Through the approval of the Department of Housing's Fiscal Year 2002/03 - 2006/07 Five-Year Housing Investment Plan adopted by City Council on October 15, 2002, the City established several affordable housing policies.

Acquisition/Rehabilitation Policies

The City encourages the acquisition and rehabilitation of existing market-rate housing to provide new affordable housing opportunities and preserve housing at risk of being lost to the affordable housing stock. In considering whether to finance the acquisition/rehabilitation of an existing rental complex, City policy requires that at least one of the following criteria is met:

1. Neighborhood Improvement: The existing housing development causes serious “blight” to the surrounding neighborhood, and the rehabilitation of the project would make a significant contribution to revitalizing the neighborhood;
2. Preservation Project: The apartment complex is affordable, but has affordability restrictions that are expiring, resulting in the units’ rents increasing to market rate; or
3. Economic Benefit: When it is financially advantageous for the City, such as if the amount of gap financing being requested is extremely low or the needed per-unit subsidy is very low.
4. Extremely Low Income Units: A project that includes a minimum of 10% ELI units and involves a reasonable cost to the City in order to help meet the City’s affordable housing goals.

Council Adoption 1988, Amended in 2007

Assistance to Teachers

The City has made the recruitment and retention of a quality teacher workforce a very high priority. In focus groups conducted during the discovery phases of the City’s teacher housing assistance program, teachers conveyed their desire to live near the schools in which they teach. However, due to the high cost of housing in San José, many local public school teachers found the purchase of their first home, especially the ability to gather a down payment, out of reach. This lack of purchasing power has proven to be a significant impediment to recruiting and retaining qualified teachers in San José. Due to the high cost of housing in San José, many local public school teachers find the purchase of their first home out of reach, making it difficult to recruit and retain qualified teachers in San José public schools.

In 1999, the City created the Teacher Housing Program (THP), which provides deferred-payment second mortgage loans to help public school teachers purchase their first home. Although the City primarily assists teachers with first-time homebuyer’s assistance, it has also provided financing for rental developments targeted to teachers.

San José State University (SJSU) has also found it difficult to recruit and retain faculty and staff. In January 2006, the City approved a pilot Homeownership Program for SJSU tenure track faculty. This program, funded by SJSU and the City, is modeled after the THP and provides downpayment assistance of up to $65,000. In 2007, the City amended the Faculty Homebuyer Program to allow for other SJSU education professionals to quality for assistance.

In 2007, the City worked with the San José Educational Foundation to create the Teach Here, Live Here (THLH) program that provides move in assistance to new teachers renting homes in San Jose.

Council Adoption March 1999, Amended in 2006 and 2007

Community Facilities

In its Notice of Funding Availability (NOFA), the City requires that all of the projects it funds incorporate high-quality design and amenities. The amenities provided within a development may include recreation space, such as open space, play areas, or swimming pools, health care facilities, or commercial space. In addition to on-site amenities, when scoring funding applications, the City provides points based on a project’s proximity to support services and facilities, such as public transit, parks, recreational facilities, community centers, and shopping.

Council Adoption 1988

Construction Tax Waivers and Parkland Dedication Ordinance Vouchers for Affordable Housing Developments

In 1992, the City Council adopted an ordinance that suspended construction taxes from newly-constructed, very low-income units through June 30, 2006. The exempted taxes included the Building and Structures Construction Tax, the Construction Portion of the Construction and Conveyance Tax, the Commercial-Residential Mobilehome Park Building Tax (CRMP), and the Residential Construction Tax. In April 2006, the City Council voted to extend the tax suspension through June 30, 2011.

Prior to 1998, housing with occupancy restricted to lower-income households was exempt from paying Park Dedication Ordinance (PDO) and Park Impact Ordinance (PIO) fees. In 1998, in order to ensure that the park and recreation needs of lower-income residents were met, the City suspended the exemption of new units affordable to low- and very-low income households from PDO and PIO fees. However, in lieu of paying the fees, developers of affordable housing could obtain vouchers from the San José Redevelopment Agency (SJRA), thereby providing funds for parkland development without impacting affordable housing developments. On January 1, 2006, the Low-Income Voucher Program associated with PIO and PDO ended, and the exemption for such units was reinstated.

