Viewpoint - January 13, 2010

Letter: Commissioners share facts on city's BMR housing

The recent legal action taken by the City of Menlo Park to retrieve a BMR condo unit in Menlo Square from default has raised some questions from city residents. Our intent is to provide factual information regarding the city-managed BMR program.

Between 1996 and the present date, 57 BMR units have been developed. Of those 57 units, seven have been resold to a second owner and one unit has been foreclosed. Two owners have received additional financial assistance, which was folded into their existing PAL loan. Currently, one unit has action pending against the owner for borrowing against the unit in excess of the BMR value of the home, a violation of the BMR agreement.

Loan applicants are carefully screened and eligibility is closely monitored through established guidelines. Compared with the market rate foreclosure numbers, the city's BMR foreclosure of less than one percent is noteworthy.

Fees and interest collected by the city through the BMR program to date is $11,403,791. One might ask those against BMR programs if they think that all government housing assistance should be ended. If the answer is yes, ask if that would include the largest housing government subsidy program, income tax exemption for mortgage interest.

Patricia Boyle, Anne Moser

Members, Menlo Park

Housing Commission


Posted by POGO, a resident of Woodside: other
on Jan 14, 2010 at 9:01 am

This letter makes a very good argument and I congratulate the authors.

But, in addition to getting that below market rate purchase price, those BMR homeowners also benefit from what the authors refer to as that "largest housing government subsidy program," the mortgage interest deduction.

But my answer is yes, even though it represents my largest single income tax deduction, I'd be glad to see that subsidy (mortgage interest tax deduction) go away. I don't think it's the government's business to subsidize home ownership over renting, for instance. That deduction inordinately helps the rich, the banks, real estate agents, home insurance companies and inflates housing prices.

A fairer choice would be to simplify the tax code and lower everyone's tax rates - renters and homeowners alike.

With regard to local government's intervention in the BMR housing market, if our elected officials could FIRST fix our streets, improve our infrastructure, restore our fiscal integrity and solve the pension crisis, I would have no problem with them taking on these other issues.

Posted by truth, a resident of Menlo Park: Belle Haven
on Jan 15, 2010 at 8:44 am

When it comes to BMR units and helping the folks who may not otherwise be able to help themselves, this is where Menlo Park is Menlo Park and Woodside opinions are just a joke.

What challenges do you guys face? Your "help" may have a place to live on your property during work hours, but when you go off to do your insider trading at Bucks, they go back to the real world. We actually have a large portion of lower income families in our town that require our leaders to govern with compassion, not just based on the tax code.

Does anyone understand just how diverse the city's challenges are in comparison to others? Atherton, Palo Alto, Woodside, Portola Valley...all one wealthy class bracket. Living in the heart of our lower income community I will tell you, we need affordable housing urgently. We need it all over town but we need it.

Developers and friends can cry foul all day long about creating opportunities for the middle class and lower to live in Menlo Park, but for now I am confident we have a council with the right moral compass to shut down that ignorance.

Posted by downtowner, a resident of Menlo Park: Central Menlo Park
on Jan 15, 2010 at 12:58 pm

I believe in charitable giving to worthy causes, either privately or as part of an organization. BMR is charity given without input from those who pay, either in higher taxes or lost revenue for improvements & repairs.

Can anyone explain how it benefits MP residents to provide discount price housing so that people who would not otherwise be able to live here can now come & enjoy the benefits that non-BMR residents & local businesses pay for? Sweet deal for the BMR residents. Is there a requirement that they work in MP? If not, perhaps they can help reduce congestion & pollution by living where they do work. Is there even a requirement that they be employed?

This feels like mandated charity which strains all the resources of the community, adds to the overcrowding of schools, increases traffic on local streets, etc. Menlo Park already has about as many or more residents as its present facilities comfortably allow. Maybe adding housing & bringing more people justifies hiring more City workers & creating bureaucrats & THAT is what this whole BMR push is about?

Posted by Reality, a resident of Menlo Park: The Willows
on Jan 15, 2010 at 1:21 pm

The difference between the market cost and the BMR cost is not being absorbed by the developer. The people who purchase the market cost units are sharing the cost of the BMR units.

