San Jose leaders have approved more than $10 million in combined construction tax and fee waivers for two new housing projects as the city continues to leverage incentives to counter the challenging economic conditions that are hindering development.
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The Hanover Co., SummerHill Homes and The Pacific Cos. ’s Coyote Creek Urban Village project at 0 Seely Avenue and Federal Realty’s proposed development at 358 Hatton St. are the latest projects to receive financial perks.
“I don’t think I could overstate the efficacy, the impactfulness of the (multifamily housing incentive) program,” Federal Realty senior vice president Patrick McMahon said. “We’ve been working on this project – 258 units on Hatton Street at Santana Row – for a very long time. This package of economic incentives is the tool, is the lever that will enable this project to move forward now, versus continuing to remain on hold for the indefinite future.”
While the state has mandated that San Jose plan for 62,200 new housing units by 2031, the city has failed to keep pace, seeing less than 2,700 permits pulled last year, continuing the trend of housing production falling short of demand.
In the past few years, the city had averaged only about one new construction start for market-rate multifamily developments.
Although elected officials had approved extending the city’s downtown high-rise program, which also reduced fees for projects, they had asked staff to explore other alternatives to unblock the development pipeline, leading to the City Council’s approval of the multifamily incentive program in December.
City officials acknowledged that the program was not meant to be a silver bullet but rather a tool to get more shovels in the ground, noting that the city had received plans for dozens of projects that stalled due to market conditions.
While the first phase of the program offered a 50% reduction in taxes and fees, the second phase will apply a 25% reduction in taxes for up to 8,539 units of eligible projects starting in 2026.
At the time, city officials had identified at least 35 projects that could be eligible for the incentives.
Initially, the incentive program offered a 50% waiver for the first 1,500 units of projects that received building permits by the end of this year, but city officials voted last month to expand the unit count to 1,800 due to more developers looking to take advantage of its perks.
As part of the incentives approved Tuesday, the Coyote Creek project will see a reduction of more than $6 million, while Federal Realty’s development will save nearly $4.5 million.
The program is expected to result in the construction of 1,278 units, including 64 units designated as affordable.
The Hanover Co.’s 345-unit development at 905 N. Capitol Ave. was the first project to take advantage of the program, saving it $4.9 million. The Aquino, an eight-story, 278-unit apartment building developed by Urban Catalyst at 498 W. San Carlos St., also will save $4.07 million in taxes and fees.
The economic incentives will have an immediate impact on Federal Realty’s project, which has been in the works for several years.
McMahon said that the company intends to obtain building permits in the upcoming weeks and break ground on the project in the summer, reinforcing to city officials the importance of right-sizing fees and adapting to the market.
“We can’t collect fees on projects that don’t pencil — and if we’re serious about addressing the housing crisis, building homes must come first,” San Jose Mayor Matt Mahan said in a statement. “We are moving beyond the rhetoric of saying ‘housing is a priority’ to actually delivering results for our residents by creating the conditions that drive housing production.”
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