Judge upholds affordable-housing program

Court strikes down developer's challenge to Palo Alto's policy of requiring below-market-rate units in new developments

Palo Alto's effort to promote low-income housing received a major boost this month when a California Superior Court judge struck down a developer's challenge to the city's affordable-housing program.

The court upheld a Palo Alto ordinance that requires developers to devote between 15 and 25 percent of their developments to below-market-rate (BMR) housing. The policy also allows developers who can't meet these requirements to pay the city "in-lieu" fees to support affordable housing citywide. The policy is intended to encourage development of affordable housing in a city that officials agree sorely needs it.

The developer Classic Communities, which is building along West Bayshore, argued in a lawsuit that the city's zoning requirement is arbitrary and excessive and that it amounts to an illegal "special tax" on developers. The lawsuit also argued that Palo Alto is "unlawfully" forcing the developer to bear the costs for the city's shortage of affordable housing.

The lawsuit is one of several Palo Alto has faced in the past two years over affordable housing. Last year, SummerHill Homes threatened to sue the city but the parties settled after the developer agreed to pay $4.4 million in in-lieu fees rather than build the requisite number of below-market-rate units.

The city is facing another lawsuit from West Meadow Oaks, the company behind a six-condominium development on West Meadow Drive. The company is run by Forrest Mozart, whose father, John Mozart, is the president of Classic Communities.

The lawsuit from Classic Communities was particularly significant because it challenged the legality of the city's entire affordable-housing program, rather than the details of the particular project. The company agreed in 2006 to allocate 10 percent of the 96-unit Sterling Park development to affordable housing and to pay the city in-lieu fees equal to 5.4 percent of the price for each market-rate unit sold.

The developer argued in the lawsuit that the city's demand "was arbitrary and capricious, not supported by substantial evidence, and excessive." The lawsuit also claimed that the fees and affordable-housing requirements "arbitrarily require one class of property owners to contribute more to affordable-housing programs, which purportedly benefit the community as a whole, than other residents."

Attorney Scott Pinsky, who represented the city against Classic Communities, said the developer could still appeal the ruling. In the meantime, the judgment represents a victory for Palo Alto and its goal of providing more housing opportunities.

"It was challenge to the overall regulatory structure and program for inclusionary zoning," said Pinsky, who also represents the city in the West Meadow Oaks suit. "We were glad it was ratified."

Pinsky wrote in his response to the lawsuit that the city's BMR program has generated about 7.5 units per year, a rate that has been "found to be insufficient to meet the City's need for affordable housing." A study by Keyser Marston Associates found that "present housing conditions in the area warrant an even greater effort to achieve affordable housing than was previously the case, and calls for greater efforts to expand affordable units," Pinsky wrote.

Pinsky argued in the document that the plaintiff's lawsuit also fails because it was filed well after the 90-day statute of limitations.

The ruling by Santa Clara County Superior Court Judge Kevin E. McKenney requires Classic Communities to abide by its 2006 agreement with the city. McKenney also rejected the developer's motion for a new trial.

The fees from the Sterling Park project would support other affordable-housing projects in Palo Alto, including the recently approved development at 801 Alma St., which will feature 50 units for low-income families. The City Council voted last week to contribute $3 million and provide a $2.8 million "permanent loan" for the project, which is a partnership between the nonprofit groups Eden Housing and the Community Housing Alliance.

The council acknowledged at Feb. 14 meeting the high cost of building affordable housing in Palo Alto but voted unanimously to support the Eden Housing development. The new contributions raised the city's total commitment to the project to $9.3 million.

"We do need to gulp when we realize how much it costs to build affordable housing in our community," Councilman Larry Klein said at the meeting. "I do believe we have a social obligation to accomplish this."

Councilwoman Gail Price agreed and said she feels "we have a personal responsibility to provide affordable housing to our community."

The fees from Classic Communities are expected to cover a part of that cost. The developer had already contributed about $400,000 in fees to the city, and the total funds from the Sterling Park project are expected to amount to about $4.6 million, according to a report from Julie Caporgno, the city's chief planning and transportation official.

Acting City Attorney Donald Larkin said the recent court ruling not only strengthens Palo Alto's affordable-housing program but could also promote similar programs in other communities throughout the state.

"I think it's significant because these challenges are going on all over the area," Larkin said. "It's good for us to get out in front."

"We've always tried to be leaders in affordable-housing programs, and it's good to show other cities that if they follow our lead in doing these types of programs they will benefit."

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Like this comment
Posted by Gaddafi
a resident of Charleston Gardens
on Feb 22, 2011 at 7:28 pm

These developers ought to be ashamed of themselves suing the city that is trying its best to make Palo Alto housing affordable to those who cannot even dream of owning a simple garage in Shallow Alto.

