Report on the
Cost of Residential Development
City Council Study Session
November 1, 2022
Jerad Ferguson, Housing Catalyst, Office of Economic Development and Cultural Affairs Nanci Klein, Director, Office of Economic Development and Cultural Affairs Jacky Morales-Ferrand, Director, Housing Department
Rachel VanderVeen, Deputy Director, Housing Department
Chris Burton, Director, Department of Planning, Building and Code Enforcement Rosalynn Hughey, Deputy City Manager
Background
2 2018
• First Cost of Development Report
• Council Study Session
• Housing Crisis Work Plan Adopted
2019
• Second Cost of Development Report
• First Cost of Affordable Analysis
2022
2020
• Planned update to Report
• Delayed due to COVID-19 pandemic
• Third Cost of Development
Report
Why?
Important tool to understand
barriers to new housing
construction
Factors within City control
• Impact Fees
• Taxes
• Permitting
Factors outside City control
• Cost of Construction
• Interest Rates
• Supply Chain
Regular Updates
• Inform policy decisions
• Understand trends
4 Rental Conceptual Prototypes
Low-rise Mid-rise High-rise
7 stories
Density: 90 DU/AC
Avg. Unit Size: 900 sf.
Parking Ratio: 1.0
Submarkets: Central,
West, North
22 stories
Density: 350 DU/AC
Avg. Unit Size: 900 sf.
Parking Ratio: 0.8
Submarkets: Downtown,
Central, West, North
5 stories
Density: 65 DU/AC
Avg. Unit Size: 900 sf.
Parking Ratio: 1.0
Submarkets:
Central, South & East
5 Residual Land Value
Hard
Costs
Soft Costs
Profit
Residual
Land Value
Total Cost to Build
Feasibility Study Results – Residual Land Values Per Unit 6 Rental Prototypes /
Location
Low-Rise
(5 stories)
Mid-Rise
(7 stories)
High-Rise
(22 stories)
Central ($270,000) ($350,000) ($510,000)
West ($230,000) ($390,000)
Downtown ($440,000)
North ($320,000) ($490,000)
South and East ($272,000)
For Sale Prototypes /
Location
Low-Rise
(5 stories)
High-Rise
(22 stories)
South and East ($410,000)
Central and West ($320,000)
Downtown ($520,000)
• No prototype was shown
to be feasible
• All values negative
• Extremely challenging
market conditions for
multi-family housing
7 San José Overview
2020
The Taft
(477 S. Market St.) 130 units
Sparta505
(505 E. Santa Clara St.) 77 units
2021 Winchester Ranch
(585 S. Winchester Blvd.) 366 units
2022 Bascom Station
(1350 S. Bascom Ave.) 590 units
1,163 units
8 San José Overview
1187 1155
2167
2389
1097
207
366
590
0 500
1000
1500
2000
2500
2015 2016 2017 2018 2019 2020 2021 2022
Market-Rate Multifamily Development 50+ Units | 2015-2022 Units Obtaining Building Permits
Cost of Construction
9 • Cost of construction most
significant barrier to
housing
• 17% increase in Bay Area
since start of pandemic to
Q2 2022
$557,000
$580,900
$779,000
$400,000
$450,000
$500,000
$550,000
$600,000
$650,000
$700,000
$750,000
$800,000
2018 2019 2022
7-STORY MID -RISE
COST PER UNIT IN WEST SAN JOSÉ
10 Rent Growth
11 City Impact Fees and Construction Taxes
City Impact Fees and Taxes
(rental)
Range Per Unit
Construction taxes $6,400 - $6,800
Parkland in lieu fees $11,000 - $20,800
Inclusionary housing in lieu fees $21,000 - $49,600
Total city impact fees and taxes $37,200 - $72,000
% of total unit costs 5.5% - 10.2%
Cost of Affordable Analysis
12 • Compared 15 San José developments to 27 developments in other cities in California.
• Average costs 15% higher – Special Needs (e.g., PSH) 24% higher on average.
San José
Projects
Other City
Projects
All
Projects
San José
Cost
Difference
All
Projects $615,100 $535,100 $561,400 15%
Special
Needs $700,100 $564,900 $612,000 24%
Non-
Targeted $609,900 $574,200 $586,500 6%
General Trends
13 Deeper
Affordability Levels
40% of the homes
affordable to
extremely low-income
households
Increase Cost of
Financing
High inflation; time to
secure between five
and six funding
sources
Escalation of
Construction Costs
Costs increased by
6% annually over the
past two years
San José vs Other Cities – Affordable Housing
Lower Federal Equity Pricing
Higher Direct Construction Costs
Deeper Levels of Affordability
Higher Impact Fees
Higher Direct Construction Costs
14 Next Steps and Strategies to Mitigate Cost of Development 15 Housing Element Strategies
• City Ministerial Infill Approval Ordinance
• CEQA Analysis for Urban Villages
November 15 Council Meeting
• Housing Crisis Work Plan Update
• Downtown Residential High-Rise
Program
Future Actions
• Construction Tax Reduction for Affordable
Housing – early 2023
• Development Fee Framework – fall 2023
Report on the
Cost of Residential Development
City Council Study Session
November 1, 2022
Jerad Ferguson, Housing Catalyst, Office of Economic Development and Cultural Affairs Nanci Klein, Director, Office of Economic Development and Cultural Affairs Jacky Morales-Ferrand, Director, Housing Department
Rachel VanderVeen, Deputy Director, Housing Department
Chris Burton, Director, Department of Planning, Building and Code Enforcement Rosalynn Hughey, Deputy City Manager