Plan to hike development fees meets with opposition

Palo Alto planning commissioners and housing advocates skeptical that new proposal will create affordable housing

A proposal in Palo Alto to sharply raise the fees that developers would have to pay to support affordable housing faced significant scrutiny and criticism Wednesday, with several planning commissioners and housing advocates making the case that the change may actually hinder the city's efforts to make progress on the increasingly urgent issue.

The ordinance would make the city's impact fees much higher than those of any other municipality in the region. Developers of office space would be charged triple the current fee, from $20.37 per square foot to $60.

For the first time, developers of rental housing would have to pay an affordable-housing impact fee, a notion that met with stiff opposition from the Planning and Transportation Commission. No one was more passionate than Commissioner Kate Downing, who called the proposal "outrageous."

The proposed fee ordinance came as a recommendation from the City's Council Finance Committee, but given the large number of questions and concerns about the proposal, the commission unanimously agreed Wednesday not to endorse the ordinance just yet. Instead, the commission debated the merits and drawbacks of changing the fees, requested more analysis and agreed to continue its discussion on Aug. 31.

In addition to the hike for the fee charged to developers of office projects, the rate for hotel developers would go up from $20.37 to $30 per square foot, while for retail and restaurant developers it would remain at its current level of $20.37.

The ordinance would also change how the city collects fees from developers of housing projects. Currently, the impact fee for a new housing development is between to 7.5 percent to 10 percent of the sales price of the new homes (the city collects the fee after the sale). The new proposal would change it to $50 per square foot, which Planning Director Hillary Gitelman said would make the collection process easier.

Perhaps the most significant proposal concerns rental housing. While the city requires for-sale housing developments to ensure 15 percent of their units are below market rate, no such requirement exists for rental projects (a 2009 court case determined that requiring rental housing to provide below-market-rate units would violate the state's Costa Hawkins Act). With the change, rental housing would be subject to an impact fee of $50 per square foot to pay for affordable housing.

In approving the proposal by a 3-1 vote on June 21 (with council members Eric Filseth, Karen Holman Cory Wolbach supporting it and Greg Schmid dissenting), the Finance Committee took the position that the higher fees would help the city address one of its most intractable problems: a housing shortage that, when combined with soaring rents, is making it difficult for many longtime residents to remain.

But on Wednesday night, planning commissioners took a different view, arguing that the higher fees would be counterproductive.

"Honestly, looking at the fee increases and how massive and aggressive they are, I can't help but feel like everything (here) is about: How do we not build any more housing ever again in Palo Alto?" Downing said.

She noted that the council is not considering more significant proposals that would increase affordable housing, such as allowing more height or density for projects that offer such housing. She also noted that since she joined the commission in November 2014, she has not seen a single multifamily housing project come before the commission. She also questioned whether the impact fees, once collected, would even be used for affordable housing.

"We have a City Council that trembles at the thought of a four-story apartment building," Downing said. "Even with all the money in the world, I do find it incredible that we'll spend it on affordable housing."

Even some of the city's biggest proponents of affordable housing had trepidation about the proposed changes. Staff from the Palo Alto Housing Corporation, the nonprofit that manages affordable-housing developments and oversees the city's below-market-rate program, suggested that the high fees would simply halt development. In most nearby cities, impact fees for office development hover around $20 per square foot. In Menlo Park, the fee is $15, with an exemption for buildings of 10,000 square feet or smaller; in Cupertino it's $20; and in Mountain View it's $25.

"It is our belief that this ordinance will discourage developers from building in Palo Alto when the fees are significantly lower in other jurisdictions," said Lauren Bigelow, the Housing Corporations' below-market-rate program administrator. "At that point, we lose housing on site and we lose the affordable-housing fund."

Bonnie Packer, board member at the Housing Corporation and president of the League of Woman Voters of Palo Alto, submitted a letter on behalf of the League, making a similar case. The letter posed several questions, including: Will the proposal to impose fees on rental housing cause the high rents in Palo Alto to become even higher, making it even more expensive to live here? If a developer wants to claim that building affordable units would be too great a financial burden, and thus pay the fee instead, are the requirements of proof so onerous as to discourage all types of development and thus reduce the sources for these funds and units?

The commission ultimately agreed that it can't answer these questions without more information and asked that staff further analyze how the fees would impact the housing fund and production of housing.

Commissioner Michael Alcheck also proposed a "sunset" clause on the fees and a guarantee from the city that public funds would be used to subsidize affordable housing if the fund becomes depleted.

