(BCN) — The builder’s remedy has come to roost in San Jose, with a major project now planning to scale back by several thousand homes.

One of the first significant projects to see a new application under builder’s remedy is on the San Jose Flea Market site. The developer plans to reduce the project size to 940 residential units from nearly 3,500 previously approved as a part of a high-density, transit-oriented development near the BART station.

San Jose is beginning to experience the fallout from failing to create a state-approved housing plan, which could allow the state to force San Jose to greenlight housing projects that don’t meet the city’s general plan, known as builder’s remedy.

San Jose City Councilmember David Cohen represents District 4, where the Berryessa BART Urban Village project is slated. The approved plan is to rezone a 61.5-acre portion of the San Jose Flea Market to include up to 3.4 million square feet of mixed-use space and nearly 3,500 homes. That plan has been withdrawn and replaced with the slimmed-down revision.

Cohen told San Jose Spotlight the changes are “inappropriate” and undermine the original plan for the south portion of the project to be the high-density anchor. The billions of taxpayer dollars invested in the BART station called for a “common public good” that is now being backtracked, he said.

“The public good is a large, dense, urban environment by the BART station to take advantage of the transit hub that’s there,” Cohen told San Jose Spotlight. “If ever the Urban Village vision was to play out, this is a site where it has to play out.”

Erik Schoennauer, a consultant representing the Bumb family who owns the flea market land, told San Jose Spotlight the most important part of the new proposal is the agreement with the San Jose Flea Market vendors that currently use the land. The family agreed to $5 million in financial support to help flea market vendors transition down to a five-acre site, with a one-year guaranteed advanced notice of when the flea market would close.

“Those commitments stand, and are not proposed to change,” Schoennauer said.

Schoennauer said the decision to change the development is simple. This part of San Jose hasn’t ever seen a demand for office space, and after the COVID-19 pandemic, it’s only gotten worse. Interest rates have skyrocketed along with construction costs, and there’s little financing for high-density housing, making the previous project financially infeasible, he said. The new plan sticks to the same themes and acreage for an urban mixed-use environment near the BART station, he said.

“The city is in a major housing crisis, so we would hope they view housing favorably of any type,” Schoennauer told San Jose Spotlight. “The way things are, if nothing gets developed, then there’s no housing units. Protecting or maintaining the status quo means no housing, no jobs, no urban amenities, nothing.”

San Jose has missed its housing deadline twice in providing a detailed plan for how it intends to add 62,000 homes by 2031. The plan was initially due at the end of January and failed. The city effort also fell short in August.

“The builder’s remedy, the way it’s set up, doesn’t allow any discretion by council to say no to projects, as long as they’re filed at the right time,” Cohen said. “We’re hoping that people and the property owner will understand the strategic importance of this site … and not take advantage of the current economic climate to wipe more than 2,000 housing units off the books.”

Cohen said the builder’s remedy is being used to scale back a plethora of housing projects throughout the city.

Bob Staedler, principal at Silicon Valley Synergy, a San Jose-based land use and development consulting firm, told San Jose Spotlight that while the council doesn’t have the outright ability to say no to the project, the city could still make the developer’s life difficult through application deadlines, inspections and other development requirements.

“(The builder’s remedy) is just a bad situation for San Jose … (but) there’s a death by 1,000 cuts situation here,” Staedler said. “This tactic might get you something to sell, but I don’t know if this tactic gives you something to be built.”

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