Willow Glen Resident

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Program gives city new options for building affordable housing

By Eli Segall

San Jose is in the midst of a building bonanza, with new houses, condominiums and high-rises going up at a rapid rate.

Affordable housing, however, is lagging.

In the past few years, contributions from the city toward affordable housing projects have plummeted, and as a result, local builders have been scared off. The lack of funds has also stalled projects already in the pipeline. When funds were available, the money was often wrapped so tight in red tape that builders still could not access it, according to a recent report by the San Jose Department of Housing.

Affordable housing also took a hit from the city's high-rise residential incentive program, effective between August 2004 and June 2006. Under the program, certain downtown residential buildings were exempted from San Jose's Inclusionary Housing Policy, which requires that at least 50 percent of the units be earmarked below market value and that financial assistance be offered to potential buyers.

"When we first started, there were 15 affordable-housing developers in San Jose. Now there's three," said Ronald Morgan, executive director of Community Housing Developers, a San Jose-based affordable housing builder founded in 1979. "The rest either went out of business or moved out of town."

One reason for the lack of city investment is a lack of city funds. The San Jose Department of Housing has seen available investment funds drop by $8 million during the last five years, said Leslye Krutko, the city's housing director. With fewer developers around and less money to spend, development proposals have slowed to a trickle.

To attract more builders who specialize in the affordable housing market, the San Jose City Council on Dec. 12 approved a new land acquisition loan program for affordable housing projects.

Under the existing loan policy, city funds were doled out only after developers had secured rezoning approval and a commitment from every funding source, which takes about a year to complete. The new policy will shorten that process.

The city can provide loans equal to half of the land acquisition price before other resources are committed.

Krutko said the prior policy was too restrictive. The amended policy makes it easier to obtain funding.

The housing department worked with Silicon Valley developers to craft the program.

"Cities are often hesitant about doing acquisition loans; if something happens and the project isn't built, their money sits idly," said Chris Block, executive director of San Jose-based Charities Housing, one of the groups that worked on the deal.

"This loan program will enable us to say, 'Hey, we can perform.' "

Over the past few years, various nonprofit groups have stepped in to fill the financing gap left by the city. In 2002 Lenders for Community Development provided $400,000 in loans for an East San Jose affordable housing project; the Sobrato Affordable Housing Fund has set aside a $10 million interest-free loan account for groups that need it; and the Lucile Packard Foundation has also worked extensively toward reconciling the affordable housing shortage.

Affordable-housing units are marked by lower monthly rents and controlled rent increases. Monthly rent is calculated by cutting the city's median income household level down by 30 to 50 percent, and then dividing that number by 12, Krutko said.

Block said rents at market rates can increase annually by 10 percent, whereas increases for affordable housing units are significantly lower at 2 percent to 3 percent.

"Thank you for thinking outside the box on this," said City Councilwoman Nora Campos said to Krutko.