the land, as well as our anti displacement sort of

measures we

can take.

A few people are gonna be displaced.

Right. Very few will get displaced. Where they will be displaced is where if the rents because AMIs continue to increase and rents continue to increase, they will not be able to make rent. So they'll either get captured in our prevention system, which we do a lot of work in that space, particularly with our ARO units, but not enough. And then two, we would be able to catch them as sort of the eviction diversion system.

Over 90% of evictions that go through our eviction diversion work is all due to lack of payment of rent because the AMI levels are growing so the rents can grow permissibly and therefore they're being subject to eviction when not able to keep up. So where we can mitigate some of that work through some of the existing programs that we have and further investments in those existing programs, We have some tools, we'll just need sort of more capital in those spaces.

Okay. Thank you for that. And then I know we're always we're strapped with resources and funding issues. I don't know if you have the bandwidth to do that or you have a team that has the bandwidth to do this. But given that we already know that these thousand plus units are going to be potentially vulnerable, does that trigger any sort of outreach to the individuals? What sort of obligation does the property owner have to inform their renters? What does that look like?

Yes. So we've taken a look and we're diving deep now. The team is looking at those that dataset of existing properties that are going be burning off their restrictions. And it's sort of a three part approach. One is to the developer of, are you intending to recapitalize? You know, given the cost of capital, some of these projects were originally financed in a lower interest rate, more fluid, more cheaper capital days, so some of them may not be looking to refinance. And if not, then what can we, the city, do still under our existing loan requirements to restrict some of those rent increase? That's one area. Two, for those that say, hey. Yes.

Absolutely. I'm gonna recapitalize. It creates a broader opportunity to fund a future project, do a cash out, refinance. We're having a portfolio wide conversation with those who want those developers who want to recapitalize and seeing where you're gonna redeploy that capital, particularly if you're gonna do a cash out refinance. Okay.

Well, we want you to put it in these projects over here to maintain affordability and looking at the portfolio globally and its impact within the city's housing stock. And then three, for those who are willing to come to the table, who wanna recapitalize, wanna look at it on a portfolio basis, is how the department approaches the work, well, let's talk about where are existing restrictions that we have on it and where do we have negotiation leverage to say everyone who are housing burdened because we have the per unit data, we're not going to cap their burden at 35% or 40% of income depending on kind of sort of where the family by family income is. So we have some tools, but we have limited capital, so we're trying to be as innovative as we can and having some very difficult conversations with some of these developers in order to strategize ways to limit the impact on residents.

Thank you. Thank you for that answer and I'm glad that we do have a plan and some potential tools and mechanisms that we can use from the city side. I wanted to get your input at you know, there was article in the Mercury News on the nineteenth that somewhat is relevant to this discussion that points to large or hundreds of vacancies across the Bay Area and properties at different levels of affordability but with a majority of the vacancies and properties that are above market rate and at market rate units. And that's across the Bay Area. Have we seen that same issue here in the city of San Jose?

Mean is that an argument that we should be building more affordable housing because those are the ones that are most in demand here in the area?

So thank you for the question. And the article this morning is in some ways dispositive to the San Jose market and in some ways not, and I'll kind of talk about both. When we look at the production of middle income units and middle income families, we have to look at it within the context of our housing continuum of those who are at a 150,000 a year, which is a lot of my staff. It's a lot of police officers second year, lot of firefighters. Those individuals are primarily not able to move into homeownership or take that next step because we don't have production on that end.

And so they're either going to buy down to a cheaper unit, therefore vacating that middle row of units that are coming online that are restricted to one ten or one twenty AMIs. As an example, we've seen projects now two projects under the multifamily housing incentive program who were originally gonna come in with rates last year at about 130% AMI. They've now dropped down to one ten because the rent cap is is hitting a max now. We're gonna be releasing the q one report, housing status report on that dataset. It's gonna show, yeah, rents increased but a bit, but vacancy has also decreased, which means we have a continuing demand.