To even think that developers are losing money on BMR units is crazy. If an educated developer choses to build a large residential project the cost of the BMR unit is included in the cost of construction. The cost of the land, the design team,the development team and the city fees are all added to the cost to build. The sale price for each unit is determined with the desired profit included. If the market does not appear to support a residence selling for the amount the developer wants to get to cover his/her costs and a profit - THEY DO NOT BUILD. If they can not obtain construction financing to cover their anticipated costs - THEY DO NOT BUILD.

The timing of the projects is hard to control. When the project hits a road block (planning departments, building departments or legal issues) the weeks or months added to the release date can kill a project or cut into the anticipated profit.

If there was no money in developing the developers would change careers. There are alot of OLD RICH successful multi-family developers on the Peninsula and they do not live in shacks.

We need BMR units, the cost to build the BMR units are paid for by the people who buy the standard units who have higher incomes. The cost of the BMR units is not going to cut the profit of a developer. They might make a smaller markup but they certainly are not going to go broke.

Posted by downtowner, a resident of Menlo Park: Central Menlo Park
on Jan 15, 2010 at 1:39 pm

Yes, Reality, but why do we need BMR? I know that the BMR units within each development are subsidized by the immediate neighbors who essentially pay a surcharge, but why have BMR at all? How do BMR residents add value to the community? Once here, don't they just additionally burden the infrastructure? If they qualify for subsidized housing, do they have enough money to meaningfully support local businesses?

Posted by POGO, a resident of Woodside: other
on Jan 15, 2010 at 2:27 pm

Yes, truth, I'm sure you're right.

What could I possibly have to offer? I'm just a dumb guy who probably knows nothing about the economics of BMR.

Remember that old adage about teaching someone to fish instead of giving them food?

"Insanity: doing the same thing over and over again and expecting different results." - Albert Einstein

Posted by realist, a resident of Menlo Park: Belle Haven
on Jan 15, 2010 at 2:30 pm

The cost to BUILD the BMR units may be absorbed by the other homebuyers, but there are ongoing costs, including the fact that BMRs drive up the cost of housing for everyone else and the fact that quite a bit of city and volunteer time is consumed in managing the program.

Menlo Park is a diverse community and there is already affordable, non-subsized housing in Belle Haven. People who can't afford to live in homes in Menlo Park should live in homes they can afford. Sure, we may lose a resident who would be a terrific asset to our town, but that person will then be a tremendous asset to another community that may need her/him more than we do.

Posted by dejavu, a resident of Menlo Park: The Willows
on Jan 15, 2010 at 11:14 pm

Didn't an insane push for everyone to participate in the "american dream" of home ownership almost wreck our economy (may still yet!)? Not everyone should own homes. period. The fact that there are no oceanfront homes on the peninsula that I can afford does not have me clamoring for affordable housing there. If you cannot afford to buy a house where you want, you either buy a house elsewhere or rent. The aforementioned myopic focus on ownership as the gauge of success led to pressures on banks to make risky loans and the resulting skyrocketing prices led buyers to believe prices could never drop substantially... mix in a WHOLE LOT of greed, and next thing you know banks are giving $500,000 loans to people making $40,000 a year with no proof of income on an interest-only loan with no money down. Now, I'm no economist, but I would like to believe someone with $100,000 into a $500,000 home would be more likely to do everything within their power to make the payments than someone with nothing more than closing costs invested (if that). The way to sane housing prices in the bay area is to increase supply and remove the perverse incentives to get people into homes they can't afford. Even with the recent meltdown, you are able to buy a home with 3% down (which sellers often rebate at closing for more affordable homes). Not only is this bad practice by begging for more bubble/burst cycles, it is a risky game to play with our city coffers. Houses prices CAN drop more (and likely will in areas like Belle Haven once all the ALT-A loans recast over the next few years). To paraphrase one of the regional feds when being questioned in congress regarding banks' slow pace of altering loan terms for borrowers: 'The income of an unemployed person is often zero: most banks will not find acceptable payment terms commensurate with no income.' Government at every level needs to be doing everything they can to bring jobs back, and nothing else.

