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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

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The Benefits of Adding Market-Rate Housing in Palo Alto

Uploaded: Sep 22, 2022
Adding housing for residents who make more than 120% of the area median income is the largest component (2,621 of 6,086) or over 40% of Palo Alto’s RHNA housing goal. These units will be almost all apartments, townhouses, condominiums and ADUs. As a result of their smaller size, most will be in the
$1-2 million range for sale and equivalent for rentals.

I understand that many residents and council members and candidates place a higher priority on increasing the number of BMR units but the two goals are actually complementary and not in conflict.

And adding market-rate housing has added benefits as well.

Market-Rate Housing Helps Add BMR Units

Under the council-adopted Planned Housing Zone (PHZ) program, applicants must include 20% BMR units. And other market-rate developments must include at least 15% BMR units.

Council has recently heard 3 prescreens for projects that include 20% BMR units as part of the PHZ program that allows council to waive some development standards to make the project feasible. Council was generally supportive and I hope this leads to actual applications. And next week council will hear a prescreen on a project at ECR and Matadero that would include 76 BMR units, more than the Wilton Court project.

And previously council approved 2 projects that included 15% BMR units—on San Antonio and West Bayshore.

All new projects will still be evaluated by council if applications come forth, but the connection between market-rate and BMR units is clear.

Market-Rate Housing Adds Higher Income Customers for Our Small Businesses

I, along with many/most residents, city council members and candidates, support adding more housing for low-income residents.

Yet, I often hear on Town Square and elsewhere, talk of adding mainly or only BMR housing paired with a call for more retail. I don’t think this works economically. Many small businesses are struggling with the loss of customers to online shopping, the pandemic and, especially for our restaurants, the loss of daytime customers to work from home.

Adding marker-rate housing will help add higher income customers, something I think will be appreciated by small businesses and the city budget.

Once again, the pairing of BMR and market-rate housing helps achieve multiple city objectives.

Market-Rate Housing Can Help Avoid School Closures and Program Cuts

K-12 enrollment continued go decline in the new school year even as COVID cases are declining and schools are returning to normal. This is especially true in the lower grades. These declines will continue, absent a great amount of new housing, as birth rates continue to fall.

This does not pose a money problem for the district as we are funded by property taxes, but it can lead to closing or consolidating schools that are too small to function effectively and to program cuts where attendance is too small to support all programs. So some students will likely lose their neighborhood school unless enrollment starts to increase.

For many years the narrative about housing and schools was that more housing would create burdens. That narrative is now turned on its head. More housing is likely the only way to prevent inconvenience to parents, students and the district.

This is true for all housing including BMR housing.

Market-Rate Housing Can Give Seniors an Option to Downsize and Remain in Palo Alto

Most of our friends our age still live in their single-family home. But some, as we did, sold their home and bought a smaller and less expensive place often near services and shopping. And some moved to places like Channing House.

As the years pass, more seniors may no longer want or need their larger single-family home and desire to remain in Palo Alto but in a setting with less upkeep and more access.

I think there will a market for housing like the downtown condo we live in that will help seniors downsize and at the same time open up larger homes for families. And I wonder if the market is there for another facility like Channing House.

What is it worth to you?


Posted by toransu, a resident of Barron Park,
on Sep 22, 2022 at 11:50 am

toransu is a registered user.

Not to mention that the majority of the time, the focus on solely BMR units is just a convenient smokescreen to get out of building anything. Easier for the city council to make plans so economically unfeasible that the developers pull out of their own volition than to outright say no to something. That way, they get to pander to their base about "how hard they tried, but it's the greedy developers that don't want to build affordable housing" as well as get the added bonus of being able to demonize their opponents as shills for developers. It's a play right out of the Republican playbook: pretend to be for something as innocuous (that's really just bigotry wrapped up in a fancy bow) and then tell their base that anyone against them hates families/children/etc.

Posted by LongResident, a resident of another community,
on Sep 22, 2022 at 4:49 pm

LongResident is a registered user.

Palo Alto needs to add more BMR units than market rate units. I disagree with the assumption that such market rate units will EVER sell for the $1 Million range. It's more like $2 Million to $2.5 Million that could be considered market rate new housing condos in Palo Alto. Get real. Check the price of existing homes. Realize that the existing stock is not brand new. A brand new condo will sell for more and it will cost more to build. These condos have monthly HOA fees of $1000 per month too. That will continue. The developer will tend to add features to make the new properties cost more. That's reality of the profit motive.

And glossing over the rent of new apartments by saying it it will be equivalent to the new condos is a little non specific. A $1 Million condo now costs $7K per month in mortgage plus $1K HOA fees plus a down payment, property taxes and insurance. SO if rents were the same, they would be at least $8K per month to equate to cost for a $1M condo (which is an older construction legacy option).

No, I don't think adding market rate housing is the main need. Adding more BMR units is a real need and should not be lightly dismissed as being equally important as addiing new market rate (e.g. luxury) for rental to high income households.....

Posted by LongResident, a resident of another community,
on Sep 22, 2022 at 4:53 pm

LongResident is a registered user.