So it is applicable in terms of looking at global policy. Where it is not necessarily applicable is that San Jose's our AMI ranges are so vastly different than the other cities. HCD just released their updated AMIs. And for a family of four in San Jose, that 100% AMI is a $195,000 a year. That's compared to Oakland, which is where the majority of those middle class units work as they brought on 10,000 units just in the last five years in that middle constraint, a family of 400% AMI is a 159,000 a year.

So these are just vastly different markets. And so when we look at those production levels even compared to San Francisco, San Francisco is at $186,000 a year for a family of four. So the three major cities within the Bay Area region have such vastly different regional markets that as we think about the impacts of middle income units, think about lower income units, think about higher income units, home ownership units, our lack of overall housing stock in the city because we're 90% single family at a particular rate of what's roughly 1,600,000.0 per year with thirty year yields above 5%, it is nearly inaccessible on the homeownership end. So we have extremely low and extremely high and very few in the middle. And that is where our housing stock and sort of our look at the needs within this city varies tremendously from the other cities because our AMIs, our incomes are so high and the housing stock is nowhere near keeping up.

And so we end up with this glut where we're not necessarily a glut of middle income. What we're seeing now is so many market rate deals are now coming down in rents because they know, well, here's my trade off. I can get 3% vacancy to fund my debt on a thirty year look or I can try to push up the rents, look at 7% vacancy, more of the market standard, but now I'm not guaranteed I'm gonna get those rents because there's so many families who are buying down and trying to save for home ownership.

Okay. Well, thank you. Thank you. Appreciate you covering that for us. I'm glad you read the article before I asked you that question. Thank you.

Thanks, council member. Council member Casey.

Well, Eric, I think you kinda touched on it. We're talking. I was at a community meeting in the Mercury News article that came out and folks were really concerned about the vacancies of affordable housing. And just kind of speak more directly to how that's applicable to San Jose if you could. Thank you.

Yeah absolutely. So you know as I mentioned earlier you know in thinking about the article like a lot of it and I'll kinda compare my comparison cities. We have the three directors, myself and the director of housing in San Francisco and Oakland. We we talk every two months. We have a economy in call just to understand each other's kinda different markets.

And what Oakland has shared is with the wave of 10,000 units that they brought online, a lot of it, market rates stop above the one ten thinking they would get sort of a flood of folks from San Francisco from all the areas in the Bay, didn't quite pan out. So now they have vacancy rates that are nearing 10%. We don't have that in San Jose. In fact our Class A market rate rent vacancy is now hovering at 6% and trending down. And our vacancy rate for class c properties which is a lot of our ARO units is 4% and trending down.

We have a different market dynamic because of the way that the city housing stock grew up over the years versus Oakland and its proximity to San Francisco and sort of the different dynamics there. And so as we think about our overall housing stock and why sort of I promote the look of thinking about as a housing continuum is because at each point in that continuum, we have to make strides because our biggest deficit is just a sheer lack of production. And if you produce too much on one end or the other, you get ripple effects because the market needs to be able to expand affordability for every family at the incredible low end of the scale as well as those transitioning into homelessness. And we have to have individuals, public employees, my staff, very few of them own homes, police, fire, how do we get them into more homeownership opportunities. So that way we expand the scale and increase the overall availability of housing stock.

Thank you.

Thank you council member. Council member Kamay.

Thank you and thank you for the report. Council member Ortiz took all of the just about all of the questions, but you know, I'm I'm curious as you look, sort of in the Bay Area, you know, the the, the entry for, you know, homeownership is so so far away for so many. And, you know, at at some point, you know, in the future, know, even town house townhouses are really just just very expensive. Is there any even thought or change that, you know, perhaps would bring back more of the building of condos or anything like that or the possibility of bringing back? Because I think that you know it allows sort of a young person to enter into home ownership which you know creates equity.

And if you never have that chance to create that equity then you know it's hard to move up unless you make a whole boatload of money. And so I just I just think that at some point it'd be great to be able to start thinking about that. I worry about many of the units that are in District 1 that are old, really, really old. And, you know, like, I don't know what the, trajectory is for the life cycle of a building, but many of them were, you know, created in a time when, you know, it was a long time ago. And so I I worry about that and I worry about, you know, what happens in the event that, know, something were to happen to these units.

