More ADUs in San Jose, and More ADU Rentals to Low Income Tenants
A Project Proposal by Skylar Ruprecht and Zahavah Levine
Our focus on addressing eviction in San Jose starts with the simple observation that “rent burdened” tenants (meaning those who pay more than a third of their combined income on rent), are at a much higher risk of eviction and displacement than those who are not rent burdened due to inability to afford their rent.
Yet, almost one in every three renter households in San Jose are considered “rent burdened.” The cost of rental housing in San Jose is out of reach for many ordinary residents. A person needs an annual income of $90,200 to afford an average one-bedroom rental in San Jose, and an annual income of $111,040 (or $53/hour) to afford an average two bedroom rental in San Jose, in order not to be “rent burdened.” But many workers in San Jose do not earn any where near $90,200 per year. For example, elementary school teachers, construction workers, janitors, retail sales people and healthcare support workers all earn average salaries of substantially less than $90,200.
High rents are a direct result of a high demand for limited housing. Largely due to the rapid population growth in San Jose fueled by the growing tech industry, demand for housing in San Jose exceeds available housing options, driving prices up.
So how can we increase housing in San Jose fast? One housing initiative stands out as low hanging fruit who’s time is now: Accessory Dwelling Units. An Accessory Dwelling Unit (or “ADU”) is a residential unit that can be added to a lot with an existing single family home. ADUs can be detached (a separate building in a backyard), attached to or part of the primary residence (e.g. an attic), or a garage conversion. ADUs are independent rental units that have their own kitchens, bathrooms, living areas, and entrances. As such, ADUs can provide a welcomed source of income for existing homeowners, while at the same time providing additional housing without fundamentally altering the character of the neighborhood landscape.
Due to a set of new California laws passed on October 9, 2019, the is a unique opportunity right now to accelerate the rate of construction and rental of ADUs. These state laws eliminate most of the prior municipal zoning obstacles that have historically prevented ADU construction, and give home owners the right to build ADUs on most single family properties. Specifically, the new laws prohibit local ordinances that impose minimum lot size requirements for ADUs; set certain maximum ADU dimensions; or require replacement off-street parking when a garage or carport is eliminated to construct the ADU (AB 68 and AB 881). They also expedite the permitting process (AB 68 and AB 881), facilitate the sale of ADUs separate from the primary residence (AB 587), and prevent homeowners associations from barring ADUs (AB 670). They even require local governments to incentivize and promote the creation of affordable ADUs (AB 671). The laws are so sweeping that some are calling them the “end of single family zoning.”
San Jose is an ideal location to focus on ADU growth for several reasons. First, unlike some denser cities, San Jose has tens of thousands of residential parcels large enough to support ADUs–120,000 according to ADU developer Abodu. As such, ADUs have the potential to contribute meaningfully to new housing in San Jose. Moreover, home owners in San Jose have shown interest in building ADUs–they have attended ADU workshops and initiated the ADU permit process in significant numbers.
Most importantly, the City of San Jose is motivated to fuel the development of ADUs as one way to address the housing crisis. Two years before the recent state laws, San Jose Mayor Sam Liccardo identified ADU development as part of the city’s fifteen-point strategy to address affordable housing, and in August 2019 proposed a city pilot program in partnership with Silicon Valley Housing Trust that would extend loans up to $20,000 to homeowners to build ADUs, and forgive such loans if owners agree to rent to low- or middle-income tenants for 5 years. He also noted that “in addition to the loan program, we should identify other opportunities to incentivize and streamline garage conversions and the construction of ADUs in single-family neighborhoods”  and “we should make room at the table for for anyone with better ideas or more resources.”
For these reasons, we reached out directly San Jose Director of Housing Jacky Morales-Ferrand in an effort to learn more about the status of the city’s ADU initiatives. Ms. Morales-Ferrand was very responsive, and send us a host of relevant materials. We learned from her that only 40% of ADU permits are issued after two permit review cycles, and many residents who obtain permits do not move forward with the building process. We learned also that the proposed forgivable loan program is on a short hold while the city sorts out some details. Ultimately we proposed to partner with Ms. Morales-Ferrand and her team, and she graciously accepted our offer.
