San Jose Bank Foreclosures Drive Affordable Housing Change

by Donald Hanz on cities

The still high number of low-priced San Jose bank foreclosures has driven city officials to suspend the city’s affordable housing regulation for housing developers.

Because of slow home sales, residential developers are now in danger of failing to pay their construction loans and seeing the collapse of their affordable housing projects.

Under city housing rules, developers are required to sell one-fifth of new houses built in redevelopment projects to lower-income families at prices below market rates to give more home ownership opportunities for lower-income families.

Now, the city is temporarily suspending the rule so housing developers can sell their units. As home prices declined because of foreclosures, prospective buyers of affordable units have been complaining that the prices are so close to the prices of market-rate properties.

Currently, a one bedroom condo unit sold to market-rate buyers is priced at $375,000 while the affordable unit is priced at $342,000. Buyers qualified to buy affordable units are those that earn $88,000 if single and $126,000 if supporting a four-member family.

Before a housing development pushes through, developers and city officials negotiate the prices for the affordable units. The prices set will not fluctuate regardless of the effects of market factors such as the volume of San Jose bank foreclosures.

Under the rule suspension, developers can now sell their affordable units to any buyer whenever the affordable housing price is within five percent of the market-rate price. Developers can apply for the waiver and re-apply again after six months until the housing market recovers.

Home builders and housing analysts applauded city officials for their progressive thinking. David Gibbons, top executive of Barry Swenson Builder, said the rule change will help his firm sell more units at his condo project.

Jacky Morales-Ferrand, assistant housing director of San Jose, explained that the rule change will give more flexibility to developers who have been struggling because of the sluggish market.

However, some affordable housing advocates have criticized the decision. Kyra Kazantsis, a lawyer for the Law Foundation of Silicon Valley and Public Interest Law Firm, said that the rule suspension will not help low-income families.

In response, John Weis of the Redevelopment Agency, explained that the goal of the rule suspension is to enable developers to sell as many market-rate units as possible. He added that many other cities have suspended their affordable housing rules to help developers survive the downturn and to prevent the collapse of the affordable housing sector.