Right? Because there's so many. I mean, it's just so many. So I'm just wondering, you know, when you talk to the other housing directors or is there any thought of of what could be done for sort of entry level purchasing of of a home?

Yes. Thank you, Hans Van. We'll get into a bit in the next presentation here, but as we think about construction defect reform, that's one of the areas we have to have advancement. Not being able to build out that stock of condos and limiting our ownership production to townhomes or single family limits the world of possibility. And therefore, the world of production and that expansion and that transference from those who are, you know, at that higher middle income need who wanna get into home ownership, but at 1,600,000.0 for a single family here versus 800,000 for a townhouse versus what could potentially be less for a condo, we we would open up another avenue there.

Right now we don't have that. So part of what we'll get into the next presentation is just pushing for more of that reform so we can look at ways in which to open up more condos to affordability levels. Know, when I last year when we brought forward the changes to the home equity loan for that 438 homes, 70% of that was condos. So smaller properties, smaller units, but, you know, they were at very affordable rates twenty, thirty years ago. And since we don't have that kind of production anymore, we're limiting the amount of available housing stock that we can bring forth for individuals to transfer into that homeownership space.

Thank you.

Would you care to make a motion to accept Yes, the

I move that we accept the report. Thank

you. Second.

Great, and I'll just say I look forward to the middle income report that we're going to see next, but I really feel we stand in our own way in allowing condos and townhouses to be built right now by our general plan and requiring developers to build to the highest density they possibly can. Some developers only wanna build townhomes and we're saying no to them in infill projects. So if we really are serious about the middle income market, which we should be because as you stated in the other report, it's part of the continuum that they can afford a middle income can afford to buy a townhome at 800,000 if they have the down payment with and and there's lots of FHA financing and other financing that makes that down payment even less. So there's attractive ways that someone could get into that, but we we the city stand in that way, in the way and including inclusionary housing and others. But I know we're gonna talk about that later, so let's just vote on this now.

Thank you. Motion carries. Moving on moving on to the moderate income housing status report.

Okay. So thank you. So we'll get into now the next one. Is this okay. So again, here we're talking about some particular points. In this one, we're looking at middle income strategies. The particular points on the housing continuum is further up on the scale as we're looking at more moderate rates, subsidized income, and homeownership. And I mentioned I'm joined in the box here by Jared Ferguson from PBCE as well. So as we're continuing on here, so this middle income strategy. So the housing element laid down sort of the foundation of how we think about this report, why we brought forth this strategy.

It's under our housing element strategy p 15, which sort of provided that direction to look at ways in which we can further expand and meet the needs of our middle income based on the existing RHINO goals. We need about 10,000 more moderate middle income housing units by 2031. And so as we first sort of define what it is we're looking for. So as I mentioned, middle income is about 81% to a 120% of area median income. So it's about that median middle is about a 150,000 a year.

That is in in looking through the budget cycle, a lot of, you know, city public employees, a lot of police, fire, librarians, a lot of our public staff that fall into that category. And based on where the most revised limits that came out from HCD, as I mentioned earlier in the presentation, a family of four that's at a 100% AMI for the city of San Jose is now at a 195,000 a year. So in terms of the region, we're at the highest levels. In terms of nationally, we're at the highest levels. And so San Jose housing stock just exists in a very unique place.

And so as we think about middle income strategies and meeting this need, you know, where do we look at ways in which to build out more points on this housing continuum? And so demographics, this is just additional detail, the total folks we're talking about. Roughly a world about 59,000 individuals who fall into this category. And for most of them, as I mentioned in the earlier presentation, homeownership is just simply out of reach. As we'll see as we're about to release our quarter one twenty twenty five quarterly report, homeownership units are now at 1.6, 1.7 for a single family.

