In the latest twist in California’s builder’s remedy drama, several projects in San Jose are now proposing using the remedy to downsize their projects from their original proposed size, apparently because they are adjusting to changed market conditions. According to the Mercury News, eight of the 19 proposed builder’s remedy projects are reducing their projects, meaning more than 4,000 previously planned units will not be built.

Most dramatic is the proposed change to the so-called “Flea Market” site at the Berryessa BART station, the southernmost BART station in the region, approximately three miles northeast of Downtown San Jose. The proposed project has been scaled down from 3,450 units to 940, while the commercial portion of the project has been scaled down from 2-3 million square feet to 45,000 square feet.

Meanwhile, the builder’s remedy is pushing the envelope in at least one other South Bay city. In Morgan Hill, developers have submitted applications for approximately 1,900 builder’s remedy units. Morgan Hill officials say that the Department of Housing and Community Development has delayed approving the city’s housing element because HCD wants the city to be more aggressive on fair housing.

If the Berryessa project and other proposed projects in San Jose move forward with reducing their projects, it could put the City of San Jose in a bind. On the one hand, the city must continue to approve housing projects at close to their planned capacity in order to hit its targets under the Regional Housing Needs Assessment.

That might motivate San Jose to reject the smaller projects. “We’re trying to usher in pro-housing policies, not pro-profit policies,” Councilmember Alex Lee said in an interview reported by MSN.

But if San Jose rejects the projects, hoping for bigger projects at a different time, the city will risk bringing on a lawsuit it will almost certainly lose. The builder’s remedy allows developers to seek ministerial approval for projects if a housing element is not approved, but does not specify that the projects must be a certain size.

One question is whether San Jose could change any policies or fees in a way that would motivate the developers to reconsider their smaller projects. In a typically ascerbic comment on X (Twitter), UC Davis law professor Chris Elmendorf quipped: “If San Jose wants high-density housing development—and it should, where feasible—city should waive IZ (inclusionary zoning), impact fees, & other bagel toppings that raise the cost of building it.”

But San Jose officials say such changes may not work. According to a study done for the city by the real estate firm Century | Urban, skyrocketing costs of both materials and funds have made many projects infeasible. While the waiving impact fees might help, Century | Urban found that such a move would not improve feasibility of market-rate projects. Century | Urban also found that the cost of building affordable units in San Jose increased 24%, from $757,000 to $938,000, in the last year. (Century | Urban’s report and other material presented to the San Jose City Council can be found here.)