It didn’t matter how well-designed the project was.

Or how the 295 units of below-market-rate homes for teachers at Santa Clara University, Cristo Rey Jesuit High School and Bellarmine College Preparatory would help address San Jose’s intractable affordability crisis.

City planners were dead-set against it for the same reason they opposed a teacher housing proposal in 2017.

Approving the application from SCU meant losing yet another plot of valuable industrial land, which generates more local tax revenue than residentially zoned counterparts.

But the City Council went against staff’s advice because they saw its potential to strike a rare balance between the need for more jobs to rake in municipal revenue taxes and more service-consuming housing to accommodate the growing workforce.

In a 9-1-1 vote on May 14, the council allowed the SCU project to move forward because the university also committed to include 20,000 square feet on the three-acre Campbell Avenue property for a business incubator called the Bronco Venture Accelerator.

By combining high-density residential units with commercial space, city officials say SCU has become the first employer to propose an affordable housing development for its employees in San Jose without any public subsidies.

While planners have long urged employers—especially those in North San Jose—to build adjacent residential units for workers, the city has never received an application that promises to realize that vision. Until now.

“It’s what we have been encouraging other employers to think about since we can bring jobs and housing to San Jose,” Mayor Sam Liccardo said at the same meeting.

Proponents say the university’s proposal offers a way forward for a city desperate for more housing but also struggling to create enough jobs. Chris Norris, the university’s executive director of the Center for Innovation and Entrepreneurship, said businesses born out of the accelerator will create jobs in San Jose.

“We have the unique opportunity to create a new center of job creation right here in San Jose, built around reputation of SCU,” he said. “It’ll attract talented students, faculty and local entrepreneurs. All of them will create jobs.”

Not everyone supported making yet another exception to the rule, however.

Councilman Lan Diep, the only one who voted against the proposal earlier this month, said in a recent phone interview that the city uses its discretion too often to rezone employment lands for other uses. “As a large city, we should be able to attract people to work in jobs downtown and North San Jose,” he said. “But that’s hard to do when we keep converting the land upon which we should have jobs into housing.”

A fiscally healthy city should have at least 20 percent to 25 percent of its lands reserved for jobs, Diep added. “It's not about the individual applicant,” he said at the May 14 meeting. “I think it's a great project. For me, it is a larger existential problem: as a city, we are housing the workforce of Santa Clara, Milpitas and the surrounding cities.”

The North San Jose councilman’s concerns are well founded.

San Jose is the only major city in the US with a larger nighttime population than daytime population, according to Liccardo. It has become a bedroom community. In 2015, San Jose conducted a fiscal analysis that showed how residentially zoned lands require more city services than the revenue it generates for them.

Proposition 13’s limits on property taxes have for decades put a damper on the amount of taxes that residential lands can generate for local agencies. According to city records, San Jose has lost 16 percent of employment lands from 1980 to 2012, eliminating the potential for 52,000 to 110,000 jobs. In 2007, the council adopted the “Framework for Preservation of Employment Land” to protect industrial sites, and in 2011 revised it to explicitly prohibit additional conversions.

That’s why city planners cautioned against greenlighting the SCU proposal: It could undermine the city’s effort to achieve fiscal sustainability. Chris Shay, assistant vice president for university operations, said he knew going in that the project presented significant political and financial risks for that very reason.

But there’s a caveat.

If a residential development is dense enough, it can have positive fiscal impact on the city. “People are living closer together so there is less requirements for road space and water lines. People can use public transit instead of relying on roads for driving,” C.J. Gabbe, an urban planner and professor at SCU, explained. “You are serving the same number of people with less infrastructure.”

Indeed, with its Urban Village Plan, San Jose is taking underused commercial areas to build mixed-land use of high-density residential and commercial offices. It has identified over 60 areas in San Jose to develop urban villages.

“Mixed-land uses encompass a big part of the city’s vision for housing and job growth,” Chris Burton, deputy director of the city’s Office of Economic Development, explained. “Many areas downtown and traditional commercial areas are transitioning into urban villages, a mix of uses that provide opportunity for offices and high-density housing.”

Gabbe said San Jose sees housing as a fiscal drain and industrial jobs as a fiscal win. But in SCU’s proposal, he believes that the land is located in unviable industrial land that is surrounded by residential zoning. It is also close to public transit, making it ideal for below-market-rate housing.

Proponents of the project framed it as exactly the type of smart-growth development—high density, mixed-use and transit-oriented—that San Jose needs to shed its reputation as a sprawling suburb. It revitalizes underused industrial lands. People will live closer to where they work. Neighborhoods will become more vibrant. Faculty and staff will only be steps away from SCU.

Providing affordable housing is crucial to SCU’s retention of faculty and staff, since so many have left due to the high cost of living in Silicon Valley. Home prices in San Jose have risen 153 percent above inflation over the last 20 years. Of all the staff who resigned, 15 percent of them left SCU because of the high cost of living in the Bay Area, according to university officials. With 30 percent of current staff slated to retire in the next few years, SCU needs to have a plan to provide affordable housing to attract new employees.

This proposal from SCU prompts San Jose to re-evaluate its land-use priorities, Gabbe added. He said California has made significant investments in building railway transit. It makes sense to build mixed-use developments to bring jobs and housing near transit stations. “The city of San Jose should think about how they can pave the way for mixed-use developments rather than prioritizing non-residential developments,” he said.

And the SCU development is ideally situated for future urban development, the mayor and university officials said. “There is dramatic opportunity for densification near a major transit station that serves Caltrain and future BART,” Liccardo said.

SCU will return to the city’s planning commission this fall to discuss further changes to the project before it returns to the council by the end of the year.