San Jose Aims to Expand Multifamily Incentive Program

San Jose is looking to up its multifamily housing supply using its recently implemented tax and fee incentive program.

The measure, approved by the city in December, has allowed more developments to begin construction, the Mercury News reported. It came as the city saw a decline in multifamily development last year due to high interest rates and construction costs.

The program waives in-lieu fees and 50 percent of construction taxes for the first 1,500 units built in areas designated for growth. Projects that submitted applications by June 2022 and receive a building permit by the end of this year are eligible for the breaks.

In addition to the financial incentives for projects that get their permits this year, the program offers a 25 percent reduction in taxes for up to 8,539 of the eligible units starting next year.

The incentives have proven so useful and popular with developers that the city plans to expand the number of eligible units to 1,800. Several hundred have already broken ground thanks to the program.

Hanover Company’s 345-unit mixed-use multifamily at 905 North Capitol Avenue was the first to take advantage of the program. The developer said it wouldn’t have been able to proceed if it hadn’t received $4.9 million in reductions, per the Mercury News.

On May 13, the San Jose City Council also approved nearly $4.1 million in fee and tax waivers for Urban Catalyst’s The Aquino, an eight-story, 278-unit complex at 498 West San Carlos Street. Mike Walsh, the developer’s project director, told the city it plans to break ground in 75 to 90 days.

Federal Realty Investment Trust’s Santana Row Lot 12 development at 358 Hatton Street is also eligible for the incentives. The proposed 258-unit project could move forward within 60 days, according to Federal Realty senior vice president Patrick McMahon.

“This program is the difference between the drawings sitting on a shelf in our office for the foreseeable future and moving forward this summer,” McMahon told the Mercury News.

The boom in housing development should hopefully make up for lost time after many projects were put on hold in recent years due to unmanageable costs. San Jose’s Regional Housing Needs Allocation calls for 62,200 new units by 2031, or an average of 7,775 new units each year.

“It’s really exciting to see these projects really come forward [and] that was the intent of the incentives we provided,” Vice Mayor Pam Foley said. “We have provided incentives before and nothing happened, but this incentive seems to have really triggered some movement in the development world.”

— Chris Malone Méndez