Interim housing in San Jose might be cheap at first, but long-term costs could quickly surge

As homeless encampments continue to sprout around San Jose’s streets and waterways, city leaders are promising a rapid housing fix — over 1,000 interim units, supposedly at a bargain price.

But a new estimate by the city’s budget director shows the long-term, ongoing costs associated with the strategy could start adding up quickly for San Jose.

If the city completes its plan to add 1,439 interim housing beds, hotel rooms and safe parking sites, the ongoing expense could spiral upwards to about $60 million by 2030 — more than twice what it plans to spend on the effort next year.

The ballooning costs come at a particularly difficult economic moment: State and federal funding for the city to combat homelessness could end up slowing down dramatically as pandemic relief fades and California faces a hazy financial future with a looming billion-dollar deficit. This potentially puts San Jose on the hook to shoulder millions of dollars in costs from its own coffers if it doesn’t secure other funding sources.

“I think it would definitely be a challenge,” said Jim Shannon, San Jose’s budget director, about the ongoing costs of interim housing. “Given the city has always been a very resource-constrained organization.”

The city currently is projected to spend about $26.7 million next year on its existing network of interim options which amounts to 1,028 units.

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The budget director’s estimate comes during a wider debate that is currently embroiling the city — to what extent should San Jose devote precious monetary resources to building out its portfolio of interim housing options, and how much should go toward more permanent solutions?

Comparing the costs of interim options against permanent housing isn’t an exact science. Advocates on each side concede both strategies are needed in tandem to fight the homelessness crisis.

According to city officials, the price for an interim housing site varies by project — but roughly costs San Jose about $15 million to build and open up for residents, like Evans Lane just south of downtown. San Jose has about 4,411 unsheltered homeless residents, according to a recent “point in time” count released this week.

But once these interim sites are up and running, the city must absorb ongoing costs. The projects include services for residents, which adds up to roughly $3 million to $4 million a year per site. In contrast, affordable housing projects rely on myriad funding sources that include the city, which doesn’t have to be liable for continued expenditures. However, there is disagreement about whether Section 8 vouchers for low-income earners could constitute an ongoing cost for taxpayers.

Right now, the city anticipates spending roughly $26,000 per unit next year on interim housing strategies. When it comes to affordable housing projects the city invests in, it is forking over somewhere between $200,000 and $250,000 per unit. That money, however, counts as a loan the city can eventually make back, though it can take up to 25 years.

Mayor Matt Mahan, a key advocate for interim options, said there’s a steeper price to pay for the failure of putting a roof over someone’s head — both morally and monetarily.

“This is an immense humanitarian crisis that demands an aggressive response,” Mahan said. “We have people suffering and dying on our streets, not to mention the impacts of encampments on our entire community. (In addition), the consensus I have seen for our area is that it costs north of $65,000 per year per person to keep someone on the streets in terms of impacts to public services that include emergency room visits, police response, fire response, trash pickup.”

As for the increased costs to San Jose’s coffers, the mayor said there may be no escaping an impact on the city. But he’s confident an external funding commitment to combatting homelessness will come through — and mentioned talk of a possible regional housing measure that could pump billions into the region’s fight against the housing crisis.

“I’m a pragmatist,” he said. “I don’t want anyone to live on our streets in a tent or a vehicle in a totally unmanaged condition without access to services. I just think that’s fundamentally inhumane and bad for society in general.”

Others, however, point to affordable housing as a much more financially efficient system, including Ray Bramson, chief operating officer of Destination: Home, a group that advocates for more permanent solutions.

“An affordable housing development is actually a financial model where tenants are paying rent and those rents are supporting the operations,” Bramson said. “So it’s a closed system. You’re not having to continuously put in additional resources once the building is open.”

Furthermore, Bramson contends that permanent solutions get at a deeper-rooted issue plaguing the region.

“Let’s keep supporting both initiatives,” he said. “But at the same time, understanding that at the end of the day, it’s permanent housing that’s going to end homelessness and help us address this crisis.”

The effort to get a wide-ranging infrastructure of interim-type solutions in the city has riled permanent housing activists, especially in recent months as councilmembers wrangle over this coming year’s budget and how to spend tens of millions of dollars that have historically gone toward affordable developments.

The mayor is proposing a shift that would use some Measure E funds — a pot of money created in 2020 by voters to go toward housing low-incoming and the unhoused — toward the interim housing strategy, a change that would require eight votes from the council this month. In May, the city manager’s office proposed using zero new Measure E money for affordable housing, a plan that the mayor adjusted last week so that the allocations were more equally distributed.

Next week, the mayor will release his June budget message on how the city should spend its money. Councilmembers will vote to finalize the budget on June 13.