Construction Taxes - Council Adoption 1992 and reaffirmed in 2006; PDO Vouchers - August 1998 and amended in 2006

Cost Containment

In order to contain per-unit rehabilitation costs, the City adopted a policy to target at least 80 percent of the Rehabilitation Program’s funding to projects costing less than $55,000. The remaining 20 percent of the program’s funds are to be targeted equally between projects that cost $55,000-$75,000, and those that cost in excess of $75,000.

Council Adoption January 1992

Definition of “Substantial Rehabilitation”

The City defines “substantial rehabilitation” as rehabilitation work that costs more than 25 percent of the median sales price of San Jose single-family homes. For example, if the median sales price of a single-family house is $700,000, rehabilitation is substantial if the cost of rehabilitation exceeds $175,000. Such loans are limited to those properties whose after-rehabilitation value is not more than 110 percent of the median sales price of single-family homes in San José. All substantial rehabilitation loans require an affordability restriction, for a minimum of 45 years for owner-occupied properties.

Council Adoption April 1993

Dispersion Policy

The City’s Dispersion Policy is a positive statement that encourages affordable housing development throughout San José to achieve socio-economic integration at the neighborhood level. The Dispersion Policy applies only to newly-constructed, City-financed housing that is affordable to extremely low-, very low-, and low-income households. The policy does not apply to moderate-income developments, projects involving rehabilitation, or the acquisition and rehabilitation of existing buildings. No area of the City should be arbitrarily precluded from consideration as a site for affordable housing.

Council Adoption November 1988, Amended August 1997

Equity Share Loans

California law allows local agencies administering 20% Redevelopment Funds to allow assisted for-sale units to be sold at market value if the agency has adopted a program to “protect the 20% Funds.” This is referred to as a “buy-out” provision because the borrower pays the Agency a fee, or “equity share,” in addition to the regular loan repayment requirements to remove the affordability restriction from the property. The additional fee the Agency receives compensates the agency for the loss of the affordable unit and can be reinvested to make another unit affordable to a low- or moderate-income household.

Prior to 1993, the City provided a number of buy-out options for persons who received loans for substantial rehabilitation, new construction, and first-time homebuyer assistance. In 1993, to ensure that the buy-out provision was standardized and easily understandable, the City Council adopted the equity share as the buy-out provision for all homeowner affordability restrictions. In 2004, the City revised the equity share buy-out provision for borrowers who have had substantial rehabilitation loans for longer than five years to ensure that they are not disadvantaged.

Council Adoption 1993, Amended 2004

Extremely Low-Income Initiative

In May of 2001, the City Council allocated $27.3 million of additional funding from the Redevelopment Agency to finance Extremely Low-Income (ELI) housing. These monies were to provide new housing developments with additional subsidies in order to make some of the units affordable to ELI households. Under this initiative, the 60 percent target for new affordable housing developments for lower-income households was to be reallocated to an even split (30-30% split) between extremely low-income and very low-income households. The Council adopted a one-year expenditure of funds for the extremely low-income initiative to be reviewed annually.

Council Adoption May 2001

For-Sale Housing

Although the City has historically focused its funding on multifamily rental housing, ownership housing also forms an important component of its affordable housing program. While San José’s median family income is high compared to other jurisdictions, so are the City’s housing prices, making it a challenge for even those residents earning the median income to buy a home without assistance. To help San José residents purchase their first home, the City has several programs:

1. Forward Commitments- The City works with developers to make a commitment, prior to the completion of a for-sale development, to provide second mortgages to its future residents.
2. State Funding- The City applies for State funding, through programs such as the Building Equity and Growth in Neighborhoods Program (BEGIN), to provide second mortgage assistance to first-time homebuyers purchasing units in newly-constructed developments.
3. Neighborhood Housing Services of Silicon Valley (NHSSV)- The City partners with NHSSV to serve first-time homebuyers with mortgage assistance, education, and counseling.
4. Teacher Homebuyer Program- The City administers the San José Teacher Homebuyer Program, which provides downpayment assistance to San José public school teachers.
5. San José State Faculty Homebuyer Program- The City partners with San José State University to provide second mortgage assistance to SJSU faculty and other University education professionals to enable them to purchase their first home.
6. Second-Mortgage Loan Commitment Program – In March 2008, City Council approved a Notice of Funding Availability (NOFA) for $10 million. The funds will be used in a second-mortgage loan commitment program. The program will provide homebuyer assistance to 166 or more low- and moderate-income households and will assist developers to successfully market for-sale housing units

