A proposal to consider imposing a new construction fee to rake in more money for affordable housing has sharply divided the City Council. Vice Mayor and 2014 mayoral candidate Madison Nguyen and Councilman Don Rocha say San Jose desperately needs another funding source for low-income housing since the state-ordered end of Redevelopment Agencies (RDA).

Councilmembers Johnny Khamis and Pete Constant say charging developers more money would discourage them from building more inventory, leading to a quicker rise in real estate prices.

“Instead of making housing affordable, it will either further restrict the housing supply or raise the cost of new for-sale and rental housing,” says a memo signed by Khamis and Constant. “To believe that increasing the cost of housing will create more affordability turns logic on its head and requires the willful rejection of the most basic of economic theories—that of supply and demand.”

A housing fee would go against the very logic that led the council to give breaks for developers who want to build in downtown, Khamis and Constant point out.

The nexus study would cost the city $75,000. The council will discuss the plan when it meets Tuesday.

There’s no question that San Jose’s housing prices are prohibitively expensive for most of the population. Housing autonomy is, more than ever, out of reach for so many. People whose income falls on the wrong side of the region’s median salary have to double up, live with roommates and family or live out of town and commute to work.

Silicon Valley claims the highest gross rent in the nation—higher than in Honolulu and New York City. To afford even a two-bedroom in San Jose, it would take the income of four full-time minimum wage earners, according to the National Low Income Housing Coalition.

Data Quick found in April that Santa Clara County’s median home sales price had jumped 24 percent in a year to $665,000. Leslye Corsiglia, the city’s director of Housing, says business organizations like the Silicon Valley Leadership Group and the Bay Area Council constantly cite expensive home prices as one of the biggest problems in yearly CEO surveys.

The city’s ability to meet affordable housing needs was hurt in part with the dissolution of RDAs, which one time brought in about $40 million a year for the city’s low-income housing fund. Federal funding fell short, too. And now there’s the impending trickle-down cuts from the federal sequester.

Corsiglia says San Jose’s low-income housing resources have shrunk by half in the past decade. From 1988 to 2012, the city subsidized, on average, 737 new or newly affordable rentals a year.

Other Bay Area cities that have already adopted housing impact fees include Berkeley, Walnut Creek, Fremont and San Carlos. In January, Mountain View passed a $10-per-square-foot fee on rental development.

Khamis and Constant note that applying a fee similar to Mountain View’s would cost $12,000 for a 1,200-sq.-foot condo. Think about the cost for a medium-sized development, where the fee would run $1 million to $3.2 million, depending on the size.

Best-case scenario, according to Khamis and Constant, the costs get fully absorbed by developers, leaving them less money to spend on other projects. Worst case, the two argue, costs get handed down to renters and buyers.

If the city forgoes enacting its own housing fee, it could get some money from various other funding sources proposed in a handful of state bills that seek to create affordable housing funds, such as AB 532, AB 952, SB 470, SB 409 or SB 291.

Councilmembers Ash Kalra and Xavier Campos submitted a last-minute memo saying that the argument could go either way, which seems to suggest a more researched position could be in order.

“While academics and theorists can debate the pros and cons of impact fees, there can be no debate that San Jose is on the verge of an affordable housing crisis and is running out of viable options to provide such housing,” Campos and Kalra write. “Accordingly, we should proceed with the nexus study.”

More from the San Jose City Council agenda for June 4, 2013:

• As the county moves forward with plans to turn a swath of land donated from a farmer into a public agricultural preservation site, the city will have to annex most of it to provide infrastructure like water, electricity and fire protection. Martial Cottle Park, a $25 million “living museum” dedicated to agriculture and local history, was donated to the county by Walter Cottle Lester in 2004 and is expected to open in 2014.

• The city wants to expand its definition of “public nuisance” to anyone who’s delinquent on city business and hotel taxes.

• The council’s ready to take a vote on the marijuana tax increase, from 7 to 10 percent, effective July 1. The city finance department says that since taxes aren’t due until the end of August, that should give dispensaries and other pot businesses ample time to prepare for the added cost.

• Two residents are fighting the city’s decision to grant a special use permit to open up a recycling facility by the San Jose Flea Market. To put the business, EcoBox, in the neighborhood—already zoned for heavy industry—would risk polluting a nearby creek, says one resident. The city also failed to specify how much tonnage of waste the facility can process, according to a second appeal.

• The council will hear a report about San Jose’s progress in transforming from a bedroom community into one with denser, transit-centered development.

• After a bunch of discussion about how unattended clothing collection containers can become trash-magnets and eyesores, the city decided to start regulating them. The council will take a vote on whether to charge permitting fees for the containers.

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 E. Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260