We also consulted with several other stakeholders including interviews with (i) a San Jose home owner who considered but ultimately rejected the idea of building an ADU due to the complexity of the approval process and risks of noncompliance with the many regulations, (ii) the Founder and CEO of Rent the Backyard, an innovative start-up company that will fund and build an ADU for a homeowner in exchange for 50% of the rental income for 30 years, (iii) the Chief Lending Officer for San Jose ADU pilot partner Housing Trust Silicon Valley, (iv) a leader in a coalition of nonprofits working on ADU growth in East Palo Alto, and (v) a leading Urban Studies academic from NYC who focuses on urban housing dynamics. We also joined a private San Jose ADU Facebook group with over 250 members helping each other navigate the ADU process in San Jose and received feedback from Brian Basinger, Founder of the Q Foundation in San Francisco.
Our Proposed Project
Our project will be a partnership with Ms. Morales-Ferrand and the Department of Housing for the City of San Jose to help (i) fuel growth of ADU’s in San Jose, and (ii) encourage their rental to low income tenants. More specifically, we propose to work with the City of San Jose and related stakeholders (such as the city’s ADU lending partner Silicon Valley Housing Trust, interested property owners, ADU developers, and non-profits working in this space) to help:
Identify the barriers to permit approval and recommend ways to improve the rate of approval.
- Why is the San Jose permit process difficult to complete for many homeowners? How can we help applicants better understand the requirements and the process to improve their chances of permit approval? Can the process be streamlined? Why are 60% of applications still not approved after two full review cycles and how can we improve the approval rate?
Identify the reasons homeowners are not building ADUs after permits are issued and recommend ways to increase the rate of ADU development.
- Why are San Jose homeowners who have obtained permits still not building ADUs? Is the issue funding? Is the issue navigating the maze of regulatory requirements? Are some requirements too onerous? What new companies and organizations might be able to help? How can we make the building process easier and more accessible for homeowners?
Consider how best to encourage ADU rental to middle, low and extremely low income individuals.
- Is the $20K forgivable loan program a good incentive? What incentives are other jurisdictions using? What other ideas might the city consider?
Our research will include surveys of and interviews with home owners who have gone through these processes or considered going through them, research into what other jurisdictions are doing to encourage the development of ADUs and their rental to low income tenants, and research into how innovative new ADU companies and nonprofits in the space may be able to help. The product of our research will be a report to Ms. Morales-Ferrand summarizing our key findings on the questions above and making recommendations for the city’s consideration.
The goal of our project is to help the City of San Jose increase the rate of approval and development of ADUs, and find ways to encourage their rental to low income tenants. With more housing in San Jose, rents will come down, and fewer tenants will be rent burdened and displaced.
 San Jose Housing Market Update, Second Quarter 2019, defining “rent burdened” as more than 35% of income (citing Santa Clara County Association of Realtors, June 2019 Median Prices).
 Employment Development Department (EDD) First Quarter 2019 Wages.
 See https://www.hklaw.com/en/insights/publications/2019/10/californias-2020-housing-laws-what-you-need-to-know
 See https://www.curbed.com/2019/10/11/20909545/adus-development-california-real-estate-housing-shortage
 P. 6 http://sanjose.granicus.com/MetaViewer.php?meta_id=667033
 See Memorandum to Honorable Mayor and City Council from Jacky MOrales-Ferrand, Rosalynn Hughey & Jim Shannon, August 29, 2019 (Subject: “Award $5 Million to the Housing Trust Silicon Valley to Implement an Accessory Dwelling Unit Forgivable Loan Program and Waive Certain City Fees To Facilitate Further ADU Development and Appropriation Actions”)
 See Memorandum to City Council from San Jose Mayor Sam Liccardo, May 14, 2019 (Subject: “Yes, In My Backyard” (YIMBY) Affordable Housing Program)