HOUSING DEPARTMENT
January 27, 2026
City Council Meeting
Item: 8.2
Erik L. Soliván
Director
Downtown Residential
Incentive Program
Item 8.2
Slide 21/27/2026
Slide 31/27/2026
Community Engagement
Presented and discussed the Inclusionary Housing Ordinance and announced the Multifamily Housing and Downtown Office-To-Residential [OTR] Conversion Incentive Programs on the following dates:
• At virtual community meetings on October 9 and December 10, 2026 • An in-person meeting on January 14, 2026
• Additional virtual community meetings on January 8 and January 22, 2026 • Recordings of the virtual community meetings were published on the City’s website • Recommendation memorandum was posted on the City’s Council Agenda website for the January 27, 2026, City Council meeting
Slide 4
Current Downtown incentive program
1/27/2026
Purpose: Stimulate high-rise new construction residential development in Downtown San José to complement job growth, catalyze transit use, support retail, and create a vibrant city center.
Eligibility Requirements:
• Located in Downtown Planned Growth Area
• 10+ floors/stories (excluding nonresidential uses)
• Highest occupied floor at least 150 feet above
street level
• Must pass first inspection within 12 months of
obtaining building permit
Phase I: Up to 1,000 units
• Inclusionary Housing Fee: $0
• Construction Taxes: 100% Waived
• Parkland In-Lieu Fee: 50% Reduced
Phase II: Up to 3,078 units
• Inclusionary Housing Fee: $0
• Construction Taxes: 50% Waived
• Parkland In-Lieu Fee: 30% Reduced
The Problem:
• New tower residential construction is facing significant headwinds, as noted in the Cost of Residential Development Study in December 2025
• Downtown has significant office vacancy post-COVID, and the costs for Type I and Type II podium builds are not financially feasible without substantial subsidies • Comparable cities are successfully creatingnew housing through Office-To-Residential [OTR] conversion programs increasing market competition
The Opportunity:
• Up to 500 units are immediately convertible based on developer interest [with the majority at affordable rental rates].
• Tap existing unit allocations from the current Downtown Residential Highrise program • 1,500+ total units possible based on the current office space vacancy level Slide 51/27/2026
Downtown Residential Development
Slide 61/27/2026
Office-To-Residential [OTR] Conversion Incentive Program
OTR ADV ANTAGES
1. 30% cheaper than new construction
2. Up to 18 months faster to market
3. Primary structure and building
systems retained
MARKET OPPORTUNITY
1. Office values at historic lows
2. Higher financing rates call for shorter
loan terms
3. Remote work patterns are settling
POLICY IMPACTS
1. Expanding middle-income housing units at affordable rents in downtown,
2. Gaining annual tax revenue and downtown activation
3. Demonstrating strong policy leadership for fostering abundant housing stock
4. Aligning land use policy and capital markets to catalyze financially feasible projects Slide 71/27/2026
The Goal: Catalyze residential construction in downtown San José Benefit Phase I Phase II
IHO In-Lieu Fee $0 per sq. ft. $0 per sq. ft.
Construction Taxes 100% Waiver (First 1,000 units) 50% Waiver Parkland Impact Fee 50% Waiver (First 1,000 units) 30% Waiver Program Benefits
OTR Incentive Program
Slide 81/27/2026
Phase 1 - First 500 units
(Maximum Incentive)
• Construction taxes: 100% waived
• Inclusionary housing fees: $0 and 0% of
deed-restricted units
• Park Fees: 50% reduction
Phase 2 - Next 1,000 units
(Sustained Support)
• Construction taxes: 50% reduction
• Inclusionary housing fees: $0 and 0% of
deed-restricted units
• Park Fees: 30% reduction
Eligibility Requirements
• Permit Deadline: Pull Building Permit by December 2026 • Location: Downtown
• Project Size: Minimum 20 units created through conversion Proposed OTR Incentive Program
Slide 91/27/2026
• Market-rate housing is serving
the middle-income bracket of
households
• Rent for underwritten projects
fall on the affordability scale
Underwritten Projects AMI Band
Underwritten OTR Incentive Program Projects
AMI Level 4 Person
80% $159,550
100% $195,200
110% $214,720
Area Median Income Thresholds
Slide 101/27/2026
OTR Incentive Program – Projected Subsidy
Incentive Type Amount
IHO In-Lieu Fee $8.82 million
Parkland Impact In-Lieu Fee $5.32 million
Building and Structure Tax $0.89 million
Commercial Residential Mobile Home Park Tax $1.40 million Total $16.43 million
Per unit $26,890 per unit
$16.43 million in development
subsidies through fee reductions
will:
• Promote construction of 611
middle-income housing units
(at or below 110% AMI)
• Include 0 deed-restricted units
• Improve property tax values
and stimulate economic
activity in the Downtown area