Council Adoption 1988

General Plan Flexibility for Affordable Housing Developments

In order to encourage the production of housing units affordable to low- or moderate-income households, a density bonus may be provided under a Planned Development zoning. According to the City’s density bonus policy found in the General Plan, a density bonus for a residentially designated property is allowed for proposed housing projects of five units or more which will contain units affordable to households of very low-, low-, or moderate-income. The percentage of density bonus should not exceed the percentage of proposed units affordable to very low-, low- or moderate-income households except that a density bonus of 50% would be allowed for a project with at least 10% of its units affordable to households of very low income or 20% affordable for households of low income.

The City is currently in the process of developing a density bonus ordinance as required by State law. When completed, the ordinance will supplement the density bonus policy currently found in the General Plan. Where the ordinance and General Plan policy lead to different density bonuses, the greater bonus will apply.

Council Adoption 1984

Green Building

On March 6, 2007, the City adopted a revised Green Building Policy that requires that the City maximize opportunities to incorporate green building principles and practices into the planning, design, construction, management, renovation, operations and maintenance of all new and existing facilities that are constructed, owned, or managed by the City. In addition, the Policy requires that San José provide leadership and guidance to the private sector by encouraging green building practices in privately developed projects and by exploring incentives for private developers to incorporate Green Building Principles into their projects. In this effort, the Housing Department’s role is to encourage the inclusion of green building features in affordable housing developments, serve as a resource for training and education on green building principles, and maximize outreach opportunities with developers on the benefits of sustainable building and the certification process.

Council Adoption November 2001

Housing Preservation

In the late 1990s, the City became concerned about the number of affordable housing units at risk of converting to market rate due to expiring project-based Section 8 contracts or the potential prepayment of federally-insured mortgages. To address these concerns, the City Council approved a series of actions to foster the preservation of these affordable units.

Based on the availability of funds, the federal government renews some of the Section 8 contracts on a year-to-year basis. However, some of the projects require other types of assistance to maintain them as affordable, such as purchase by a nonprofit, or financial subsidies.

Council Adoption June 1998

Inclusionary Requirement in Redevelopment Project Areas

State law requires that a minimum of 15 percent of all new or substantially rehabilitated residential units developed within a Redevelopment Project Area must be affordable to lower- and moderate-income households. The City and Redevelopment Agency have adopted the following policies to implement the inclusionary housing policy:



1. Developers of for-sale housing may choose to either make at least 20 percent of the units affordable to moderate-income households or provide at least six percent of the units affordable to very low-income households and nine percent of the units affordable to low- and moderate-income households.
2. Developers of rental housing must make at least eight percent of the units affordable to very low-income households and 12 percent of the units affordable to low-income households, with rents in the latter units limited to 60% of AMI. If the stand-alone rental project is restricted at no higher than 25 percent extremely low -income and 75 percent very low-income without City subsidy, the overall affordable obligation is 15 percent of the total units built.

Although, the City Council has expressed support for incorporating the affordable units within the development in order to achieve socio-economic integration, the policy provides several alternatives that developers can select should they choose not to incorporate the units within the development:

1. Developers may pay fees to satisfy the requirement in-lieu of constructing the affordable units within private housing development. Fees are set annually and are adjusted by examining the cost to developers to include affordable units within developments.
2. Developers have the option of building a stand alone rental (100 percent affordable) project. The project must be adjacent to or within the same Redevelopment Project Area (with exceptions for small project areas) and can be used to satisfy an obligation requirement for one or more market rate development. The income mix of the project must be no higher than 40 percent very low-income/ 60 percent low-income (at 60 percent AMI).
3. The in-lieu fee for downtown high-rises is $8.50 per net square foot and can not exceed $13,000 per unit. The fee is fifty (50) percent less than the fees for rental and for-sale townhouses, single-family homes, and high rises not located in downtown. The fee reduction encourages development within the City’s downtown.
4. Developers may donate land for construction to meet the obligation.
5. Developers may pool or transfer credits for the affordable units built in stand alone projects.

