Why Is San Jose So Unaffordable? Unpacking the Price Pressures

San Jose consistently ranks among the nation’s most expensive housing markets. Median home prices near $1.45 million and rents over $3,000 make even middle-class families pause.

But why is San Jose so unaffordable? This article dissects the core drivers—supply constraints, zoning and ADU rules, tech-sector salaries, property taxes, and more—while highlighting neighborhood nuances and practical strategies for buyers and renters navigating the high-cost landscape.

1. Chronic Supply Shortages

San Jose’s housing deficit underpins skyrocketing prices.

• Permitting Gaps: Only ~1,200 single-family home permits issued in 2024, far below population growth needs.

• Land Scarcity: Encircled by hills and protected open space, new development opportunities are limited.

• Pending vs. Active Listings: With 980 pending and 1,250 active homes, the active-to-pending ratio hovers at 1.3—well below the 4–6 ratio that signals a balanced market.

Result: Too few homes chase too many buyers, fueling bidding wars and price surges.

2. Zoning & ADU Regulations

Local land-use rules further throttle supply.

• Single-Family Zoning: Large minimum lot sizes (6,000–8,000 sq ft) prohibit multi-unit developments in most neighborhoods.

• Accessory Dwelling Units (ADUs): While state law encourages ADUs, high permit fees ($15K–$30K), 6–12 month approvals, and neighborhood opposition slow adoption.

• Upzoning Resistance: Voters regularly block higher-density proposals, keeping housing types homogeneous.

Impact: Without townhomes, duplexes, or widespread ADUs, supply remains stuck in low gear.

3. Tech Salaries & Demand Dynamics

San Jose’s role as Silicon Valley epicenter drives purchasing power—and competition.

• High Incomes: Median household income of $135K (vs. U.S. $70K) propels mortgages exceeding $8K/month.

• Job Growth: Major employers—Google, Apple, NVIDIA—expand local headcount, increasing demand for proximity.

• In-Migration: Tech talent relocation adds 5% population growth over five years, outpacing housing additions.

Takeaway: Strong earnings enable many buyers to outbid cash-constrained families, pressuring affordability.

4. Pricing Pressure: Average vs. Median

Understanding price metrics reveals the extent of unaffordability.

• Median Sale Price: $1.45 million (down slightly in summer but 25% up over five years).

• Average Sale Price: $1.60 million, skewed by ultra-luxury estates in Cupertino and Almaden.

• Neighborhood Spreads:

  • Evergreen (95123): Median $1.48M, average $1.52M

  • Almaden Valley: Median $1.55M, average $1.60M

  • Silver Creek Condos: Median $1.27M, average $1.30M

  • Cupertino Pockets: Median $2.10M, average $2.25M

Insight: Even “entry-level” homes cost nearly $1.3M, eclipsing national norms.

5. Property Taxes & Carrying Costs

High acquisition prices are compounded by substantial ongoing expenses.

• Base Tax Rate: ~1.18% of assessed value → $17,100/year on a $1.45M home.

• Special Assessments: Bonds and Mello-Roos can add $300–$1,000 per year.

• Insurance & Maintenance: $1,200–$1,400 insurance plus 1–2% of home value ($15K–$30K) in upkeep.

• HOA Fees: $700–$750/month in Silver Creek condos; up to $1,000/month in Almaden gated communities.

Conclusion: Monthly carrying costs can top $2,500 beyond mortgage, squeezing budgets further.

6. Rent Pressures & Alternatives

Rising rents mirror sales prices and offer few bargains.

• Average Rent: $4,600/month for 3-bedroom SFRs; $3,800 for 2-bed Silver Creek condos.

• Rent-to-Price Ratio: ~3.8% gross yield—on the low end for investors.

• Apartment Shortages: Vacancy rates under 3% keep rents elevated, limiting renter relief.

Implication: Whether buying or renting, San Jose demands a premium for housing.

7. Neighborhood Nuances

Certain areas offer relative value or perks to offset costs.

• Evergreen (95123): ADU hotspots—300+ ADUs permitted in 2024—bolster rental income potential; Jackson Elementary scores 9.2/10.

• Cambrian Park: Median $1.40M, strong parks (Central Park), good schools (8.5/10), and ADU-friendly lots.

• Mayfair & Alum Rock (95122, 95116): Median prices under $1M, BART expansion forthcoming, community centers and dog parks.

• East San Jose (95112, 95111): Condos median $880K, close to Diridon Station redevelopment.

• Cupertino: Premium cost but unrivaled schools (9.5/10) and tech proximity.

Tip: Align your budget with neighborhood strengths—ADUs, schools, transit—rather than chasing cheapest lists.

8. Future Solutions & Buyer Strategies

8.1 Policy Shifts

• State-Mandated Upzoning: Potential bills may require multi-unit allowances on single-family lots.

• ADU Streamlining: Plans to cap permit fees and shorten approval to 90 days.

8.2 Buyer Tactics

• Leverage Assistance: CalHFA and county programs provide 3%–5% down-payment help.

• Shop Finance: Compare jumbo and conforming rates; lock in when rates dip 0.25%.

• Consider ADUs: If you own a SFR, budget $200K to add an ADU, generating $2,500/month rent.

8.3 Long-Term Outlook

• Modest Appreciation: 1–3% annual growth expected as rates stabilize.

• Tech Resilience: Continued job creation underpins demand, though cycles may moderate.

Perspective: While true affordability may require sweeping policy changes, individual buyers can use programs and creative strategies to overcome barriers.

Conclusion

San Jose’s unaffordability stems from a tight supply of homes, restrictive zoning and ADU rules, boom-town tech salaries, and steep carrying costs. Median prices approaching $1.5 million and rents north of $3,000 create formidable hurdles for typical budgets. Yet targeted neighborhoods—Evergreen and Cambrian for ADU income, Mayfair and Alum Rock for lower entry costs, Cupertino for school-driven premiums—offer relative value.

By tapping down-payment assistance, exploring ADU opportunities, and timing rate movements, buyers can navigate the high-cost landscape. As your hyperlocal market partner, Block Change Real Estate delivers the data and guidance you need to make informed, strategic decisions—even in one of America’s most expensive housing markets. Ready to chart your path to affordable ownership in San Jose? Let’s start today.