That is the cost and given where interest rates are today and where ten year and thirty year yields are, your average price for interest rate on a thirty year mortgage as fixed is roughly 7%, which is double what it was just four years ago. So it is incredibly unaffordable on the homeownership side. So cost burden for these units or approximately 20% of our mid and modern income households are cost burdened. And this speaks to, as I mentioned earlier, where we're getting further buy down of those higher income families, thereby raising the rates on our most lowest of income families because we don't have housing stock. And so they're trying to save more by work living in a cheaper unit in order to make that leap that is necessity in order to get to homeownership units.

And this is just additional data showing our moderate income families also tend to be bigger than most of our other families. And they have a broad diversity similar to all of our income levels throughout the city in terms of representation across racial and ethnic groups. And so as we think about sort of San Jose housing stock is not necessarily hurting anyone particular or less. It's about a continuing need to address and build out more housing stock at our lowest of income levels and also at our homeownership rate to some of the comments that vice mayor Foley had mentioned. And so as we think about these challenges, it's just just six quick summary points of where these challenges are.

And you've heard me kind of mention this before in many different ways. So first is, again we had that zero market starts in 2024. Now we're seeing some production going in partnership with PBC E and DOT and PNRS, a real cross departmental initiative to reduce some of our immediate funds in in order to spur development, and we're getting some development started. So that is good news despite of that challenge of '24. We're seeing continuing high development cost.

We are working through the details of the cost of development study now, which we'll be bringing back here in the fall, and seeing sort of the impact of San Jose versus everywhere else in terms of those challenges around development. Three, we're seeing, as I mentioned, more rental buy downs. Again, the lack of housing stock moves families in different ways up and down across the entire housing continuum because of the challenges that we're experiencing with mortgage interest rates, low turnover, low vacancy. Know, as you'll see in the quarter one report, you know, class c properties are now hitting 4% and continuing to go down. That's a challenge.

While class a properties, their vacancy rate continues to grow down while also the rents that are able to get financed also continue to go down. So we have multiple challenges around the entire ecosystem of our housing stock and then continuing challenges around limited public subsidies, which is why part of the work we have done is where do we align with the county, where do we align with the housing authority to keep that flow of units going during these lean times. And so we look at so as we think about housing stock and we think about the broad diversity of housing stock, where are some of those missing middle typologies? Where are some of that smaller rental housing stock? Where are small of that different types of ways in which, you know, more condos and various types of housing that we could look to spur, incentivize, bring on in order to address the diversity of needs across the entire housing continuum that we need in order to expand the city's overall housing stock.

And so a couple of strategies here, given that this segment of the population does not receive sort of direct subsidies. So what are some indirect things that we could do to expand and improve the market? So a lot of these are really focused on sort of process improvements, updating the IHO. That's one area we've received direction from the March budget message to look at. So we're looking at ways to deepen the affordability levels on the IHO as well as provide more flexibility in order to get to expanded ways as well as designing sort of a surplus unit credit market exchange that we'll come back later on in the fall with some details on, but looking at to turn it into more of a tool to incentivize more production.

Looking at production incentives, again, around ADUs, and Jared can speak to kinda more of that as well. And then looking at ways in which our housing density within the ADU can work again for additional production incentives. And then the last two strategies is really looking at additional liability forms we mentioned before around construction defects in order to expand more condo homeownership and then looking at ways and we can get to some additional regulatory reforms to add more mid level density, missing middle type inclusion to expand the overall housing stock. Again, these strategies are very much focused on sort of non financial, non funding, and just looking at process, regulatory, programmatic improvements that we can make in order to expand and build out more funding and housing within this space. And that's the quick report.

Thank

you. You caught me off guard. It's reading my notes. Do we have any members of the thank you for that presentation. Do we have any members of the public who wish to speak?

There is no public comment.

Okay. Thank you. Then going to council member Mulcahy.

Thank you, vice mayor. Thanks to both of you, Eric for giving the report. Sort of with Jared sitting there, what I'm thinking about is like, you know, we're about to do the four year general plan update and you know Eric you've been here about a year? A year last Tuesday. Yeah, year last Tuesday congratulations.

