The issue in question focused on the prices at which owners of the city's 246 below-market-rate (BMR) units could sell their homes.
The city's BMR program, one of the first in California, allows households that earn between 80 and 120 percent of the median income to purchase a residence at a greatly reduced price, in exchange for deed restrictions including a limited appreciation rate.
Recent sales have ranged from an older one-bedroom condo for $108,900 to three- and four-bedroom condos in Arbor Real for between $275,000 and $383,000.
Nearly all of the units currently appreciate in value at a rate of one-third of the Consumer Price Index (CPI), or about 1 percent per year.
This spring the city had considered allowing greater appreciation after learning that some units grew "too" affordable, allowing families with very low incomes to qualify for the purchase, yet not necessarily be able to keep up with maintenance and homeowner's fees.
Also, the low appreciation rate frustrated longtime owners, who expected to be able to sell their homes at closer to market value. The program also failed to reward those owners who kept their properties well-maintained, some residents and administrators involved with the program said.
In March, the council (with an 8-0 vote) asked city housing staff members to analyze shifting from a CPI-based resale price to one linked to local incomes, encapsulated in an Area Median Income index created by the state.
The council also decided to award an annual maintenance bonus of $2,000 to most owners who leave their properties in "move in" condition at resale. City inspectors will evaluate the condition of the residence.
Yet in practice the bonus alone pushed up resale prices enough to boost compensation for owners while keeping prices safely below the cost of newly constructed BMR units, according to the Palo Alto Housing Corporation, the nonprofit that administers the program for the city.
This month, the council's Policy and Services Committee unanimously voted to retain the current pricing formula for the program.
"After a lot of discussion, it just made the most sense for us," Councilman John Barton, a committee member, said.
"They felt they wanted to [keep] the units as affordable as possible," said Cathy Siegel, the city's advance planning manager. The committee also signaled its emphasis on keeping residences in the city's program, which is also the Housing Corporation's goal.
The corporation wants units to remain in the program — by limiting their appreciation and preserving long-term deed restrictions — and ensure the program is as simple to administer as possible, board President Bonnie Packer said.
When faced with the city's recommendation to switch to an income-based appreciation formula, with caps and floors, the board balked, concerned the formula was too complicated and would allow resale prices to climb too rapidly.
"One has to keep in mind the BMR ownership program was never designed to be an equity-building program, as much as anybody would like it to be," Packer said.
It submitted a Sept. 9 letter to the city expressing support for retaining the one-third CPI formula.
This spring, some council members had questioned the entire premise of the BMR program, which calls participants "owners," although their ownership rights are limited.
Packer admitted the program is complicated.
"It's a difficult one for people to understand," she said.
At least part of the confusion stems from the mismatch caused by applying societal policies — integrating all income groups, providing housing for local workers, creating permanently affordable housing — to individuals, who want to maximize their return.
"People have a lot of pride when they own their own place. If you can achieve that, it's a good thing," Packer said.
The full council is expected to consider the policy in early November, Siegel said.
The waiting list for a BMR residence includes 541 families, said Marcie Mitchell, the BMR housing administrator with the housing corporation.