Affordable Housing

Regarding building affordable housing, we are faced with several problems: lack of land, lack of interest on developers’ part and the cost (one unit costs $400-600,000). Please address:
• How do we get such housing built?
• Can we even build enough housing to satisfy demand?
• Should the City increase development fees to fund more affordable housing?

 "Satisfy demand": The vagueness of this phrase is indicative of the difficulty of the problem. For some, it means "Anyone who wants to live in Palo Alto can do so and at a price they can afford." Impossible, but it illustrates the more general problem: Even if Palo Alto manages to control job growth within our borders, nearby cities are pushing job increases far in excess of their housing increases. For example, Facebook in Menlo Park. And in Mountain View, East Bayshore and greater San Antonio Center area (former Safeway site, Target…). If there is no local and regional discipline on matching growth in demand to the available supply, blindly trying to increase the supply will not only be futile, but will seriously damage our community.


How to get such housing built: The question of whether or not to allow developers to pay in-lieu fees instead of building BMR (Below Market Rate) units is a conundrum. In-lieu fees are useful only when there is land available for an affordable housing project. But when there is land, in-lieu fees produce more units. First, they often can produce matching funds (state, federal, foundations). Second, BMR units in market-rate housing developments are almost always for only the uppermost tier ("moderate income"), whereas projects funded with in-lieu fees can produce units for the lower tiers ("low", "very low" and "extremely low") where Palo Alto has the largest shortfall.

With the steep increase in housing prices, the City needs to revisit the math. For example, BMR units in a market rate development are required to be equivalent to the market rate units, but the prices are very different. You can have a BMR sell for $0.5M where the equivalent market rate unit sells for $2.5M. The current requirements are for 15% BMR units (1 in 7), or a 7.5% in-lieu fee. Thus for a development with 7 units at $2.5M each, the developer has produced one affordable unit at a "cost" of $2M, whereas the in-lieu fee would be $1.3M. With 100% matching funds, that becomes $2.6M, or the construction costs of more than 4 units (doesn't include cost of land).

Experience with for-sale BMR units has been that there can be significant problems with deferred maintenance because reducing the sales price does not lower maintenance costs. And for rental BMRs, being scattered through many market rate developments can make them much harder to manage.

As you might guess, I strongly disagree with those who wish to abolish the option of in-lieu fees because it is based either on the assumption that there will never again be land for an affordable housing project or on the choice of "a few now" over "more later". Remember, in-lieu fees are an important part of the effort to save the Buena Vista Mobile Home Park.

I would push to have a better policy on making these choices—currently they seem to be decided between the developer and City Staff on an ad hoc, per project basis.

Increase development fees: San Francisco has and several other cities in the region are considering raising the BMR requirement to 25%. However, the discussion I have seen has centered on the simply need for more affordable housing and has not considered the consequences. I would want to hear the proponents of such an increase lay out their case in detail and then listen to the critiques from experts and other stakeholders.

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