Happy anniversary. Super glad you're here because I learn something every time you talk which I appreciate a lot. But just thinking about the general plan update and then the housing element due shortly thereafter. You know, what are what kind of influence, what kind of work, Erica, are you gonna be doing to influence that outcome, right, so that we can meet some of these huge demands that we have relative to the continuum you've just walked us through both on the middle income and certainly on the affordable. What does that look like? And are you already engaging with planning staff on that process?

Yes, so maybe I'll start and then Eric can add to this too. Mean we're as we've been talking about we're working on the four year review as you mentioned and that's going to be kind of important for us to advance both kind of this program on moderate income housing, small multifamily and then also do the work to plan our next housing element. So as we look for places to expand capacity, new opportunities for growth to deliver the units that we need to under our arena, have to look at how we expand our general plan to expand that capacity to both implement the current housing element and then look to plan the next housing element. So we'll be working very closely with the housing department throughout that process because we have to plan for housing at all income levels under that RENO obligation.

Yeah and as Jared had mentioned, where do we sort of continue to work together as one team to expand and look at all those variety of housing options? I know Kristen Clemens from our team and Vaanu San, our deputy director, spent a lot of time working with Jared and his team to look at ways in which we can see the different challenges from the financing side that the housing department is charged with to bring that into our overall planning side that PBC has in order to expand those typologies, to expand kinda some of the housing stocks that we need across the entire housing continuum.

And this question may be for my colleagues who predate me and maybe vice mayor you especially. You know it feels like your Eric your housing department's direction is very clear in terms of how it's moving forward and this is by no means because I did not know the prior housing folks it's not what I've done in my career. But are we better positioned this time around to you know meet our needs through our planning tools and ultimately what we're telling you know the state through our housing element are we better prepared this time to go through this process? Maybe it's better for Jared and or Vice Mayor maybe to weigh in.

I mean I think we learned a lot going through this last six cycle you know there was a lot of state law changes in terms of how we had to prepare our housing element. So I think we're going to be well suited and prepared to do that next one, which is why we believe this general plan for your review is so important to have that pre work done to be ready and start our next housing element process with ample time to complete early, get it approved before we're subject to any penalties. So I think through that work we've learned a lot and are trying to set ourselves up to be successful. I think there's a lot of opportunity for housing in the city. I think the biggest challenge right now, as we've talked about, are kind of the economic conditions.

We haven't had any multifamily big projects start. We're starting to see some movement with our incentive program, but it's still not at a level that would be sufficient to meet our annual allocation, either our annual goal for that 62,200 units. So that's still going to be where we're ultimately challenging. So we can do a lot of work, provide a lot of tools, but if the market isn't supportive of these projects, that's kind of the biggest barrier I think right now to us delivering on our goals.

The one kind of illustration you showed, right, the one sort of street and showing all the middle income variety of what you can build and sort of meeting that middle income. Will we look to having broader flexibility in what can be built within that framework relative to the planning document or planning general plan that we lay out?

Yes, mean I think that's our goal both through this strategy and then through that housing element program P35, the small multifamily is through our inventory, we've kind of officially identified these over 500 sites for the 62,000 units. But I think as we're going through this challenging time in terms of producing units, we're looking to this new program as an opportunity. Is this another way that we could get units at potentially a lower cost? I think we want to understand the economics of it, providing as many opportunities as possible to deliver more units. And then particularly for this strategy, the moderate income, it is a required income category that we must show how we produce and we must produce units annually under that, under the RHNA.

And so without direct subsidies to provide those units, we have to be kind of creative in terms of how we're going to produce those units, which we're required to do. And so kind of looking at this all of the above strategy, right, and hoping that we can find other outlets to produce units annually and going forward to meet our needs.

Great, thank you both very much.

Thank you. Actually I think this is the first time, go ahead.

I was gonna make the motion.

Go ahead.

I'll move to accept the moderate income housing strategy report. Second.

Thank you. I think this is the first time we've actually had a conversation about middle income and how we're going to assist, get out of the way, create more opportunities for middle income development. Because we have affordable housing funds available. The market rate, the single family, high rent or high market value developers, they can build too although they're not really, but they have more financing available through their banks. It's the middle market that doesn't have the profit margins perhaps built in and so financing is an issue.

