San Jose’s Plan to Help with Middle-Class Housing

Everyone knows it’s expensive to purchase a property in the Bay Area. 30 years ago, my parents were able to purchase their home in the Silicon Valley for only $200,000. It was a lot back then, but 30 years later, the same house is worth over $1 million.

Most of my high school classmates have given up on the dream of purchasing a single family home for themselves (at least in the near future).

It’s Expensive Here

The average single family home (SFR) costs more than $1 million in San Jose. Our flipped projects sell for over $1.3 million! A regular 2 bedroom apartment rents for over $2600/month. It’s even hard to rent a single bedroom for less than $1000/month unless you know the owner personally!

Because of the high cost of living in the Bay Area, moderate-income residents are now feeling the same squeeze that low-income residents have been feeling for a long time. But unlike the low-income residents, the moderate-income residents make too much money to qualify for traditional forms of Government assistance.

These people make an average of $60,000 to $150,000 a year and cover 20% of the local population. They are people who are essential to an economically viable city. These are teachers, lab technicians, accountants, computer hardware engineers, and defense contractors (shoutouts to my friends at NG LOL!).

A recent study by USA today found that San Jose and Santa Cruz are the two worst places in the country for teachers to afford housing!

San Jose Is Thinking

So solve this problem, the San Jose City council has tasked the housing department to come up with a strategy to help moderate-income residents with this problem of high prices.

One idea that they came up with is to create legislation that would facilitate more housing development. Another was to allow for more affordable designs, allowing more housing density. The Mayor is proposing a YIMBY (Yes in my backyard) plan to create a forgivable loan fund for granny units (ADUs) and garage conversions and a down payment assistance program that would provide up to $125,000 for home buyers.

According to my research, an ADU (accessory dwelling unit) can be added to your property for $150,000 to $250,000 and can bring in an additional $1,000 to $2,500 a month to help you pay your loans. If San Jose is helping us finance these and eventually forgive the loan, it’ll be worth our time to add them to our properties!

It’s an effective way to increase the housing density without having to rezone every area and spend an ungodly amount of money on reconstructing a multifamily building on a SFR lot.

What’s Next?

A lot of middle-income, first time homebuyers in San Jose can afford the monthly mortgage payment, but have a hard time saving money for the down payment.

A lot of San Jose’s middle-class is moving away from the Silicon Valley into less expensive regions of California or entirely out of the State!

Millennials who are in their early 30’s are waiting and praying for a correction in the market. I feel bad because these people are the friends I grew up with. They’re working at tech companies and making a lot of money, but at the end of the day, it’s still hard for them to afford a home. As an investor, I’m actually praying that the market continues to go up so that I can make more profit on my deals.

I’m personally in favor of creating legislature to incentivize homebuilders to develop more new construction buildings. I theorize that as the population grows, we’ll be creating housing units like those in Europe and Asia. Dense population means we need to create dense housing. They’re not bad either, these are luxurious condos with great services!

Home prices are expensive, and they’re going to get even more expensive in the future as the population grows and wages in the Bay Area increase.

What do you think is a good solution to the housing crisis in San Jose?

Original Post on the Business Journal: https://www.bizjournals.com/sanjose/news/2019/06/24/san-jose-middle-class-housing-strategy.html