It takes a village

For nearly four years, Josh To was, by day, a Google employee, and by night, a residential counselor with his wife, Sara, at Eastside College Preparatory Academy in East Palo Alto.

The contrasts he experienced made him feel like he was in two worlds each day, he told a group of parishioners at Highway Church in Palo Alto in January. He was proud of where he worked, but also felt the the company’s presence “had downstream effects on the community.”

At Eastside, many of the students he worked with had families who lived in the Central Valley and could go home only on weekends. Many of the students would spend weekdays living on campus, and travel on weekends to visit their families as far away as Stockton, Tracy or Merced.

He and Sara, who now live in Menlo Park’s Willows neighborhood, started a Menlo Park-based nonprofit organization – previously Brute Labs and now called Soup – about 10 years ago that has most recently shifted its focus to getting more accessory dwelling units built in the Bay Area to provide a roof over the heads of lower-income renters.

The family has just installed an accessory dwelling unit on their own property as a trial run; they intend to use it as a show unit for the next few months before leasing it to a low-income renter. They built it partly as an investment to bolster their household income, but also to learn how the process works to better guide other property owners through it.

The backyard home they installed was purchased from the Canada-based prefabricated home manufacturer Honomobo and has two bedrooms and one bathroom in 640 square feet of living space. It also comes with a washer, dryer and water heater. It is a modern, rectangular unit with large windows facing the backyard, and has an uncluttered, open layout.

In a January interview, the Tos said that the process with the city of Menlo Park came with some unexpected steps for people new to construction, and ended up costing $89,85 in plan reviews and permits.

In particular, Mr. To said, he found it surprising that an arborist had to come to the site to inspect every tree, and that he had to get written permission from the neighbors approving the unit’s architectural style.

The project also required approval to build past the standard rear setback on the property line.

The Tos took extra steps to keep costs low by doing things themselves, Mr. To noted. They didn’t hire a general contractor, and it took a while to pick up on the “architectural jargon” of the city’s planning department, he said.

On the other hand, buying a prefabricated unit meant that he didn’t have to worry about overseeing the construction of the house itself.

In all, the unit cost about $200,000 and took about a year to build, Mr. To said. He added that he thinks the process could have been done three to five months faster, knowing what they know now. Costs to build such units vary widely, though, the couple emphasized.

One of the biggest costs for a new unit is the foundation, he said. Initially, every quote he got came in at over $100,000. Eventually he lucked out, because the father of a student he’d worked with at Eastside College Prep who owned a concrete business agreed to help with the foundation work for $20,000.

Armed with some firsthand experience, Mr. To said, Soup plans to provide support to property owners seeking to build second units in exchange for the owner’s contracted assurance to lease the unit for a certain amount of time to low-income renters, likely holders of Section 8 vouchers.

The group initially sought to focus its work in East Palo Alto, but because of the water moratorium in effect there, they have been adding households from across the Bay Area to their wait list, which now numbers about 20 or 25, he said. The family-funded nonprofit recently hired Pamela Dorr, former executive director of Hero Housing in Greensboro, Alabama to run the program.

Working on one second unit at a time is not likely to generate a huge number of new units quickly, but the goal is to popularize the development of such units. Mr. To said he’s hoping to make adding an accessory dwelling unit like adding solar panels. Any new unit that gets built in the Bay Area will reduce the overall pressure on the housing market, especially if his organization can claim at least some of the new units for lower-income tenants.

Soup is only one of several efforts to help property owners take the housing crisis into their own hands.

Challenges

When it comes to building second units in Menlo Park, one of the policies that both the city’s housing and planning commissions have discussed in recent months as a barrier to second units is the city’s minimum lot size requirement. The city’s current minimum lot size is 6,000 square feet, but city planners in the past have recommended that the minimum size be smaller.

Without a legal option to add on-site housing, some households in Menlo Park have illegally converted their homes to accommodate more people, which can create health and safety problems. Costly permitting fees are another possible reason some households don’t pursue formally permitting second units.

Menlo Park code enforcement officer Eleonor Hilario has said that a common safety issue she responds to is when garages are illegally converted into living quarters. People who live in garages may have large water heaters in the room, or no insulation or heating, so they’ll plug in many appliances through the same power strip, which can create a safety hazard, she said.

