The cost of building affordable housing in San José
High construction costs in San José, among the highest in the state, jeopardize the supply of a crucial source of funding for affordable housing: state tax credits.
“Each year these programs change their funding needs,” Michael Lane, director of state policy at the Planning Think Tank. SPUR, said San José Spotlight. “It takes several years to set up one of these projects, and if they change the rules, it makes it very difficult. “
According to Lane, the state gives fewer tax credits to Bay Area projects because of the high cost of construction compared to other areas of the state.
“They’ll say, ‘We can build for $ 400,000 a unit in Stockton, versus $ 600,000 a unit in San Jose, so we’re going to build in Stockton,” Lane said. “But then the workers return to Stockton from San Jose.”
When Park Avenue Senior Apartments were built last year, including 99 affordable units and a management unit, there was a lot to celebrate.
But the development cost $ 59,845,787 to build, which works out to $ 604,502 for each affordable unit.
According to Lane, affordable housing projects like Park Avenue are funded by a “capital stack” using four to seven sources of funding. Federal and state tax credits are given to developers in exchange for building affordable housing. The developers then sell these credits to investors who use them to reduce the tax burden.
the California State Treasurer’s Office recommended $ 6.3 million in tax credits to fund Park Avenue senior apartments, more than 10% of the total cost of the project.
Affordable housing projects also use county and city funds. Santa Clara County Measure A, passed in 2016, is used to buy or build land for affordable housing. San José’s Measure E, passed in 2020, uses an increase in property transfer taxes to raise around $ 50 million per year for affordable housing.
The developers are also seeking private loans from banks and other investors, Lane said, which help cover construction, often the most fluid and expensive of costs due to the fluctuating prices of materials such as lumber and wood. concrete.
Jeff Scott, spokesperson for the San Jose Housing Department, said the city is struggling to get enough tax credits to fund affordable housing needs. Santa Clara County aims to build 4,800 affordable homes by 2026, while San Jose plans to build 10,000 affordable homes by 2022.
The majority of construction costs come from construction, which totaled approximately $ 33 million for Park Avenue Senior Apartments, or 56% of the cost. Construction costs are high for all types of housing in the Bay Area, with 71% of those costs coming from materials, equipment and wages.
Acquiring land is also costly, amounting to approximately $ 7 million for the Park Avenue Senior Apartments. The land is sold for $ 10 million an acre around the Diridon station near the apartment complex.
Scott said building and acquiring land is among the highest costs of building affordable housing in the city. But new technologies and new frameworks could speed up construction and lower the price of construction.
“Providing modular units and adapting the industry to financing modular construction are both work in progress,” he said. “Mass timber is also a promising technology that the building code now supports. “
Scott said about 45% of San Jose residents are considered low income and eligible for a housing tax credit, but only about a quarter of the city’s housing stock is affordable apartments in limited rent.
“We need a lot more supply than we have,” he said.
Overall, preserving rather than building new affordable housing is a more cost-effective method of increasing supply. The cost of acquiring and rehabilitating a home to preserve as affordable ranges from $ 275,000 to $ 480,000 per unit, according to San Jose’s Affordable Housing Implementation Plan for the Diridon district.
“Preserving affordable housing can be as little as half the cost of new units,” said Sandy Perry, president of the Santa Clara County Affordable Housing Network. “It’s a very good investment from this point of view.
Perry said that rehabilitating existing housing through community land trusts, such as the South Bay Community Land Trust, can also keep them affordable at all times. Land trusts can target residents with incomes below the low income limits set by the county.
“The median income in Santa Clara County is growing much faster than people’s fixed income and wages,” Perry said. “Even affordable housing becomes unaffordable over time. “
The median household income in Santa Clara County is $ 126,606, according to United States data. An individual resident would have to earn $ 58,000 or less to qualify for a low-income apartment, according to the Santa Clara County Housing Authority.
The South Bay Community Land Trust is working on acquiring its first property this year. Perry said it was a promising model, especially given the $ 5 million San Jose has allocated to preserving affordable housing.
“They have the funding, we just have to convince them that we can use it,” Perry said. “It’s an idea whose time has come.
Contact Sonya Herrera at [email protected] or follow @SMHsoftware on Twitter.