Like this comment
Posted by Ron
a resident of Midtown
on Feb 22, 2011 at 8:09 pm

"The council acknowledged at Feb. 14 meeting the high cost of building affordable housing in Palo Alto but voted unanimously to support the Eden Housing development. The new contributions raised the city's total commitment to the project to $9.3 million."

This is outrageous! Our city council is always complaining that it is out of money. This is proof that we have tons of money. Can we improve our infrastructure, before we spend any more money on indirect welfare housing?

Palo Alto city council has still not understood that the good times are over. Wisconsin will be here before they know it.

Like this comment
Posted by SocietalPitFalls
a resident of another community
on Feb 23, 2011 at 2:27 am

Perhaps Palo Alto needs to take a hard look at some of the residents that are deemed as worthy of "affordable housing." I can support helping out people who are doing all they can to support and raise families in an area with such a high cost of living--however, I cannot support this when some of these supposed low income families have 2 to 3 cars per family--and I see them driving out of their driveway with a $50K car when I work my butt off to live in a one bedroom apartment while I struggle to pay the repairs on my 19 year old vehicle. Does the affordable housing program evaluate these families every year to make sure that their incomes are still "low income"...what happens when you cram 2 or 3 generations of families in one small apartment? I will tell you what you get...overcrowded streets where I can't park my own vehicle on the street because all the low incomers have to park their fleet of vehicles. I think this program has been going in the wrong direction for years...I liken it to affirmative action but in terms of salaries. These builders have my full fledged support to keep appealing this atrocious (and arbitrary) practice that the City of Palo Alto has proclaimed. What about all you property owners out there? What do you think happens to your property values when a newer development goes up next door to you and it's ALL low income housing (speaking in particular of the development on the corner of Ramona and Channing in downtown). Where's your voice in all of this? If I were a property owner here, I would be outraged at this welfare spending that my tax dollars are being funneled and wasted on. How about more money for schools and infrastructure. I guess that would be too logical though.

Like this comment
Posted by I learned
a resident of Greenmeadow
on Feb 23, 2011 at 4:28 am

I will never forget living in an apartment where I went to work everyday and most of my neighbors stayed home. Checked with the apartment manager and learned that most were on subsidies!

Learned a big lesson from that time of my life.

Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Feb 23, 2011 at 5:35 am

Walter_E_Wallis is a registered user.

One more reason to reduce Palo Alto to a Municipal Service District with extremely limited authority.

Like this comment
Posted by Jesse
a resident of Downtown North
on Feb 23, 2011 at 9:45 am

I agree with SocietalPitFalls

Like this comment
Posted by ralphc
a resident of The Greenhouse
on Feb 23, 2011 at 10:45 am

The wish to help "low income" City workers or others employed in important local jobs is laudable. But it seems that it's not such folks who end up in mandated below-market-rate (BMR)units. And once established, the 10% or more of BMR owners in a condominium complex, have different goals for the property than the majority of "full-price" owners. No matter how long they own their units, BMR owners will never reap benefits of increased property value because their selling price (and the purchase price for a subsequent owner) is a fraction (as little as 20%) of the current market value of their neighbors unit! BMR owners pay the same homeowner dues as their neighbors and feel they are overcharged. They resist upgrades to the property because they won't benefit from improved property values. In some cases (such as where I live), they even file suit and prevent changes that the vast majority of owners favor. BMR owners ultimately resent the program that helped them become owners because it is ownership without any opportunity to benefit when, years later, they'd like to move elsewhere and haven't enough equity to buy elsewhere.
The City would be doing a better service to the BMR population if it reconsidered the full effects of the program and sought other less-detrimental solutions, such as rent subsidies for qualified workers.

Like this comment
Posted by A concerned resident
a resident of Midtown
on Feb 23, 2011 at 2:20 pm

No more welfare housing in Palo Alto-- especially welfare for the middle class. My wife and I barely scrape by to afford a small Palo Alto house for our family of 4 (1300 sq. feet) why should others get free handouts?

We want Palo Alto to focus on quality of life for its current residents, not freebies for people that social engineers would like to have living here.

Like this comment
Posted by Dan
a resident of Southgate
on Feb 23, 2011 at 2:52 pm

A well intentioned, but silly program:
1. BMR owners can only gain 1% equity annually, max by statute. It'd take 10 years to appreciate enough to cover real estate agent's fee and closing costs.
2. 7.5 units/year hardly affects our socio-economic diversity.
3. A 1 bedroom BMR condo PA costs the same as a 3 bedroom house in EPA (~$150K).
4. BMR income limits for a family of 4 are $80,700 to $124,200. Asset limits are 50-200% of the purchase price, not counting retirement accounts: not really poor.
5. The waiting list is years long, hardly meeting the immediate housing needs of struggling families.

Like this comment
Posted by Gertrude Reagan
a resident of Midtown
on Feb 23, 2011 at 4:47 pm

Certainly, the the annual allowable increase in value of the program may need to be tweeked to incentivize the occupants to keep up their properties. Over many years, the values become be ludicrously low in relation to surrounding properties, when a modest increase in percentage would keep the units "low income."

