San Jose looks for new ways to pay for affordable housing

As the state pushes cities to build more low-income housing while tax credits, grants and other public funding sources are increasingly hard to come by, San Jose is exploring new financing tools.

Under consideration are city-issued certificates sold to private investors and equity claims on projects built with municipal dollars.

A memorandum passed unanimously by the rules committee Wednesday directed staff to return to the City Council by August with alternative policy recommendations to support the deepest affordability levels. Mayor Matt Mahan co-signed the memo alongside councilmembers Anthony Tordillos, Pamela Campos, David Cohen and Peter Ortiz.

The memorandum directs staff to analyze two specific tools - certificates of participation, which allow the city to raise capital from private investors without voter approval, and a funded Inclusionary Housing Ordinance model, which would allow the city to take an equity stake in projects built with municipal funds, letting San Jose recoup its investment over time.

San Francisco authorized the use of certificates of participation for housing development last year, while other cities, including Chicago and New York City, have implemented or explored other forms of lease-revenue financing to support housing development, according to the memorandum. The specifics of each program San Jose is considering would be fleshed out when the item returns to council in August.

The Bank of Italy building - now undergoing conversion from offices to 109 market-rate units expected to be completed by next year - has prompted questions about the absence of affordable housing, despite city mandates requiring it in new projects. The developer was among the first to take advantage of city-granted incentives for the conversion.

Mahan has defended the decision to waive the affordable housing requirement, saying the city’s priority is to build housing at all income levels - and that the most important thing right now is simply to build.

Still, the memo signals the city has not abandoned affordable housing as a goal. It specifically targets households earning between 30% and 50% of area median income - roughly $42,200 to $70,350 annually for individuals.

“As we all know, residents are continuing to deal with high housing costs that are increasingly unsustainable,” Tordillos said. “Many are living paycheck to paycheck. Others have been forced to leave the city entirely or have fallen into homelessness.”

Tordillos said the biggest limiting factor has been the scarcity of public funding available to finance such developments. The goal, he added, is to build more affordable units within market-rate projects at lower per-unit costs - creating mixed-income communities that would contribute to the city’s property tax roll.

Mahan echoed this, saying the city has to get creative to house the city’s lower-income residents.

“Our region’s need for more housing demands looking outside the box to fund it,” Mahan told this news organization in a text message Thursday. “From Portland to Montgomery County, Maryland, cities and counties are adopting ‘funded’ inclusionary housing models that pair public investment with private development to increase overall housing production.”

The push for more affordable housing comes amid even steeper headwinds: a $56 million budget deficit that could strain city services if left unaddressed. In recent weeks, the city has explored a range of revenue-generating measures - from making outdoor dining permanent and streamlining business permits to offering tax amnesty and raising its hotel tax.

San Jose has the second-highest state-mandated housing target in the Bay Area, behind San Francisco, and must permit and zone more than 60,000 units by 2031 - a goal it is currently struggling to meet. Across the region, 110 local governments must collectively plan for more than 440,000 new homes to meet state housing goals.

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This story was originally published April 16, 2026 at 4:20 PM.