"I do feel as a city we could participate in a great way, regardless of the impact fees collected, in subsidization of affordable housing," Alcheck said.


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3 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Jul 28, 2016 at 12:53 am

So just how much money would a $60/sq. impact fee generate? For every 1,000 sq. ft. then this impact fee rate would generate $60,000. Keeping in mind that the Council has limited downtown growth to about 50,000 sq. ft. per year, then this new rate would increase the total cost of construction costs by 3 million dollars a year--money would the City would collect for "affordable housing".

Of course, there is construction going on all over town—so it would seem that the Planning Department should be providing some data about likely trends in total sq. ft. around town that is likely to be constructed, so that the potential revenue generated by this fee can be seen. Certainly, it would pay to look at this sort of fee increase in $10 increments.

It would also help if there were a database of all of the “affordable housing” units in town—so that there would be some readily accessible data about how much “affordable housing” exists, and how much public money has been invested/spent in these units.

17 people like this
Posted by It's the natural resources, stupid
a resident of Another Palo Alto neighborhood
on Jul 28, 2016 at 6:54 am

Until water restrictions are lifted from existing residents, the prudent course would be to ask all development to show how they will be net zero water users, period. And then when the water restrictions are lifted, planning must be relative to the lower years, not the most optimistic ones.

In the meantime, I say citizens shoukd make an initiative that residents can apply for commissioners', city staff and councilmembers' water until then.

17 people like this
Posted by Observer
a resident of University South
on Jul 28, 2016 at 8:25 am

Raising taxes on private homes will make them more expensive. $50/sq ft on an 800 sq ft. apartment is $40k. Adding that to the mortgage raises the cost by about $150/month.

One affordable housing unit costs about $400k (depending). So it would take 10 new apartments to build one affordable unit. And if one person can't afford that apartment because the rent is hundreds of dollars higher, they go on the waiting list for affordable housing and we are just pushing the problem around. I know Palo Alto residents who have already waited years for affordable housing even as their rent has gone up.

How about a solution for affordable housing that doesn't raise rents? Putting the fees on office developments makes a lot more sense.

16 people like this
Posted by Marie
a resident of Midtown
on Jul 28, 2016 at 9:35 am

Marie is a registered user.

We don't need more market rate housing, which is so expensive, almost no one can afford it. Plenty of that housing is being built in Mountain View Menlo Park and Redwood City. Generally landlords look for gross income of 3x the rent, less major debt. That usually means at least 50% of net income after taxes. With one bedrooms at $3K a month and many are more, that doesn't qualify many people, even millennial tech workers with high education debt. I saw an ad for a room sharing a kitchen for $2K.

What we need is more subsidized housing. What little land still available should be used for subsidized housing. And Palo Alto needs to work harder to identify such space and use eminent domain if necessary to get it.

The lot at El Camino and Page Mill is zoned public facility. With that zoning, it would be affordable for acquisition by eminent domain to be used for subsidized housing and additional public parking. That would be the best use of that land. Developers are not entitled to upzoning just to enrich themselves.

We have to do the best we can for the residents of Palo Alto, not for companies that have outgrown their footprint in Palo Alto, like Palantir. They can do the same thing as Google, Facebook, Yahoo and other successful companies once they have reached a certain size - move to an office park, and provide shuttles and buses to get their employees to work from the nearest mass transit, as even Stanford does. Buses and shuttles are the only thing that have significantly reduces single person commuting.

We are part of a regional Silicon Valley. One small city (65,000 people last I checked) cannot and should not provide all the needed office space and micro-apartments just because a selfish company, whose executives can afford to live in Woodside etc. to every company that comes along. Palo Alto didn't do it for HP, Google, Facebook, and Yahoo - why should we do it for Palantir, even if they have succeeded in getting their supporters and relatives on the planning commission.

If you want to plan for Silicon Valley responsibly, stop developing land near the Bay that will be underwater in a hundred years and develop further inland, west of Foothill Rd. and 280, where there is lots of empty land, which will not be affected by climate change. Think ahead and add mass transit along 280, where there is still open land to build it on and then build office parks, condos, schools and apartments around the transit. What a concept: build the infrastructure and then new housing and office space.

Because of rich residents of Palo Alto and Los Altos Hills, many of them execs, (200 signed the last petition), the state hasn't been able to add a stoplight at the intersection of the 280 exit and Page Mill, despite the dangers of that exit.

