HOUSING DEPARTMENT
ALTERNATIVE FINANCING MODELS
TO SPUR HOUSING PRODUCTION
September 1, 2026 Item 8.1
City Council
Erik L. Soliván
Housing Director
Authorization to “try new things”
Approve in
Concept Pilot Develop
Projects
Evaluate
Outcomes
Report
Back
City Council
Approval
9/1/2026 Slide 2
City Focus Area: Building More Homes
• City of San Jose’s Regional
Housing Needs Allocation
(RHNA) goal: 62,200
homes by 2031
• Identify and address market
and cost factors within the
City’s control that increase
project feasibility.
9/1/2026 Slide 3
Market Environment
• San José has extremely low housing vacancy rates across all housing types, and more housing supply is needed at all income levels, including housing restricted to households at or below 50% AMI.
• Currently, 81% of cost-burdened households at or below 50% AMI live in city-subsidized, rent-stabilized, or income-restricted housing units. (March 2026 Informational Memo)
• The average rental vacancy rate in San José has remained below the industry- ideal 5% threshold, with the Housing Department’s most recent quarterly market report identifying an 18-year low of 3.0%. (2026 Q2 Market Report) 9/1/2026 Slide 4
San José Production Progress (2023 - 25)
1530
1171
1763
1056
540
1027
474
631
736
0 200
400
600
800
1000
1200
1400
1600
1800
2000
2023 2024 2025
San José Multifamily Housing Production
Total Units Market Rate Units Affordable Units9/1/2026 Slide 5 Production Challenges: Market Feasibility
Project Feasibility / Infeasibility
Based on the Cost of Residential Development Study (December 2025) 9/1/2026 Slide 6
Production Challenge: Market Drivers
• Rising construction costs. Construction
materials cost approximately 55% more in
Q2 2026 than in Q1 2020.
• Interest rates somewhat stable, but
trending upwards. Higher interest rates
force developers to pay more to finance
projects, making it harder to earn a return.
90 110
130
150
170
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Q1 2025
Q2 2025
Q3 2025
Q4 2025
Q1 2026
Q2 2026
Construction Materials Prices
0.0 1.0
2.0 3.0
4.0 5.0
Ten-Year U.S. Treasury (%)
9/1/2026 Slide 7
Current Financing Tools
• Proactive tool providing loan funds for traditional affordable housing production. • Capital-intensive and requires extended development and financing timelines.Gap Financing • Tax-exempt bonds sync with Low Income Housing Tax Credits. • Supports public infrastructure beyond housing, subject to a cap on the City’s bonding capacity.
Private Activity Bond
• Proactive tool using a contractual commitment to a per-unit rent subsidy. • Leverages existing housing inventory. Master Lease Financing • Reactive tool functioning as a regulatory mechanism to add a rent affordability component to proposed market-rate housing development.
• Developers are provided multiple pathways to achieve compliance.
Inclusionary Housing
Ordinance
• Proactive tools to catalyze housing production.
• Provide tax and fee waivers to increase financial feasibility.
Production Incentive
Programs
9/1/2026 Slide 8
Pathway to Achieve Goal
9/1/2026 Slide 9
Need: New, Innovative Approaches
Four primary objectives:
1) Attract capital;
2) Link capital to Land;
3) Foster public-private partnerships; and
4) Produce housing units across AMI levels from 40% AMI up to market-rate 9/1/2026 Slide 10
Solution: Alternative Financing Models
Mixed Financing Models Outcomes
Gap Financing + Inclusionary Housing
Ordinance
Negotiates deeper affordability in
mixed income projects
Private Activity Bonds + Master Lease
Financing
Secures wider spread of mixed-income
housing
Production Incentives + Master Lease
Financing
Links production incentives to generate
more moderate-income units
Master Lease Financing + Inclusionary
Housing Ordinance Creates an incentive for developers to voluntarily increase affordable units
9/1/2026 Slide 11
Opportunity: Impact, Learn, Scale
Approve in Concept Test & Learn
Pilot Develop
Projects
Evaluate
Outcomes
Report Back
City Council,
Sept 1, 2026
City Council,
March 2027
9/1/2026 Slide 12