I don't begrudge some middle class people occupying these units if it keeps people who service our needs living near us. Communities that require everyone who does this to commute in harm the environment.

A little personal history: In earlier life, I did some service work in Philadelphia slums. I saw that not only slumlords, but goverment authorities were terrible when it came to serving the needs of their tenants and keeping up their properties. Concentrations of low income people intensified social problems.

The ideal of having low-income people spread throughout our communities, close to work, is a laudable one. As for the argument that "market forces" can solve this is dumb. The profit margin for low-priced units is not attractive compared to big, well-appointed houses.

Like this comment
Posted by Shorebreak
a resident of another community
on Feb 23, 2011 at 5:32 pm

I'm glad I left Silicon Valley in 2003. It has become a pit of greedy people who only think about themselves. I have a beautiful home now, paid-off, that would be worth a million dollars in Palo Alto. I have great neighbors who care about each other. I'm not surprised that people are upset that those with lesser incomes would move next to them. It's par for the course on the Peninsula.

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Posted by stretch
a resident of another community
on Feb 23, 2011 at 6:24 pm

You've got it right, Shorebreak. I was offered a low-cost condo about 25 years ago, and it would have been the only way I could even afford to own something in Palo Alto then. Unfortunately, I was living with my elderly father and the condo was a one-person, so I had to pass it up. After he died, it was definitely too late to afford to live in the city I worked for, so I left. The son of my mother's oldest friend told me that he was moving out of Ynigo Ct. because of all the "riffraff" that lived at the Terman site. I should have expected that, since he was raised in Woodside! Palo Altans, since the tearing down of the affordable shared housing, have become the biggest, greediest snobs ever.

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Posted by Ron
a resident of Midtown
on Feb 23, 2011 at 6:34 pm

It is beyond crazy to require market value people to pay for below market (welfare) people. The BMR units are NOT occupied by essential city workers. Why would any rational person agree to pay extra for welfare housing next to them, unless they are an economic or social masochist? Some people are such masochists, but why should our tax monies, in Palo Alto, be used to support their habbit?

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Feb 23, 2011 at 8:12 pm

SocietalPitFalls - I see that all the time w/low income families! My former coworker, at a nonprofit, shook his head once & said something like people making "divestments" instead of investments via education. I know some of these car from auctions, where you can get a good deal. But some of it is poor decision making & poor $$ management.

You know what always yanked my chain? When I'd volunteer at cat/dog vaccine clinics & dog breeders would pull up in their expensive vehicle w/a load of purebred puppies they clearly were going to sell. There's an unenforced law that you can breed w/a license but no backyard breeder bothers & no one bothers to enforce the law.

So a bunch of people cram into a low income place & that means they have more disposable income. Grrr.

But all in all, I am glad this is happening - gives the greedy people in PA something to whine about ;-)

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Feb 23, 2011 at 8:16 pm

I guess it could be worse, folks. Just imagine - if we hadn't done the bailout, some of those who'd move into these new places would've been that banker, that lawyer, that insurance exec. Egads, scary indeed!

Like this comment
Posted by What about rentals
a resident of Midtown
on Feb 23, 2011 at 11:47 pm

Truly affordable housing for many people is a decent, stable RENTAL unit. Not every one needs to be a homeowner. People can still be involved and committed to their communities in rental housing. And for many people this make much better financial sense.

But somehow "affordable housing" means below-market-rate house/condo purchases.

Still, can't get very sympathetic for crying developers. Certainly true their first priority is not the good of the community. $$$$

Like this comment
Posted by HIT ME AGAIN!!
a resident of Another Palo Alto neighborhood
on Feb 24, 2011 at 7:06 pm

I can't believe that you actually omitted the opinion that I took the time to write about how I felt, being disabled and being one of the people who live in "low income" housing ~along with the fact of how I endure the stares and backstabbing that goes on from the public. I thought it well written and pretty much to the fact of what REALLY goes on.
I selected the "another Palo Alto Neighborhood" item for my community as people really think the low income programs seem to be on a whole different planet....................I grew up here in this town, was never aware of all the "dirty laundry" that was going on until I was faced with having to become part of what people think about those of us who have not made it through life without the aches and pains of being disabled. It was NOT my choice, bad things do happen to good people.

Like this comment
Posted by Toady
a resident of Old Palo Alto
on Feb 24, 2011 at 9:41 pm

Awesome. Better for my property's value, ironically.

The more restrictions put on constructing new housing, the less building that will occur in Palo Alto, which will ensure that Palo Alto will maintain its housing prices.

Gotta love unintended consequences.

Like this comment
Posted by HIT ME AGAIN!
a resident of Another Palo Alto neighborhood
on Feb 28, 2011 at 1:36 pm

Your leaping is uncalled for and small minded.

Sorry, but further commenting on this topic has been closed.

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