Vote only for those council members who promise to change the membership of the planning commission and are able to think regionally. Palo Alto can change the zoning out near Foothill. Let Stanford expand that direction. I know there are lots of people who want to keep the foothills green. We have to put people somewhere. Do you want them next to the Bay or west of 280, which already has loads of protected open space? Let's get real.

4 people like this
Posted by al munday
a resident of another community
on Jul 28, 2016 at 10:56 am

let's face it....developers and such are in it to make a profit....why would anyone want to pay higher fees so someone can pay a lower price for a home. There are probably a bizillion ideas for affordable housing...but realistically what is the dollar figure people are looking at?? If its $400k then I still could not afford to buy one from scratch....although these days $400k in a good community is a steal compared to today's prices...but then you need to set rules such as maybe
1) Police/Fire gets first dibs since they are first responders
2) then people born/raised in the area
3) cannot be used as investment property or a boarding house

we need to try and build communities where people come together like in the olden days

4 people like this
Posted by 38 year resident
a resident of Old Palo Alto
on Jul 28, 2016 at 11:00 am

Ah, Marie...... do you think for one minute that Peninsula Open Space Trust would even consider an idea like yours? Ain't gonna happen.

9 people like this
Posted by Marie
a resident of Midtown
on Jul 28, 2016 at 11:51 am

Marie is a registered user.

To: 38 year resident.

Probably not but that is the out-of-the box thinking we need instead of band aids that only benefit developers. If you don't ask, you don't get. If enough people did support that kind of change, it could happen. Don't expect any leadership from the Planning Commission which seems to be controlled by developers and highly influenced by what is best for Palantir, not Palo Alto residents or even all of silicon valley residents.

As a 26 year resident, I want real transformative change.

12 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 28, 2016 at 12:10 pm

"We don't need more market rate housing, which is so expensive, almost no one can afford it."

But people do afford it. Buyers paying ever higher amounts is what drives housing prices ever upward. That is the basic fact.

"What we need is more subsidized housing."

True, especially for critical staff like utility workers, emergency responders, and maybe some planning staff so they might regard Palo Alto as a living community instead of a 3-D SimCity game.

But who is going to subsidize it, and by how much? These current proposals are much too small.

29 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 28, 2016 at 12:17 pm

"We have to put people somewhere."

WE do not HAVE to put anybody anywhere. We did not invite them. We have no obligation to them.

If overcrowding/market pricing leads companies to take their employees to locales less blessed with jobs but better spatially endowed, that is good for everybody.

21 people like this
Posted by cm
a resident of Downtown North
on Jul 28, 2016 at 1:20 pm

Agree with the above. It is time for Palo Alto and California to state the obvious. If we want to maintain a reasonable quality of life and not kill every other animal in the state and not pollute the environment and have enough water to use and be able to actually see some greenery and tress then we need to stop all the crazy growth! Send the jobs and the ensuing workers to states that need them. We don't! We should pass a law that says that cities can say that they are full and then they can stop growing if the residents vote that way. Why do we keep letting rich developers destroy our cities, environments and the state. We only get a poorer quality of life. More development does nothing for current residents, in fact it makes life worse. It is time to send the development elsewhere and stop letting developers run the government and destroy our city and state. Time for a we are full movement!

6 people like this
Posted by Chris
a resident of University South
on Jul 28, 2016 at 1:28 pm


What are your qualifications for living in Palo Alto?

Should you be required to fill out an application and send to a panel of fellow citizens who determine only the most deserving people are allowed to live in Palo Alto?

Maybe you should think about allocating more acreage in Palo Alto to housing?

11 people like this
Posted by cm
a resident of University South
on Jul 28, 2016 at 1:32 pm

It is irrational to say Palo Alto has too many people.

It has a jobs/housing imbalance. With this imbalance, the only logical response is to limit jobs and add more housing.

9 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 28, 2016 at 3:28 pm

"Curmudgeon, What are your qualifications for living in Palo Alto?"

I bought and paid for an existing house with my own earnings.


"Maybe you should think about allocating more acreage in Palo Alto to housing?"

Yup. I think about all that copious vacant acreage downtown and in the other commercial areas and in the residential districts. Not much to think about there, tho.

But how do you propose to allocate? Government fiat? Do you really believe the developers behind Palo Alto Forward would simply stand by and let that happen, when their money trees are their office/geek barn developments? Huh?