But to council member Mulcahy's point and a point I tried to make earlier is we need to get out of our way by creating in the general plan flexibility to be to build lower density because we passed an ordinance a few years ago, I don't think anyone was here but me, and I was the only one who objected to it, that we build to the highest level of development wherever the development project is. And that's just not sustainable in some of our areas in the city. To build 10 stories in District 9 where everything's one or two stories is ridiculous and we don't have transportation that goes along with it. So we need to be really flexible. We need to make sure that we include that in the general plan update and really be focused on that middle market because it is the continuum of housing.

If you're gonna, you start off as a renter, you wanna buy, you or you wanna move up in the type of properties that you can rent as your family grows, then you wanna build wealth, right? Generational wealth by home ownership. Everybody, that's the dream to own your own home, but if we're not building housing, people can't do that. So I I like the the strategies that are brought forth in this. For example, the ADU, being able to sell an ADU, that's really important.

The one question I have for you is regarding the defect, construction defect liability. Is that, is there any proposed legislation right now or is this something we should be pursuing?

I don't think so. I'm just trying to go through sort of the inventory of a 137 bills that we've looked at related to housing. And I don't think there's one directly on point related to construction liability defects.

There was one in the last session which didn't make it unfortunately. Know we were looking at supporting it. I don't know that it got reintroduced this time, but I think we'll continue to look for opportunities for how we could advance that policy goal. I know there are other groups interested in it as well.

Thank you. Do you know why it didn't progress? It's okay.

I forget it. Yeah. We'd have to go back and look.

Yeah. Lawyers. Lawyer. Yeah. Some lawyer. Lawyer. Yeah. Probably. I'm sure the condo associations may be opposing it but developers, lots of people would be supporting it as well. Insurance companies, for example, and and many many others. Alright. Well, I think this is a good start. I look forward to the general plan including more flexibility in these low density developments, 10 units or less. They make sense in certain parts of the city. They don't necessarily make sense in Downtown San Jose.

But they make sense in more of our suburban areas like D 1, D D 9, D 10. You know, height, there's no transit necessarily. So thank you. That's I'll get off my soapbox for now. Council member Kameh.

Well vice mayor, I agree with you. I think you know in terms of I mean, I think we've been creative in terms of how to, you know, like help with some of the financing, have some incentive programs. I also think that, I agree with, council member Mulcahy as well that, you know, because we're having the review of the general plan, there opportunities. There are two different sort of like forces working against us here because from my sort of experience in in looking at how much it costs to be able to deliver services to a particular area. You know, I was told, well, you have to have at least 50 to 55 units per acre in order to be able to pay for some of the services.

And because the city of San Jose has always been, you know, more housing than businesses, you know, we don't have the type of revenue to be able to infuse into into all of the services that are necessary. But I too really like that slide that you put up regarding the missing middle housing types. And I will say, boy, you know, I don't remember a fourplex that has come by or you know, courtyard apartments. And you know, I do know that there have been a few townhomes but you know, I think that the variety is something that we ought to look at that makes sense in certain neighborhoods because I know that it doesn't make sense to have a higher, everybody wants higher density because of the number of units. We're driven by the number of units but it doesn't necessarily make sense in some of the places because there is no transportation.

You know, and along the transportation corridors, there you know, there are there's housing that may not be as dense and I think that we really need to way back in the day they used to call it, smart growth. I don't know what happened to that but, I haven't seen a lot of it, know, in terms of where the transportation corridors are. So, so I think that having some flexibility or I'm a big person who wants to try pilots. Let's try it in an area, right, to see if there's a diversity of missing middle housing that can be created in in some of the infill, in some of the areas where, you know, it doesn't make sense going 17 stories. That perhaps, you know, something lower will fit in better with the neighborhood.

So I think that that there is opportunity. So thank you for the report.

Great, thank you very much. Thank you for all the comments. I see no other hands so let's vote. Thank you, that motion carries. So concludes our agenda. We move on to open forum. Do we have anybody who wishes to address us?

No public comments.

Okay. Then this is probably the shortest CED meeting I have ever run. So we stand adjourned. Thank you.