PAN urges the Palo Alto City Council to support and implement the housing incentives as outlined in the September 23rd Colleagues memo presented by Lydia You and Tom DuBois.


Council should direct staff to direct rental apartment developers to build in below-market rate (BMR) housing or pay for it elsewhere the way that for-sale condominium builders and other major developers in Palo Alto already do.


We also urge our City Council to raise impact fees on office development that pays for below-market rate housing in line with what Santa Clara County is requiring Stanford University to pay as part of the pending General Use Permit.


We further urge our City Council to protect existing housing that is by its nature more affordable.


Palo Alto is already on track to meet the market rate housing target of 587 as part of the Regional Housing Needs Allocation (RHNA) through 2023.  From 2015 to 2018, the City has permitted an annual average of 76 new housing units for households earning above moderate income, or 52% of the required allocation.  If that pace continues through 2023, Palo Alto will exceed RHNA requirements for above moderate income housing by 97 units.


Out of Palo Alto’s RHNA requirement of 1,988 housing units by 2023, 70% must be BMR housing.  From 2015 to 2018, only 143 BMR housing units were permitted out of 1,401 required, or only 10% of the required allocation of BMR housing allocation has been permitted.

For the RHNA allocation of low, very low, and extremely low income housing (below 80% of Area Median Income), only 101 out of the required 1,123 have been permitted, or only 9% of the required allocation.  This is housing for single individuals earning up to $72,750 and families of four earning up to $103,900.


Of the housing permitted from 2015 to 2018, 68% has been market rate housing destined for individuals earning over $109,125 and families of four earning over $155,850 and even higher.


The neglect of housing affordability of preservation strategies erodes public trust.  The almost singular focus on mostly market rate housing production in the housing work plan (HWP) action to date risks leading many to conclude that the “balanced approach” In the HWP was a ruse or merely lip service.


The city’s Housing Work Plan was adopted in early 2018 amid great fanfare, touting balanced strategies “to address housing production, affordability, and preservation in Palo Alto.”


In the first year of the HWP, the city drove hard and fast on “production,” creating widespread developer incentives, in the form of loosened zoning standards, to build market rate, multi-family housing. (The loosening of standards such as on site parking requirements, floor area limits, project densities, and retail requirements are expected to bring substantial and likely painful neighborhood impacts.)


Yet major strategies to expand affordable supply, scheduled for study in Q2 and Q3 and final action in Q4 of 2018, still haven’t seen the light of day. Nor has council addressed a “no net-loss” policy that might have preserved the 75 housing units of the President Hotel Apartments.

Since January 2019, the public has seen no new progress at all on the Housing Work Plan.


With only three months left in the HWP’s two year horizon, the only significant action on affordability or preservation has been the Affordable Housing overlay passed in April 2018 to enable a single, specific project (Wilton Court).


The “Palmer Fix” and higher impact fees are necessary tools to fund expansion of BMR housing.


Time is of the essence to enact the “Palmer Fix.” Every market rate rental housing project approved while the city delays enactment of the “Palmer Fix” represents a lost opportunity to expand BMR housing in the city.


The creation of substantial new state and local development incentives focused on multifamily, housing projects are designed to spur thousands of new market rate housing units in Palo Alto in the coming years. Without the “Palmer Fix,” Palo Alto cannot require BMR units in any project intended for renters.


Under a legal ruling known as the “Palmer rule,” for many years localities have been prohibited from imposing inclusionary requirements on market rate rental housing projects, contributing to a decline in BMR production. In 2017, the State enacted legislation to “fix” that barrier, so local governments now have flexibility to significantly extend the reach of inclusionary laws.


The city’s existing inclusionary housing law requires new, for-sale, market rate housing projects to designate 15% of their units as BMR or pay fees to the city’s affordable housing fund in lieu of building the actual units. (The amount of the fee does not account for the cost of land to build off-site BMR units, so it typically takes many years for in lieu fees to translate into new units).


Without appropriate contributions from commercial developers toward meeting the affordable housing demand they create, we can’t possibly keep up with BMR needs.


In 2018, County Supervisors voted to almost double commercial impact fees, to $68.50 per square foot, for Stanford’s academic development. (County staff recommended raising the fee to $143/sf of new academic space.)


A 2018 nexus study by Santa Clara County and a similar nexus study by Palo Alto in 2016 demonstrate that Palo Alto’s current $35/sf impact fee charged to commercial developers falls far short of covering the public cost of building housing to meet new BMR demand created by those commercial projects. Yes, even Santa Clara County thinks impact fees can be higher.


In summary, we urge the City Council to expedite scheduling and adoption in addressing the affordability and preservation aspects of the Housing Work Plan as addressed in the colleagues memo.


——— developed by Arthur Keller, PAN Housing Chair