Spring Real Estate 2005

Publication Date: Wednesday, July 20, 2005

Affordable local housing
Below Market Rate units offer new hope for ownership

by Dwana Simone Bain

The terms "homeownership" and "moderate income" may not be mutually exclusive -- not even around Palo Alto.

While deep pockets are generally a prerequisite for purchasing a typical Peninsula home, pockets of hope do exist for less affluent locals.

That hope is commonly known as "Below Market Rate" housing -- generally townhouses or condominiums sold at reduced prices to average-income residents.

Palo Alto began offering BMR housing about 30 years ago. Menlo Park followed suit. Mountain View and Los Altos have BMR housing -- although largely in rental stock at the moment.

Housing officials say many middle-income locals are sometimes unaware they can qualify to buy below market.

Generally those who qualify to buy below market make between 80 and 100 percent of the county's median income. However, in Palo Alto a household of four can have an annual household income of $126,600 -- 120 percent of Santa Clara County's median income -- and still qualify to buy at Palo Alto's planned new development at 800 High St. Menlo Park also allows buyers to make up to 120 percent of the county median, or maximum gross income of $114,000 for a household of four.

While "Below Market Rate" does not translate to "Dirt Cheap" it can mean the difference between affordable and far-out-of reach. For instance, at 800 High St. 10 of the 61 condos will sell below market. The one- to three-bedroom condos will cost from the upper $200,000s to nearly $400,000, while the regularly priced units will sell in the $700,000 range.

When Menlo Park's Hamilton Park development goes on sale this coming summer, 15 of the three- to four-bedroom units will sell in the $325,000 to $375,000 range. Comparable market rate units will sell for $525,000 and $575,000.

Buying into BMR developments is not easy. Cities generally have lengthy waiting lists, with priorities. Generally, a city's police officers and firefighters are first priority for lower-cost housing, followed by teachers, residents and those who work in the city.

At Palo Alto Redwoods, homeowners even those with Below Market Rate units were hit with hefty assessments to replace rotting stairs and walkways. A fund was established to allow homeowners to borrow interest-free money to make the repairs

There is of course a catch to buying into the Peninsula dream at a discount. An owner cannot sublet the home or sell the unit at market rate. The units have deed restrictions limiting the appreciation value. And when sold, the homes must go to others on the waiting list.

"It's for people who really need and want to buy a home," said Meg Norwood, a management analyst for Menlo Park's Housing and Redevelopment Department. "The resale value makes sure that it's sold at an affordable price."

While owners of BMR units have less equity than their market-rate neighbors, they do reap substantial benefits.

"They have much lower mortgage payments, they're actually able to get into the housing market," said Linda Lauzze, neighborhood services manager for Mountain View's Community Development Department.

Below Market Rate units are included in the new construction at 800 High St. in Palo Alto, but the wait list is lengthy.

With Palo Alto approaching 190 units for purchase and Menlo Park with close to 50 units, Los Altos and Mountain View have comparatively fewer units for purchase. However, the cities are working to meet the affordable housing need with new rental projects. In 2003, the city completed Loyola Plaza, a mixed-use project on Fremont Avenue with eight units designated for teachers serving the district. This coming December, Mountain View will open 120 "efficiency studios," 300-square-foot abodes with large shared kitchens and meeting areas for the very low-income locals, those whose incomes peak in the mid $20,000s.

The concept driving the cities' planning is "inclusionary zoning." The zoning compels developers to include a certain percentage of homes or condominiums to be occupied by low-to-moderate income residents.

"We want to include lower-income people in every residential development," said Marlene Prendergast, executive director of Palo Alto Housing Corp.

Palo Alto requires 10 percent of new home development to be offered at Below Market Rate. Menlo Park also requires 10 percent. Mountain View requires 10 percent, but accepts in-lieu fees instead. Los Altos requires BMR housing in every multiple family development, but the number of units is at the city's discretion.

State housing laws determine each city's "fair share" of affordable housing. Cities must demonstrate ways they can accommodate that need, though they are not required to ensure it is built. "We take that very seriously and we require them [developers] to build it," said David Kornfield, associate planner with the city of Los Altos. "I think we're setting a real good example."

Mountain View has several subsidized rental buildings, but its BMR purchase program, begun in 1999, is still under development. The city has four ownership units and plans to build upon that supply. As the housing program builds, "We're going to be constantly refining the program," Lauzze said.

To gain some foresight into future, Mountain View watches its sister cities with older, more established programs.

Palo Alto's BMR program was among the first of its kind when it began way back in 1974. While it serves as a positive example, it is not without its pitfalls. Some of the older units are aging less than gracefully. Homeowners of BMR units are less likely to invest money to fix the homes, resulting in the units looking a little dated when they return to market, Prendergast said.

The program's biggest hurdle came in the form of $6 million stairs. The Redwoods condo complex was built entirely of redwood trees, including the stairs. In the late 1990s, the building suffered significant dry rot and needed urgent repairs. That would mean assessing each owner between $25,000 and $40,000. Those with market-rate units could borrow against equity in their homes, but BMR owners were in a fix.

After months of worry and negotiations, the city established a fund for the homeowners to borrow money without interest to pay those assessments. The assessments would then be incorporated into the unit cost as the condos resold, Prendergast said.

Granted, BMR units do not come up for sale often. Homeowners stay in place for a long time.

Those who hold out long enough could make a sizeable profit. Menlo Park's deed restriction expires after 55 years. Palo Alto's restriction expires after 59 years. The units can be willed to family members. Of course the family members must meet income qualifications or sell to other eligible buyers.

Who to call about Below Market Rate housing

For more information about Below Market Rate housing:

In Palo Alto: Visit www.paloaltohousingcorp.com or call Linda Mabry at (650) 321-9709.

In Menlo Park: Visit www.menlopark.org/departments/hsg/bmr.htm or call (650) 327-1759.

In Mountain View: To be placed on an interest list for BMR purchase units, contact the Housing Authority of Santa Clara County at (408) 280-1929; for the San Antonio Road efficiency units contact Charities Housing at (408) 282-1133 or visit www.charitieshousing.org.

In Los Altos: Advertises as units become available.