Developers may use a combination of the above to meet the obligation.

Council Adoption September 2001, and Amended in 2001, 2002, 2004, 2006, and 2007

Income Allocation Policy

To ensure that the City’s housing programs focus on assisting residents with the greatest need, the City targets 85 percent of its funding to lower-income households (those earning 80 percent of the median area income or less) . A minimum of 60 percent must be targeted to very low-income households.

In 2007, the City Council changed the policy to target 30 percent of the City’s housing funding to extremely low-income units. In making ELI housing a priority, the Council approved a plan to: 1) partner with service providers to better target and provide needed services to ELI households; 2) integrate ELI units with various different types and income levels within projects; 3) seek leveraged funds to maximize the number of ELI units; and 4) maximize other, outside, funding resources in order to deepen affordability.

No more than 15 percent of the City’s affordable housing funding is targeted to moderate-income households (those earning between 81% and 120% of the area median income). Funds for moderate-income housing assisted by the City are used for ownership programs rather than for rental housing, because moderate-income rents are at or above market-rate rents, as is also the home sale prices.

The Housing Department has further strengthened and deepened affordability in its funded projects by requiring that developers provide, under the City’s Project Development NOFAs, at least 25% of units affordable to ELI households.



Council Adoption October 1995, amended 2007

Land Acquisition

The City has an aggressive program to identify and acquire suitable sites for affordable housing development. As part of this program, the City prioritizes the use of City surplus land for affordable housing purposes, as appropriate. In addition, the City pursues surplus land through other governmental or quasi-governmental agencies, such as the Valley Transit Authority and local school districts.

Council Adoption 1988

Leveraging

In 1988, in acknowledgement of the increasing need for affordable housing and the limited amount of funding available to finance construction, the City Council made it a priority to leverage City funds with other government and private sources. The City’s goal is to leverage a minimum of $2.5 for every dollar of City funds. Under the City’s most recent Notices of Funding Availability, to receive the maximum number of points, the project must have a leveraging ratio of $3 or more of outside funding for every $1 of City funds.

Council Adoption 1988

Mixed-Income Housing

The City’s policy is to encourage income integration at the project level, including market rate housing, within each housing project. The affordable units in these mixed-income developments should be indistinguishable in terms of design, construction, and amenities as the market-rate units.

On occasion, the City has worked with housing developers in structuring “80-20” and “60-40” deals, in which a portion of the units are market-rate and the remainder are affordable (for example, in 80-20 deals, 20% are affordable). These projects represent an important resource, and often do not require any City subsidy.

Council Adoption 1988

Mobilehome Rent Ordinance

In 1985, the City Council adopted a rent control ordinance specifically for mobilehomes. The Mobilehome Rent Ordinance applies to mobilehome lots that were issued plumbing, electrical, or sewer permits prior to September 7, 1979. The ordinance allows mobilehome park owners to increase rents between three and seven percent annually, based on 75 percent of the Consumer Price Index. Park owners must petition for a hearing if they want to increase rents above the maximum allowable amount.

Council Adoption 1985

Rehabilitation

The City’s Housing Rehabilitation Program provides loans, grants and technical assistance to help property owners repair and improve their primary home, or in some cases, their rental property. In 1995, the City codified the Program’s emphasis on the health and safety of residents by prioritizing health and safety repairs, while de-emphasizing expensive, non-mandatory repairs.

Several of the City’s Strong Neighbor-hood Initiative (SNI) areas identified housing rehabilitation as a priority. The City set a target of spending 75 percent of the Housing Rehabilitation Program’s funds (not including the monies used for mobilehomes) in SNI target neighborhoods.

