San José staff: fee waivers help spur townhomes and stacked flats; podiums and towers remain largely unviable
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Summary
City housing staff told the Planning Commission that townhomes and stacked flats are generally financially feasible in San José, while podium, wrap and tower projects face persistent cost and rent gaps; staff will present incentive proposals and an office‑conversion package to the City Council on Jan. 27.
San José’s housing director presented a citywide study of residential development costs on Jan. 14, telling the Planning Commission that unit types such as townhomes and stacked flats are generally financially viable while podiums, wraps and high‑rise towers remain difficult to build without substantial incentives.
Erik Sullivan, director of the city’s housing department, said the study was prepared with outside consultants (EPE and CSG) and used both city project agreements and aggregated market datasets. “El estudio de costos de desarrollo es algo que la ciudad realiza cada pocos años para evaluar cómo está actuando la industria del desarrollo, y que puede ayudar a informar las decisiones políticas,” Sullivan said while introducing the analysis.
The presentation explained the modeling framework and five building typologies used in the analysis. Sullivan and staff described a typical cost breakdown used in pro forma modeling: materials and supplies represent about 65–70% of hard construction cost while labor accounts for about 30–35%. For projects subject to prevailing‑wage rules, Sullivan said, the labor share tends to rise and can change feasibility calculations.
The study compared San José with neighboring jurisdictions and found lower market rents in San José relative to some nearby cities, and higher per‑unit costs for many affordable projects because of project design and funding structures tied to low‑income housing tax credits. Sullivan summarized the city’s regional role: “Hemos producido más viviendas asequibles que todos nuestros socios comparables dentro de la región, y eso se debe al trabajo del condado …” and estimated that San José accounted for roughly 40% of the region’s affordable housing production during the period reviewed.
Staff also briefed the commission on practical limits to local incentives. Sullivan said the city’s market‑rate incentive programs are generally capped “a 200000000 de dólares o menos,” while projects large enough to support iconic towers frequently require scales on the order of “300000000 de dólares,” creating a financing gap for tall buildings. Sullivan added that targeted fee waivers and incentive extensions have catalyzed some projects in the past: staff described a collaborative memo and pilot incentives signed with PBC, Housing and PRNS to waive select fees and move projects into construction.
The presentation included a draft office‑conversion policy tied to municipal Title 14, which staff said favors converting older office stock where feasible; staff told commissioners the conversions program and an expansion of a phase‑1 multifamily incentive would be presented to the City Council on Jan. 27. Sullivan estimated that office conversions under the proposed approach could produce roughly 500 housing units.
Commissioners pressed staff on district‑level variation and implementation details. Commissioner Casey asked why modeled podium costs appeared lower in West San José; staff replied that modeling draws on representative project assumptions and that differences in land‑acquisition costs, local fee structures (for example, park fees) and prevailing local rents change results by subarea. Commissioners also asked whether fee revenue collected in one district is kept nearby; staff said park fees and many development fees have statutory proximity constraints and are generally spent in or near the area where they are collected, with program‑specific rules determining final allocation.
Sullivan encouraged commissioners to review the full report and supporting slide deck, which staff said is posted on the housing department website and includes JLL’s underlying slides and the model equations. He closed by noting that many of the city’s levers are limited and that further work will continue through the four‑year general plan review and the upcoming council presentation.
The commission recessed for 10 minutes at about 6:45 p.m. before the regular agenda; staff invited follow‑up questions by email and flagged January 27 as the next formal council presentation date for incentives and conversion proposals.