It's also worth realizing that in Mountain View, what has been done is to exceed the market rate housing production goals while lacking at getting the BMR unis. The numbers in MV are large. Market rate housing is getting the emphasis--not BMR. Palo Alto looks to me to be the same. Let's not let this continue by pretending it is not so....

Posted by Paly Grad, a resident of Leland Manor/Garland Drive,
on Sep 22, 2022 at 8:02 pm

Paly Grad is a registered user.

The Regional Housing Needs Allocation (RHNA) is unrealistic. Palo Alto does not need 6,086 new housing units. According to the United States Census Bureau, Santa Clara County's population decreased by over 50,000 from April 1, 2020 to July 1, 2021. If this trend continues I hope the Association of Bay Area Governments (ABAG) will revise their Regional Housing Needs Allocations (RHNAs).

Posted by resident3, a resident of Another Palo Alto neighborhood,
on Sep 23, 2022 at 2:36 pm

resident3 is a registered user.

While the decline in school enrollment is partly housing costs, unfortunately there are other reasons to leave cities/towns which are one left turn from having the same problems as some of the big cities.

Take the "pod house" coming near you. The decline in safety, where old people fear going downtown, and city government that has no say over state or regional mandates or treats quality of life as a NIMBY badge of shame. Would you want to pay more taxes for this?

Schools are a long term choice. People with money send their kids to private schools or will choose another location to go live and work in. Seems to me like BMR housing can save our schools more than market rate because market housing supposes competition and PA doesn't seem interested in competing on things that attract families.

Posted by Online Name, a resident of Embarcadero Oaks/Leland,
on Sep 24, 2022 at 11:04 am

Online Name is a registered user.

And of course market rate housing with no parking is much more profitable for developers at a time when businesses refuse to pay their fair share of taxes, spend hundreds of millions of dollars lobbying against paying gig workers benefits like health and unemployment insurance, when Stanford keeps removing housing units from the community housing pool to house their community while lobbying for tax breaks and refusing to build housing for their community on their campus...

Posted by resident3, a resident of Another Palo Alto neighborhood,
on Sep 24, 2022 at 1:52 pm

resident3 is a registered user.

Parking is actually a big reason why small businesses looking to attract "higher income" customers will be disappointed. Ever see anyone on bikes or on a shuttle carrying shopping bags? The more interesting businesses that attracted families..the Art store, toy and sports store downtown, also are all gone.

The sex shop on Ramona probably doesn't make up for the sales at Diddams. This being said, things have changed. There's online shopping, Covid will change people's habits even more. How will market rate housing help? If anything, market rate housing will be good to keep more people at home.

As for Seniors who are downsizing, is this for Seniors coming from out of town? Most Seniors in Palo Alto change housing with a permanent exit.

Posted by resident3, a resident of Another Palo Alto neighborhood,
on Sep 24, 2022 at 1:57 pm

resident3 is a registered user.

I'm not against market rate housing, just the rationale that it will help save schools, seniors and small businesses.

Done well, market rate housing should be priced to pay for parking. I supposed that would make things even more expensive and why any development should serve creating BMR.

Posted by stephen levy, a resident of University South,
on Sep 25, 2022 at 3:27 pm

stephen levy is a registered user.

There is no competition between market-rate and BMR housing. With the 15% or 20% BMR requirements, market-rate housing is a complement to funding for 100% BMR projects. And the benefits of market-rate housing do not depend on the RHNA housing goals for the city that council is developing a plan to meet.

On a practical level, market-rate housing is likely to produce more units faster than the business tax though both add to BMR units. The tax, if passed, has no revenues in 2023 and half the rate in 2024. Then as revenues are accumulated, there still need to be applicants, project approvals and actual starts. This is not an argument against the tax, but does speak to timing of BMR units. The Wilton Court project took six years to approve and the teacher housing project is 3 years and still being evaluated.

So I think residents who care deeply about BMR housing should embrace the ability of market-rate projects to bring BMR units to Palo Alto.

And then there are the other benefits I mention in the blog.

Posted by stephen levy, a resident of University South,
on Sep 25, 2022 at 4:04 pm

stephen levy is a registered user.

There are some comments above that are both wrong and not responsive to the blog points.

The Bay Area RHNA goal, of which half is to help existing residents and not about growth, will not be changed and ABAG, which is in charge of the allocation only, will not change. And my argument is about benefits from building housing.

Since 2015, Mountain View has approved many more, not fewer, BMR units than PA, though both are failing and this is again not relevant to the benefit I point out. In the 5th cycle RHNA starting in 2015 by the end of 2020 MT View had permitted 244 units for very low income residents and 215 for low income residents compared to 101 and 60 in PA. And in 2021 PA permitted 0 new BMR units.

With COVID, work from home and online shopping, I am sure small businesses do care about parking but would prioritize adding customers whether from housing growth or the return of office workers.

In my experience the families who left were my son's friends' parents and his friends, not older residents. I see many seniors in my building who chose it to be downtown and remain here active and see strong demand for places like Channing House. We are not talking large numbers but I bet places like where I live or even a bit smaller and without stairs would be snapped up quickly.