Council Adoption 1995 {for 75% rule} and 2000 {for adoption of SNI}]

Rental Mediation and Arbitration Ordinance

On September 7, 1979, the City Council adopted an ordinance establishing the San José Advisory Commission on Rents and the Rental Dispute Mediation and Arbitration Process (referred to as the “Rental Commission”) and the Rental Dispute Mediation and Arbitration Hearing Process (referred to as the “Rental Dispute Hearing Process”). The ordinance restricts annual rent increases for apartment units in triplexes or larger built prior to September 7, 1979, to a maximum of 8 percent after twelve months and 21 percent if it had been longer then twenty-four months since the previous rent increase. The ordinance allows tenants to petition the Rental Dispute Program to contest rent increases beyond the allowable rates, service reductions, or violations of basic rights. On September 7, 1979, and amended in 2002 and 2003, the City Council adopted an ordinance establishing the San José Advisory Commission on Rents, the Rental Dispute Mediation and Arbitration Process, and the Rental Dispute Mediation and Arbitration Hearing Process. The ordinance restricts annual rent increases for apartment units in triplexes or larger built prior to September 7, 1979, to a maximum of eight percent after twelve months and 21 percent if it had been longer then 24 months since the previous rent increase. The ordinance allows tenants to petition the Rental Dispute Program to contest rent increases beyond the allowable rates, service reductions, or violations of basic rights.

The law regarding evictions for non-rent controlled units is largely set forth in State statutes. However, as of July 1, 2003, the City of San José implemented an additional requirement for landlords of non-rent controlled buildings with three or more units in the City of San José. This new requirement is in the San José Municipal Code, Part 7 of Section 17.23, known as the Rental Dispute Mediation and Arbitration Ordinance.

Council Adoption September 1979, Amended 2002 and 2003

Secondary Residential Unit Pilot Program

On November 14, 2005, the City Council approved an ordinance creating a temporary pilot program for secondary dwelling units. The one-year pilot, from January 1, 2006 through December 31, 2006, established parameters for the development of new secondary units in the R-1 Zoning Districts subject to permit approval and provided for issuance of a maximum of 100 such permits. Existing illegal secondary units (i.e., those secondary units that were built without permits) that meet the pilot parameters are eligible to become legal by obtaining the necessary permits, which would not count towards the 100-unit limit of the pilot.

Council Adoption November 2005 and extended December 2006

Targeting Larger Families with Housing Assistance

In 1988, the City Council supported the determination made by the Mayor’s Task Force on Housing that large families have a difficult time securing affordable housing that is large enough to accommodate their families. Because there are very few rental units with four or more bedrooms, many large families are forced to live in overcrowded conditions. The 2000 U.S. Census reported that 18 percent of all San José households lived in overcrowded conditions versus 15 percent of households in New York City, and 10 percent of households in Chicago.

In order to encourage developers to include larger units in their developments, City policy supports giving additional points in program NOFAs for projects that contain larger units.

Council Adoption 1988

Tax Allocation Bonds

In 1990, the City Council, adopted the “Expanded Affordable Housing Program,” which pledged future tax increment to secure bonds to finance the immediate development of affordable housing. Using this bonding strategy, the City can accelerate the development of critically-needed affordable housing.

Council Adoption June 1998

Ten-Percent Set-Aside in City-Financed Developments for Section 8 Recipients

As part of its efforts to address the problems of expiring Section 8 contracts, the City adopted a requirement in 1998 that all developers of affordable housing that is financed in whole or in part with City funds must set aside 10 percent of their units for Section 8 tenants. This requirement includes projects that received loan and grant commitments from the City, as well as those projects for which the City issued tax-exempt bonds. This requirement has been critical in times of high rents, when rental owners may not be as willing to rent to Section 8 tenants.

Council Adoption June 1998

Transit-Oriented Development: Housing Initiative and Housing Opportunity Study

In 1991, the City Council approved the Housing Initiative, which encourages the production of high-density housing along San José’s transit corridors. The Housing Opportunity Study (HOS) was a three-phase effort, initiated by the City in January 2000, to identify vacant or underutilized sites that are suitable for high-density residential or mixed residential/commercial developments. In order to promote the efficient use of land in close proximity to transit, the study primarily focused on the City’s six Transit-Oriented Development Corridors.

Council Adoption April 1991 and January 2000 respectively