San Jose Wants New Property Tax to Fund Affordable Housing

The city estimates the tax would generate about $54 million annually that would be used to help build more affordable housing units and provide services and programs for the city’s thousands of homeless residents.
by Maggie Angst, The Mercury News | November 15, 2019 AT 3:01 AM

(TNS) — With an overwhelming lack of affordable housing and homeless services in the region, San Jose is considering asking voters to support a new real estate tax on the most expensive properties in the city to address the crisis.

On Tuesday, the city council will weigh whether to ask residents on the March 2020 ballot to back a real property transfer tax — a tax paid by the buyer, seller or split between the two when a property is sold or ownership transfers, with some exceptions, such as for an inheritance. The measure would apply to the sales of properties worth $2 million or more, which would primarily consist of commercial and industrial properties and only about 5 percent of single-family homes, condominiums or townhouses.

If San Jose councilmembers decide to put the measure on the ballot and voters approve the additional tax of $4.99 per $1,000 of property value, the city would join a handful of Bay Area cities, such as San Francisco, Oakland and Berkeley, that have put into effect similar transfer taxes in recent years. The city estimates it would generate about $54 million annually that would be used to help build more affordable housing units and provide additional services and programs for the city’s thousands of homeless residents.

Michael Lane, deputy director of the housing advocacy nonprofit SV@Home, described the tax as a “progressive and targeted approach” that “invites corporations and the wealthy to be a part of the solution.”

Since the state ceased operation of the largest ongoing source of revenue for affordable housing in California — known as redevelopment agencies — in 2011, San Jose has struggled to obtain a local, continuous cash flow to fill the nearly $40 million annual gap.

“We’re behind the curb on this,” Lane said. “This source will finally allow us to match the funding we lost nearly a decade ago and create a robust pipeline to build affordable housing and address homelessness.”

This is the second time in as many years that voters will be asked to support a local funding model for affordable housing initiatives. In 2018, Measure V — a $450 million general obligation bond measure aimed at increasing the supply of affordable housing — failed by just two percent to obtain the two-thirds majority required.

The proposed real estate tax will only require a simple majority to pass. But unlike a bond measure, funds raised from the tax would be dumped into the city’s general fund and officials could not legally restrict the use of the money — providing little certainty that the money would actually go to affordable housing.

“There’s no accountability whatsoever,” said Councilmember Johnny Khamis, who plans to vote against the measure. “It doesn’t matter what we put on the ballot. None of the money has to go to any of these things — and often does not.”

Mayor Sam Liccardo, however, said that he will be working with the rest of the council to set up a “series of procedural bumpers in the bowling lanes” to ensure that any attempts to divert the money from homeless and housing initiatives would “face significant public scrutiny and procedural challenge.”

Those proposed “bumpers” would include multiple public hearings and require a two-thirds vote by council to authorize the use of the money as well as a new subfund within the general fund so that the public can keep track of the money earned and how it is used, Liccardo said.

“The opponents to any measure will give a thousand reasons why there’s some other better way, but the reality is that the cost of inaction is far too great amid this crisis,” Liccardo said.

City staff researched three options for raising additional funding for affordable housing and homelessness efforts — a property tax solely on commercial properties, a tax on vacant properties and a real estate transfer tax. In the end, they deemed that the transfer tax would be the most effective and lucrative option to get up and running quickly.

As the city’s homeless population continues to grow, the need for affordable housing is hard to ignore. Renters must earn $52 an hour — or $108,920 annually — to afford monthly rent for a two-bedroom apartment of $2,723, according to the city’s latest Housing Market Update. In the past two years, the city’s homeless population has spiked by 42 percent — from 4,350 in 2017 to 6,172 in 2019, according to the 2019 Santa Clara County point-in-time count. More than two-thirds of the homeless people surveyed cited their inability to afford rent as the primary reason they could not secure housing.

The Mayor and city council have set a goal of producing 10,000 new affordable apartments and 15,000 market-rate housing units by 2023. Yet the city is only on track to build about a third of the affordable apartments it hopes to.

“We know two things — we’re late to respond and it’s not enough,” said Jen Loving, the CEO of Destination: Home, an organization that partners with the city and county to house homeless people. “So San Jose or any city looking at new ways to increase funding and resources to do more to respond to the crisis is really important.”

But not everyone is in support of the proposed funding mechanism.

Pat Waite, president of Citizens for Fiscal Responsibility, said the city should first wait to see how the millions of dollars in affordable housing funding the city has received from the state and county in recent years pans out before throwing more money at the problem.

“The best thing the city can do is make it easier to build housing of all sorts,” Waite said. “I don’t think affordable housing is something the city should dabble in, but they can make it easier to build.”

Results from a survey commissioned by the city this summer found that 59 percent of those asked said they would support a real estate tax measure, as well as a general obligation bond to provide housing for homeless residents.

If the council approves the measure at its meeting on Tuesday, staff will come back on Dec. 3 for approval of the draft ballot measure question.

©2019 the San Jose Mercury News (San Jose, Calif.). Distributed by Tribune Content Agency, LLC.