San Jose Waives Building Fees for Apartment Towers

San Jose is aiming to get the ball rolling on some new downtown apartment projects with a series of incentives for high-rise developments that receive a building permit and pass a government inspection within a specified timeline.

The City Council has unanimously agreed to waive several fees over the next seven years, including a five-year waiver of all city construction taxes and a 50% reduction in park fees, the Mercury News reported.

In the final two years of the program, construction taxes will be cut in half and park fees will be reduced by 30% for all qualifying downtown apartment tower projects.

City officials have identified 14 projects for residential towers encompassing 4,078 homes that have been approved but have yet to begin construction, the report said.

In a memo supporting the new incentives, the city’s Economic Development Office said housing towers in San Jose must overcome a “feasibility gap” caused by high interest rates, soaring labor costs and rapidly rising prices for building materials.

From 2020 through 2023, housing development costs rose by 30% while apartment rents rose 8% over the same period, the memo said.

“The cost of construction downtown is too high. It just doesn’t pencil,” Mayor Matt Mahan said as the council prepared to vote on the incentives.

The largest projects in the city’s pipeline that haven’t broken ground include Bo Town, a joint venture between Westbank and San Jose-based Urban Community that is planning to build a tower at 409 South Second Street encompassing 540 units.

A 415-unit residential tower called Echo has been proposed by San Jose-based developer Urban Catalyst at 147 East Santa Clara Street.

According to the report, some union leaders spoke before the council voted on the incentives and criticized the plan to slash fees.

Will Smith, business representative for San Jose-based Local 332 of the International Brotherhood of Electrical Workers said the city’s previous fee-reduction programs did not spur developers to put a lot of shovels into the ground for new projects.

“We have yet to see those [construction] cranes going up in the air. I don’t see any purpose to this other than stuffing money into the pockets of developers,” Smith said, the Mercury News reported.

Mayor Mahan said the incentives could bolster a San Jose State University plan to redevelop the aging Alquist State Building downtown into a residential project.