In her code enforcement work, Ms. Hilario said, she’s found families, some with small children, living in garages, storage sheds or trailers, which have not been cleared for safety by the city. “You empathize and sympathize with them,” she said. “It’s heartbreaking to just tell a family, ‘You cannot live in here. Eventually you will have to move out.'” If the illegal housing unit can’t be cleared for safety, she may have to red-tag and evacuate it, she noted.

A regional problem

The housing crisis isn’t unique to Menlo Park, as evidenced by the region’s sky-high rent, grinding gridlock indicating more jobs than housing around, and frequent employee turnover in local restaurants, shops and even schools.

Part of the problem is that, in San Mateo County, there just aren’t very many places to build.

Looking at the county’s territory, about three-quarters of all the land within the county is protected open space or agricultural land, according to Angie Evans of the Housing Leadership Council of San Mateo County.

And of the remaining quarter, about two-thirds is zoned for single-family housing. That leaves only about one-twelfth of land in the county that could be used for multi-family housing and that land is likely to be claimed by developers for more profitable purposes, such as building office space.

But while policies to support higher-density and more affordable housing can help get many affordable units built, housing advocates have also argued not to forget about policies that enable residential property owners to build second units. Doing so increases the overall housing stock in areas that are otherwise considered “built out” at very low densities and can provide property owners with extra income – to help with their own burdensome mortgages – while boosting property values.

Ultimately, though, second units probably won’t solve the housing crisis. All cities and policymakers can really do is encourage property owners to build them and make rent something less than exorbitant. The idea is that a small second unit is still cheaper to rent than the adjacent McMansion, and can still provide property owners income through rent.

And under state law, second units are not subject to policies like rent control, even in jurisdictions with such laws on the books, according to Menlo Park Housing Manager Jim Cogan. Plus, there are as yet no policies in Menlo Park discouraging homeowners from listing their second units on Airbnb or other vacation rental sites, which can fetch a higher per-night return than a longer-term tenant.

The city’s Planning Commission last year flirted with recommending a ban on short-term rentals (less than 30 days), but the matter was postponed. A cursory look at Airbnb listings in Menlo Park indicates a handful of second units are available for short-term rentals on any given weekend.

Second units may be most useful in providing housing for what some housing advocates call the “missing middle,” a term describing the gap in housing supply for moderate-income earners. Typically, getting housing built for that income category is the hardest to get financed because many available government subsidies or tax credits can go only toward building housing for renters at low, very low- and extremely-low income levels, Mr. Cogan said.

To meet regional housing demand, the city ought to permit 142 more moderate-level housing units, according to the state’s regional housing needs assessment valid through 2023.

In the past several years, some state and city policy changes have made it easier to build second dwelling units. For instance, a state law the city adopted in 2017 made it so that parking requirements would be waived if a proposed second unit were added in an area less than a half-mile from ready public transportation access.

There have been some signs that more second units are getting built as a result. In 2017, 37 percent, or 13 of the 35 total units, of net new housing units permitted in Menlo Park were second housing units, according to the city’s annual housing report.

County tools

In January, San Mateo County’s “Home For All” initiative released a toolkit that provides a workbook for property owners, walking them through considerations they’ll need, from cost estimates to the kinds of questions to ask city planners.

A calculator tool on the website – which comes with a waiver noting it’s a rough estimate and explains some of the assumptions it makes – shows the investment benefits of building different sizes and types of accessory housing units. For example, if one were to convert a Menlo Park garage into a standard-quality, 500-square-foot studio at an estimated cost of $192,700; pay $50,000 and take out a 20-year loan for the rest, one could expect a monthly net income of $958 ($2,132 in monthly rent and $1,174 in monthly costs) charging market rate, with an estimated two years for the unit to pay for itself in increased property value and four years to recover the cash investment.

It also describes the financial impacts of opting to reduce rent on the second unit to be affordable for someone on a schoolteacher’s salary. In that scenario, one might still expect $521 in monthly income ($1,640 in rent and $1,119 in monthly costs), with an estimated four years for the unit to pay for itself in increased property value and six years to recover the cash investment.

Access the toolkit and calculator at secondunitcentersmc.org.

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