Posted by Joseph E. Davis, a resident of Woodside: Emerald Hills
on Jan 16, 2010 at 8:02 pm

The BMR program is an outrage. It should be halted immediately. We are broke. Our government is broke at every level. Trying to interfere with the market for housing has nearly crippled this nation. It does not work, and it will never work.

Posted by other impacts, a resident of Menlo Park: Central Menlo Park
on Jan 18, 2010 at 4:22 pm

BMR units do affect others, in addition to those who pay market rates that help ensure the developer comes out with the profit they want. When BMR units are included in a project, the developer is allowed by state law to build more units than he could have otherwise. The extra density does affect traffic, schools, water supply, parks, demand for services for everyone else. The extra density makes the land more expensive, increasing the average market price. Well-intended, the BMR program has its costs.

Posted by balance is best, a resident of Menlo Park: Allied Arts/Stanford Park
on Jan 19, 2010 at 9:14 am

Yes, the BMR program has its costs, but I think good societies are willing to pay them. The ability of lower-paid members of our society -- teachers, nurses, emergency workers, blue-collar workers, artists -- to live on the same block as doctors, lawyers and financiers is good for us all.

A community is only as rich as it is diverse enough to sustain itself as an independent entity. This is true on the cultural level as well as the pragmatic level. And, the more people who live closer to where they work the better it is for the environment too.

Posted by realist, a resident of Menlo Park: Belle Haven
on Jan 19, 2010 at 10:55 am

Ah, the BMR as social engineering tool, the idea being that housing artists next to hedge fund managers will somehow create a richer environment for both. Because, you know, hedge fund managers tend to adhere to certain stereotypes, as do artists, and if left to their own devices they would associate exclusively with others in their profession and remain shallow and unfulfilled, but when they live on the same street, they will all gather together to have potlucks and playdates and will learn and grow from one another.

Wow, those are a lot of assumptions, most of them fallacious! How many of us hang out with our neighbors anyway? How many of us even know the names of half our neighbors?!?

>>>The more people who live closer to where they work the better it is for the environment too.<<<

Most people who live in BMRs in Menlo Park are commuting to work in Sunnyvale or Redwood City, just like the rest of us. So let's not trot out that tired argument either, okay? For the most part, they aren't teachers or police officers or emergency workers either -- they're just people whose income was low enough for them to qualify for the BMR unit.

Posted by POGO, a resident of Woodside: other
on Jan 19, 2010 at 5:12 pm

The math isn't that complicated.

Suppose you wanted to develop 10 condos and which you built for $500,000 each and planned to sell for $650,000 each (actually, this isn't that far from reality). You'll invest $5 million to make about a $1.5 million profit.

If the City Council wanted you to price just 3 of those units at a BMR of $550,000, you'd have to price the remaining 7 units at $692,900 to achieve the same profit. In addition to having to sell the other 7 units at $692,900 instead of $650,000 - which will probably take more time - it also means that your complex is inflating the MR price by $42,900 each.

Is that really the intended result?

Posted by other impacts, a resident of Menlo Park: Central Menlo Park
on Jan 20, 2010 at 8:35 am

The BMR doesn't work that way, POGO. For each BMR unit provided, the developer can build another unit, up to 15% more units. Using the same cost per unit ($500K), and BMR price of $550K for 3 units, and assuming a 23 unit complex (for 3 BMR and 3 extra units), the needed price for the non-BMR units is $642.5K to give the developer the equivalent profit on a 20 unit complex priced at $650K each.
So the developer could sell at the original "market" price and pocket an extra $150K while the community has 3 more units' worth of traffic, school impacts, etc.

Posted by POGO, a resident of Woodside: other
on Jan 20, 2010 at 2:00 pm

Sorry, but you've changed just too many of the variables to make your point. The site hold 10 units - you can't put 23 there just to make the math work.

Real world: you have to assume that a developer would have maxed out the number of units on their targeted site. Suppose there's no room for additional units - they simply allocate BMRs from the proposed plan.

Either way - and that includes your example - the non-BMR units INCREASE the market price for everyone else. Someone is subsidizing these units and it's obviously the other buyers.

Posted by narnia, a resident of Menlo Park: Sharon Heights
on Jan 20, 2010 at 3:01 pm

there is just too much to talk about in the debate about BMR housing.

