Here’s where San Jose may lose thousands of homes because of ‘builder’s remedy’

Experts say the issue of developers calling for less housing through builder’s remedy could end up in the courts

Investigations discovered that if developers in Northern California’s largest city proceed with a legal mechanism allowing them to scale back their projects, San Jose stands to lose more than 4,000 new housing units — an outcome that policymakers and housing experts say they never expected.

Angered by the move, city officials are considering how to respond to developer proposals to downsize a slew of residential projects under the “builder’s remedy” — a provision in state housing law that penalizes cities that fail to meet state-mandated housing goals while allowing property owners to push through projects of virtually any size.

High interest rates and exorbitant construction costs, developers argue, make high-density housing in San Jose financially unfeasible, and they are turning to townhome-style projects.

Eight of the 19 builder’s remedy applications submitted to San Jose’s planning department seek to produce housing at a density lower than what the zoning allows. If approved as is, the city would lose 4,177 new housing units, which has piqued the interest of state legislators.

Those familiar with state housing policy said this is the first time they’ve seen builder remedy applications requesting less housing rather than more.

Assemblymember Alex Lee, whose district includes San Jose and parts of the East Bay, said he “remains open” to feedback and a discussion about a legislative effort to prevent developers from downsizing projects through a builder’s remedy.

“We’re trying to usher in more pro-housing policies,” Lee explained in an interview. “Not more pro-profit policies.”

The largest reduction in housing would come from a development planned for the Berryessa Flea Market, which was originally slated for up to 3,450 units but is now being proposed at 940 units due to a builder’s remedy. The revision also calls for the reduction of millions of square feet of commercial space to just 45,000. Critics argue that the revised plan is especially harmful to the neighborhood because the flea market is right next to the neighborhood’s BART station, which could see a significant drop in ridership.

Other builder’s remedy applicants are submitting plans that would use a fraction of the development space currently zoned for the parcel. 150 River Oaks Parkway, located northwest of the flea market, is zoned for a maximum of 1,428 units. On a 5.7-acre property that is currently home to a tech office, developers are requesting 143 units.

The debate centers on how much leeway the city has in accepting or rejecting the builder’s remedy submissions because it has yet to receive state approval of its housing plan. The City Council approved the plan in June, but the state rejected it in August. The city’s proposal to the state calls for the construction of 62,200 homes by 2031, with half of them being affordable.

In their response to San Jose, state officials stated that they rejected the city’s proposal in part due to community members’ concerns about insufficient public input. Furthermore, the state stated that the city needs to be more specific about how certain sites will be realistically developed.

In addition to the builder’s remedy penalty, San Jose may lose money for affordable housing and transportation.

According to officials, the city will resubmit its plan to the state within the next week.

San Jose’s planning director, Chris Burton, said the city would handle each builder’s remedy application “on an individual basis.” He would not say definitively whether the city would ignore applications if the state approved its housing plan.

“The conditions of each application change and vary,” he explained. “We’ll have to consider what the general plan envisioned on the site, but at the same time, ensure that we’re staying within the regulatory framework of state law.”

If the city rejects the builder’s-remedy applications, UC Davis Law Professor Christopher Elmendorf, considered one of the preeminent experts on California land use policy, said the issue could spark lawsuits. Elmendorf believes that developers would win a lawsuit because of recent court decisions, which means that even if cities approve their own housing plans, they are meaningless without the state’s approval.

The study discovered that developers would lose hundreds of thousands of dollars per unit in every single test case of housing projects across the city. Building affordable housing has also become prohibitively expensive, with prices rising 24% in the last year, from $757,900 to $938,700.

The study also discovered that the city’s options for lowering developer costs are limited. Even if San Jose waived all fees associated with starting a housing project, the cost difference would be marginal.