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Photograph by Felipe Buitrago
Cost Crunch: Sam Liccardo in front of the Delmas Park affordable housing project on West San Carlos in San Jose. Liccardo wants the city to develop a citywide policy that will deliver the affordable units San Jose is expected to need in the coming years.

Twilight Zoning

Toughening rules to produce more affordable housing would either bring the housing apocalypse or a homebuyer's paradise—depending on who you ask, and where they got their study

By Erin Sherbert

IT JUST never seemed to be a good time to talk about affordable housing in San Jose.

The city has tried to deliver tougher policies that would require developers to build more low-income units. But those proposals have always failed, thwarted by developer pressure, hard economic times or just lack of political will.

The end result is that San Jose is one of the last cities in Santa Clara County—and the entire Bay Area—to establish zoning policies that mandate affordable housing citywide, known as "inclusionary zones." Instead, the city's current policy only requires developers to allocate affordable units in redevelopment areas.

Even so, San Jose has outpaced every other California city when it comes to affordable housing—pumping out 16,500 affordable units since 1988, primarily targeting the city's low-income residents. So why would San Jose need stronger regulations?

City officials who are seriously rethinking the current policy say it's because the city is confronting a mounting demand for more affordable housing, particularly for extremely low-income residents, including senior citizens, janitors, service workers and the homeless.

Silicon Valley has managed to hold its spot as one of the least affordable places to live, with median home prices hovering around $750,000, according to the Silicon Valley Leadership Group. Only 14.9 percent of homes are affordable to families and individuals earning the median income, according to the Housing Opportunity Index.

Without more aggressive policies in place to help guide San Jose toward affordability, the city will have some trouble hitting its bold target to build as many as 2,500 below-market-rate units each year over the next seven years.

There seems to be enough political will to bring the discussion back to the table. But can San Jose overcome the other obstacles that have previously stifled the affordable housing issue?

"I think definitely the same challenges exist," said Shiloh Ballard, director of housing and community development for the Silicon Valley Leadership Group. "We hope it has a fighting chance."

Zone Wars

Councilmember Sam Liccardo admits he made a politically precarious move when he signed off on a memo asking the council to consider a citywide affordable housing policy.

He knew he what he was up against: a bad housing market and resistance from unhappy housing developers who are also reliable donors during election time.

But Liccardo put politics on the back burner and took a chance on making San Jose a little more affordable. Some of his colleagues seem convinced it's a good idea—Councilmember Judy Chirco joined Liccardo in bringing the issue to the City Council.

Among the trouble spots Liccardo points to is North San Jose, where there are plans to build about 3,000 housing units on the site of the San Jose Flea Market. But there's nothing on the books that will force developers to allocate a portion of those units as below-market-rate housing.

"What I hear from the lobby groups that represent the developers is that this will invite Armageddon for housing development," Liccardo said. "Obviously, there is a point at which it's too much. I don't believe inclusionary mandates put us anywhere near that point."

That's where the debate begins.

Housing advocates say that inclusionary zoning is a sure way to produce affordable housing. On the other hand, the Home Builders Association, which represents home builders across the Bay Area, argues that there's a flipside to inclusionary zoning—it drives up housing prices. When developers are strapped with affordable housing mandates, they pass on that cost, making the market-rate housing all that more expensive.

In other words, a $500,000 home can easily cost $700,000 if the developer is forced to allocate a percentage of his housing development as below-market-rate, says Beverley Bryant, executive director of the Home Builders Association Southern Division.

"It's perpetuating the problem, ironically," Bryant said. "One thing I hope the city doesn't want to do is deter builders from coming to San Jose to build any kind of housing, because that could happen very seriously if we had citywide inclusionary zoning."

The Home Builders Association, along with San Jose's Chamber of Commerce, hopes to convince the City Council that inclusionary zoning is not the solution when it's taken up at a Dec. 11 study session.

Instead, they say, the council should adopt incentives that will entice homebuilders to construct more low-income housing the same way cities have incentives for developers to build green.

Some ideas include giving builders more design flexibility—let them build higher and denser units—or even give building credits to developers who construct affordable units. San Jose could fast track projects that include below-market-rate housing, Bryant said.

"It gets to the point where builders say 'I cannot build in this particular city because the cost is so high it's not going to make it profitable for me,'" Bryant said.

Sparring Data

It really depends on which study you read. There's sparring data from all sides of the issue that seems to further cloud the inclusionary zoning debate.

Most recently, a November study released by the Independent Institute, a nonpartisan think tank, concluded that inclusionary zoning, which was first implemented in Palo Alto in the early 1970s, is directly linked to higher housing prices.

The study looked at more than 400 cities between 1990 and 2000. Housing prices increased by 20 percent and housing production declined by 10 percent in cities with inclusionary zoning in place, according to the study.

"It's really a price control," said Edward Stringham, associate professor of economics at San Jose State University, who co-authored the study. "Price controls discourage production of housing, and when we see less housing being built and we have less housing options, that leads to higher prices."

But housing advocates say those studies are flawed. Other organizations have data confirming just the opposite: communities with inclusionary zoning actually produce a greater number of affordable units.

Roughly 32 percent of California cities have implemented inclusionary zoning. Those policies have helped communities generate about 30,000 new below-market-rate housing between 1999 and 2006. That's also provided housing to as many as 80,000 residents across the state, according to the Non-Profit Housing Association of Northern California.

"There is no credible evidence that inclusionary housing programs actually lead to a decrease in the production of affordable homes," said Paul Peninger, policy director and research director of the Non-Profit Housing Association. "The truth is that as more and better programs are being adopted across the state, literally tens of thousands of new affordable homes are being provided for working families."

All along, studies have shown that San Jose should consider a citywide inclusionary zoning policy, city leaders say. Yet, the city has opted to rely solely on its flush redevelopment funds to build low-income units throughout the city, in part to avoid placing impediments on the building community.

Meanwhile, high housing prices across the Bay Area continue to make it harder for residents to live where they work, to the point where it's taking a toll on business. The Silicon Valley Leadership Group recently conducted a survey of business leaders who say their No. 1 impediment to expanding business in Silicon Valley is the lack of affordable housing for their employees.

"We are not meeting the need, clearly," Ballard said. "If they cant recruit people and retain them to work in Silicon Valley due to high housing costs, that is bad for the overall community."

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