Look, many too many people have been lured here by companies that decided to set up shop in Silicon Valley with no regard for their employees' personal well being. In bluntly accurate terms, those employees have been suckered. Their beef is with their exploitive employers, not with the residents.

9 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Jul 28, 2016 at 4:31 pm

> What we need is more subsidized housing.

This seems like an easy thing to say, but difficult to pay for. Who should be subsidized and who should be told that their hard-earned money will be taken to pay these subsidies?

Subsidized housing does not seem like a good idea.

8 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Jul 28, 2016 at 4:55 pm

> It has a jobs/housing imbalance.

This is a make-believe entity. Can anyone name any city in the US that has a balanced jobs/housing ratio?

13 people like this
Posted by all cities
a resident of Evergreen Park
on Jul 28, 2016 at 9:58 pm

Palo Alto has the largest job/housing imbalance in the country. So literally every other city in this country has more housing for its workers than we do.

10 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Jul 29, 2016 at 11:37 am

>> "We don't need more market rate housing, which is so expensive,
>> almost no one can afford it."

>>> But people do afford it. Buyers paying ever higher amounts is
>>> what drives housing prices ever upward. That is the basic fact.

This Commission’s fixation on high-rises for single millennials makes no sense. Those are the people who can afford $3,000 for a studio. If we want people in the community who can’t afford that, then somebody will have to pay for it. It might as well be the big developers who have been the beneficiaries of the Bay Area land-price boom. Otherwise it has to be everybody else, either in taxes or else in the hollowing out of our community.

It’s cynical of pro-growth groups, one of them well represented on this Commission, to wring their hands about affordability, and then use that to argue for gentrification policies.

6 people like this
Posted by gentrification
a resident of Charleston Gardens
on Jul 29, 2016 at 12:25 pm

You fundamentally misunderstand what gentrification is.

Gentrification occurs when more people move to an area with a housing shortage and existing residents end up being displaced in favor or newer residents with more money. Gentrification can only occur in a place that doesn't add housing as its population grows.

If you want people to remain in Palo Alto and you want some housing to remain affordable, then you have to build housing for the newcomers, otherwise they will simply bid for the existing housing and existing residents will no longer be able to afford it.

Adding market rate housing absolutely helps people in all economic levels because it takes the pressure off of the existing housing stock. You don't have to take my word for it. The Legislative Analysts Office studied this thoroughly by looking at housing markets across California. While they (and I) agree that we will always need some subsidized housing, they found that by far and away the communities with the most new market rate housing development were the ones that saw the smallest increases in housing costs.

An obsession with only affordable housing is a losing prospect. We don't build nearly enough affordable housing for those who need it. Most people who need it live in market rate housing. So the goal should be to add more of it and bring the price of market rate housing down. Not to add obscene fees which make market rate housing so expensive it's no longer within the reach of the middle class. That only adds more people to the list of people who need affordable housing.

17 people like this
Posted by Allen Akin
a resident of Professorville
on Jul 29, 2016 at 4:26 pm

@gentrification wrote: "An obsession with only affordable housing is a losing prospect."

I agree, and ask you to follow through to the next logical conclusion: An obsession with *only housing* is a losing prospect.

We have problems because we've permitted excessive growth of comparatively high-paying jobs in a small area without distributing the costs of that growth fairly or efficiently.

People don't just need housing. They need water and waste systems, transportation systems, public safety systems, schools, and many other things.

For a long time we got by because we had enough land and enough excess infrastructure capacity for the public to absorb the costs of growth. That's no longer true.

So if you're arguing for more housing, you must also argue for corresponding increases in all the other infrastructure required to support it. Not only do you need to show where the funding for housing will come from, you need to show where funding for all those other projects will come from. And you need to determine if there are limits (either physical or financial) that we can't or shouldn't grow beyond, so that we don't make the irresponsible mistake of building beyond capacity.

Personally, I think we've encouraged too much commercial growth (particularly in Palo Alto) without distributing the costs of that growth fairly. It would be vastly easier and less expensive and less destructive to stop that, and perhaps encourage growth in other areas that need it more than we do, than it would be for us to build to accommodate it.

But if you choose to build, you first need to explain how much you're going to build, how to support it, and how to fund those things. With those answers in hand, you have a chance to convince those of us who are skeptics. An argument to build housing alone, though well-motivated, isn't enough.