Besides the mortgage deduction subsidy paid by all, including those who cannot benefit from it due to lack of income there this: the great majority of MP residents benefit from the higher taxation (including, state, county and municipal) of the higher Menlo Park incomes and therefore don't pay fully their community share . Why is this different from the BMR unit owners?
It isn't. So, get off your high horses. One can discuss the benefits and drawbacks of having BRM's but most of those who complain are not paying their share. Somebody else (I,and many others, for example) is paying for, at least, part of their use of city resources. If we are all starting to complain about others let's at least look honestly at ourselves individually.

Are you paying the full cost of educating your children? Are you paying your share of your use of facilities? Those who have children and those who are old should look into this.
Are those living in areas more prone to crime not using more police activity than those
who live, say, in Sharon Heights? Finally, many of those BRM's pay more property (parcel) taxes than the majority of those benefiting exceedingly for prop 13 (payed by all of us , of course).
Folks, is this is a nation and a community, not a collection of individuals all wanting more for themselves and less for others. Or am I wrong?

Posted by POGO, a resident of Woodside: other
on Jan 20, 2010 at 4:20 pm

Actually, most of us pay FAR more in taxes than we ever receive could receive in services. I know I pay far more in school taxes, for example, than I have or will use.

That's not the complaint or the issue at hand.

The issue is if our local government should be in the housing business at all. Personally, I don't think so. I think it's just a recipe for the kind of enormous economic dysfunction our country just experienced.

There are lots of things that you and I can't afford... we shouldn't expect our government to subsidize them for us. We should all live within our means.

Posted by other impacts, a resident of Menlo Park: Allied Arts/Stanford Park
on Jan 20, 2010 at 4:50 pm

The math works on only 10 units also. But the density bonus would be limited to 1.5 units. Assuming 3 BMR units anyway, and 1.5 bonus (who knows how that would be handled), the resulting market units would cost $659 each. You have to consider the bonus units allowed.
It was just easier to show with whole units.

Posted by narnia, a resident of Menlo Park: Sharon Heights
on Jan 20, 2010 at 4:55 pm


If most of us pay FAR more in taxes than we receive there would be a surplus and there isn't. My point is that in Menlo Park the great majority of people pay less than their usage of resources. I don't mind that as long as they are not always throwing stones to other people's roof,s forgetting that theirs is made of glass. That's really hypocritical and nasty.

It would be good to have a debate focusing on your point . But this is a debate about helping some of its residents. I don't see what the problem is because many are helped and they don't even notice it.

So, let us not subsidize mortgages (none), parcel tax (prop 13), medicare ( government health care for the over 65), schools, community programs (why should I pay for part of your yoga lesson?) or else let us be fair. The BRM residents are not the only ones being subsidized.

Posted by POGO, a resident of Woodside: other
on Jan 20, 2010 at 10:31 pm

Narnia -

Thank you for your thoughtful response. I appreciate the civil exchange.

Individual income taxes are not a zero sum game - you don't get back what you pay in. A remarkably small percentage of people pay a lot of taxes and a remarkably large group of people pay relatively little. For example, two identical families can live in identical homes side-by-side and one family can pay multiples of the other's property taxes due to the prices they paid for their homes.

In economics, they refer to taxes as transfer payments because they are INTENDED to be a redistribution of wealth. That's okay and it's not a complaint.

When I said "most of us," I was referring to our neighbors in this area. We live in a relatively affluent area and, as such, a lot of us pay a lot in taxes. I apologize if you were offended by that characterization because I was trying to make a point that many people in our area are big taxpayers.

I just don't accept that I get a lot or use a lot of government services DIRECTLY. Yes, I enjoy our freedoms, police and fire protection (although I've never had a fire or had a need to call the police, I appreciate that I have to pay for them so they are available when I need them), roads, etc. and for that, I am very grateful. But I rarely if ever use the very largest domestic government programs that comprise the vast majority of our domestic spending such as Social Security, Medicare, Medicaid, school systems, etc. Sorry, I just don't.

I've very much a libertarian and into personal responsibility. As such, I'm more than willing to forego my mortgage interest tax deduction (I've said that before) and see our government focus on providing good fire, police, roads and not worry so much about those yoga lessons or intervening in the housing market.

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