Posted by scott, a resident of Fairmeadow,
on Sep 26, 2022 at 11:28 am

scott is a registered user.

Anyone suggesting that market rate development is in tension with BMR should read the (newish) moving chains study out of Helsinki. They were looking a what happens to housing markets when you account for vacancies people *leave behind* as they move into new construction:

Web Link

I'll wait. What, you didn't read it? Okay. Please read this *one sentence*. You can do that, right?

"For each 100 new, centrally located market-rate units, 29 units get created through vacancy in bottom-quintile income zip codes and 60 units in bottom-half income zip codes."

Please, think of that one sentence every time you see a Tesla parked in front of 50-year old housing. A big part of the story on how we get to housing affordability in the Bay Area is going to be coaxing rich people to move into housing for rich people, so the less well-off can benefit from the perfectly-fine units they leave behind.

Every time you see a Tesla parked in front of housing built in the 1970s, you should be thinking: "We need more luxury housing. Otherwise, this guy is never gonna move."

Posted by stephen levy, a resident of University South,
on Sep 26, 2022 at 12:46 pm

stephen levy is a registered user.

Ha ha Scott. That is what we did. Sold our big house to a family with kids and moved downtown to a very nice condo expensive but half of what our house sold for.
We did not have a Tesla then but do now along with some condo neighbors.
Yes in addition to helping seniors downsize, it does as you say free up single-family homes for new families.

Posted by resident3, a resident of Another Palo Alto neighborhood,
on Sep 26, 2022 at 2:42 pm

resident3 is a registered user.

@scott and steve.

"Anyone suggesting that market rate development is in tension with BMR should read the (newish) moving chains study out of Helsinki."

Please take a minute to read what competition I was commenting on- Market rate to Market rate. Known as the option to leave Palo Alto when you have a choice. Market rate housing away from Palo Alto and CA at is Palo Alto's competition.

This was related to the point that BMR has more chances to save schools than market because "high income" people prefer private schools and who would choose to live in a place that shuns parking? That alone kills the vibe for Palo Alto.

This post - evoking schools, struggling businesses and seniors to be saved by a glut of market rate housing is just flawed.

Posted by Native to the BAY, a resident of Old Palo Alto,
on Sep 29, 2022 at 5:10 pm

Native to the BAY is a registered user.

Better to take care of the poorest and most in need first before speaking to more market rate rip-off condos. Stabilize rents and get rid of real estate scammers charging $1500 per Bdrm, $1000 per bthrm $1000 per 8 X 4 foot concrete "balcony", $1000 for in unit washer and dryer, $1000 per closet, $1000 per parking spot $1000 per pet. Why not get real with rents and list charges by square foot and ammenity provided. Kind of like a list of charges a hospital or surgical procedure will cost, line item by line item. This is NO JOKE. There is no economy when single HOH service sector worker's wages do not garner proof of 3 times the earnings to wages to asking "rent", $7000 deposit demanded, 700 or better credit score. This is discriminating behavior against the lower wage worker who has to come farther and farther by car. It is wrong. Mr. Levy the PAUSD has done a lot more than collect private property tax revenue. They got it immediately together after heinous prop 13 passed and have done other "funding" opportunities. What the city has neglected to do is raise taxes on the very very very rich here. Landlords are land prospecting on tenants. Charging for what the property might sell for in the future. It has nothing to do with property taxes. It's greed on steroids. Everybody's in on the game, except those out on the streets and in the gutters and rail yards, and under freeways. Past time to change the rules not just throw numbers out and hope one of them sticks to the chalk board.

Posted by resident3, a resident of Another Palo Alto neighborhood,
on Oct 2, 2022 at 11:31 am

resident3 is a registered user.

@Native to the Bay,

"Mr. Levy the PAUSD has done a lot more than collect private property tax revenue. They got it immediately together after heinous prop 13 passed and have done other "funding" opportunities."

It's PAUSD parents (not the district) who have organized more funding for the schools. There is PIE (which funds staff) and PTA (which funds stuff). There's also been big private donations that have funded gyms and buildings. What PAUSD gets right is that it works well with the people who raise the money to benefit the schools.

The City doesn't engage residents in that way and there is no mechanism to just tax the rich. It doesn't help that the City alienates residents by catering to businesses and developers instead. It doesn't help to read posts like this one which claim that having more rich people will help.

Having more rich people will not help because our form of government with transient unaccountable councils has no way to making that work in favor of community needs. The business tax debacle and the runaway fiber project are signs that the City has no real connection to residents which is very different with the funding for the schools where you can trace more clearly how the money will be used.

Posted by Cecily Tavares, a resident of Menlo Park,
on Oct 3, 2022 at 12:51 pm

Cecily Tavares is a registered user.

Is BMR housing also available to Palo Alto's homeless/transient population?

Ideally, the motels along ECR in South PA could also be used to accommodate the homeless as none of them are four star lodgings offering exemplary accomodations.

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