10 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 29, 2016 at 10:16 pm

"... they [new residents] will simply bid for the existing housing and existing residents will no longer be able to afford it."

Logical fallacy. Existing residents, by definition, have housing and are therefore affording it. You cannot be bid out of your house if you are paying your mortgage, which is not subject to being bid up.

"The Legislative Analysts Office studied this thoroughly by looking at housing markets across California. ... they found that by far and away the communities with the most new market rate housing development were the ones that saw the smallest increases in housing costs."

That would be true in Stockton and the other communities that overbuilt during the housing bubble and got stuck with far more housing than demand for housing. Solution: move jobs from the Bay Area to Stockton and its overbuilt underdemanded cousins. They will enthusiastically welcome that.

10 people like this
Posted by TrueColors
a resident of Crescent Park
on Jul 30, 2016 at 1:21 pm

For all the talk about affordable housing, when it comes time to pay for it our largely absent planning commission shows their true colors, market rate density. Charging fees for all construction - for purchase and for rent - creates a level playing field and funding to provide housing for low income people. Not charging an impact fee for rentals encourages rental over other types and ignore the very real impact.

Planning commission blew this one. They show up so rarely....was this really the most important thing to have them weigh in on?

2 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Jul 30, 2016 at 4:15 pm

> Palo Alto has the largest job/housing imbalance in the country. So literally
> every other city in this country has more housing for its workers than we do.

Care to share the source of the data used to support your claims?

2 people like this
Posted by TruColors
a resident of Duveneck/St. Francis
on Jul 30, 2016 at 8:03 pm

Hey there's this cool thing called google....try "largest jobs housing ratio" and you'll get plenty of reading. For example

"Palo Alto Highest Anywhere Jobs Housing Imbalance"

Web Link

Historically suburbs have been at about .89 jobs-housing ratio. Urban centers at about 1.4. At 3.1+, we are at a very unhealthy level - and Mountain View and Menlo Park just approved massive new offices, bringing even more jobs here if left unchecked.

Washington is the highest major metro at 2.63

Even Manhattan suburbs are at .9 or so. If you consider Palo Alto a suburb of SF or San Jose, we are way off. We are certainly not a major urban city.

Web Link

Web Link

4 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Jul 31, 2016 at 9:07 pm

The whole idea of a jobs-housing-imbalance-ratio applying to Palo alto continues to be controversial because far too many people believe that this idea has no merit. There are far too many variables associated with “jobs” that cannot readily be captured and bring much in the way of decision-making variables to the table. For instance, manufacturing jobs require sometimes hundreds of thousands of square feet up to hundreds of acres of space to house the factories. These numbers, of course, includes parking lot space and possibly warehouse space. So, another of variables that should be on the table is the number of square feet per job necessary to allow manufacturing at a given location.

Then, there are externalities necessary to support every kind of business. Natural gas, electricity, water, wastewater treatment, highways and so on. It makes no sense to consider any kind of job impact without coming up with similar ratios. Housing needs to be considered, but there are many other issues in this equation. Again, it would be a fair bet and that few local governments track and publish this sort of information. One might expect to see it, from agencies like the U.S. census and the bureau of labor statistics, but certainly not from every city in the U.S.

Web Link

More to the point, however, is the clear fact that cities that attempt to insert this rather useless ratio into various aspects of the planning process, do not seem to have integrated it into their zoning codes with teeth. In other words, there is little evidence that any city in the United States has capped their commercial growth based on the availability of residential housing as evidenced by a jobs-to-housing-ratio. While it is very easy to throw this number around, unless cities find a way to actually use it to restrict commercial growth, or to encourage residential growth—the whole idea is useless.

It would be very interesting to see how many cities actually measure the data that it would be necessary to generate an accurate jobs-to-housing-ratio. As we see in the link from the business journal article of march, 2014, only a couple of cities of the 60-odd municipalities in the greater bay area have this ratio estimated.

If governments are not willing to expend the effort to capture the data necessary to provide the public accurate measurements of this notion—then the far-from- complete efforts of newspapers, or various organizations flogging one political agenda or another, cannot be considered as gospel.

The original claimed that Palo Alto’s JHI was larger than any other city in the US. The data in the links only tend to talk about metropolitan areas. It’s clearly obvious that no data exists to support this claim, in the extreme.

Which brings us back to the issue as to of what value this ratio is here in Palo Alto? There is little evidence that it has any value, other than to support some attempt to Manhattanize our town.

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

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