Spring Real Estate 2008

Publication Date: Friday, April 18, 2008

A place of one's own
Palo Alto's Below Market Rate Housing program bridges homeownership gap

Palo Alto evokes images of software tycoons, prominent academics and million-dollar homes.

In such a high-profile city, it's hard to imagine that buying a home is a hardship for educated professionals such as Tianzhi Guo, 57, an M.D. and researcher at Palo Alto's VA Hospital. A renter for 20 years, Guo purchased and moved into his first home this fall with the help of Palo Alto's Below Market Rate (BMR) Housing Purchase Program.

Guo spent 10 years on the waiting list of the BMR program, which operates under the auspices of the Palo Alto Housing Corporation (PAHC). The program aims to provide affordable homes to low- and moderate-income families who either live or work in Palo Alto.

Currently there are more than 500 people on the waiting list and only 179 BMR units throughout the city. People with waiting list numbers above 300 spend anywhere between five to 10 years on the waiting list, according to the PAHC Web site.

Guo first came to Palo Alto from China as a visiting scholar to Stanford University. Trained as an anesthesiologist, he does research in physical trauma, rehabilitation and anesthesia. At first glance, Guo fits comfortably into the demographics of Palo Alto's highly educated, professional community.
But despite his credentials and secure position at a prestigious hospital, Guo's household income of approximately $75,000 has excluded him from affording a home in Palo Alto. Palo Alto's estimated median household income in 2005 was $93,400, according to City-Data.com.

The epidemic of million-dollar homes in this Peninsula enclave has become so commonplace that people rarely blink an eye at the price tag of homeownership. In 2005 the estimated median house/condominium value in Palo Alto was $1,235,700, about $76,000 above the average for California, according to City-Data.com.

In such an unforgiving market, low-income families have for the most part been forgotten. But now moderate-income families are being squeezed out as well. The United States Department of Housing and Urban Development and the California Health and Safety Code define moderate income as households earning 80 to 100 percent of the area median income. In Santa Clara County, 80 percent equals a yearly household income of approximately $85,000, according to Marlene Pendergrast, PAHC's former executive director.

Pendergrast worries about the dwindling middle-income population in Palo Alto. "[Housing] is a huge problem and it affects more than just low-income people," she said. "There's also a middle class [and we should] try to retain economic diversity in this town."

A common misperception is that the BMR program is aimed at low-income families, Pendergrast said.

"Sometimes people hear 'affordable housing' and they think, 'Oh, that's not me, I'm not poor.'"

PAHC addresses housing for low-income families -- those earning less than 80 percent of the area median income -- mainly through its affordable rental housing.

At its inception in 1974, the BMR program was conceived to serve a higher-income population. "It was a feeling that homeownership was appropriate to a certain level of income, and also that even back then buying a home was more expensive than renting," Pendergrast said. The program's target population includes professions such as educators and public-safety workers.

BMR Housing Administrator Marcie Mitchell has herself been on the waiting list for four years. Currently number 96, she continues to wait.

Some Palo Altans may be uncomfortable with the stigma associated with affordable housing, which may prevent them from applying to the program, Pendergrast said. But Sylvia Smitham disagreed.

"I wasn't ashamed and am still not. ... We're not asking the government to help out. It's a program set up to help get a home."

Smitham, 73, a retired loan clerk, has lived in her Birch Court condominium since 1984 after purchasing it through the BMR program. Living on a single-person income, Smitham tried on several occasions to buy a home but simply never had the money, she said.

Despite commutes to San Francisco and Oakland for work, she never considered moving because she fell in love with Palo Alto.

"Forty-three years here makes you feel like it's your hometown. It's a beautiful city and most of the people are very kind and caring."

Kristi Theone, an addiction-recovery counselor, describes the BMR program as "the great leveler in this community." A resident of Palo Alto for nearly 30 years, she never considered leaving because of the culturally and intellectually rich environment.

"I cherish this community for the intellectual stimulation it offers, the libraries which can't be beat, the cultural offerings such as summer concerts, great recreational activities and the people!"

Even with the help of the BMR program, living in Palo Alto still comes at a price. When Smitham first moved into her unit, homeowner association fees were $96 a month. They have now increased to $343 a month. Compare that with Smitham's monthly mortgage payment of $197 and one wonders how she affords the current cost of living. Smitham has refinanced her home twice and still owes $23,000 on the $28,000 she borrowed originally.

"If I hadn't refinanced, I couldn't afford to be here," she said.

The BMR program does not monitor homeowners' payments or incomes after they have purchased their homes.

But despite the burden, Smitham still regards the program as a boon. "It's an absolutely wonderful program," she said. Her attitude is realistic. "I knew I could manage the mortgage and homeowner fees at that time, and I'm still managing today."

She even makes a small donation to the program every year. "We were always taught to give back, and I do my best," she said.

Smitham has also served on the budget committee of her homeowners' association and notes that they try not to have special assessments because the financial demands could be hard on seniors living in the complex, not to mention homeowners like herself.

When Theone and her husband Rick Vandivier purchased their two-bedroom unit in 1990, they didn't anticipate that their family would double in size four years later. With two sons, their small BMR unit has been "like living in a fish bowl." The BMR program limits home sizes according to the number of people in a household. Rather than give up their unit, they applied for a larger one and, after squeezing four people into a two-bedroom home for 13 years, recently qualified to purchase a four-bedroom BMR unit in the new Arbor Real development.

To prepare potential BMR homeowners, PAHC hosts workshops throughout the year so that applicants are well informed of the entire process and know what to expect. PAHC supports the prospective homeowners by providing a list of credible lenders familiar with their program. They also work with Project Sentinel, a nonprofit organization assisting homeowners, to discuss credit scores, legal restrictions, insurance, homeowners' dues and deed restrictions.
Pendergrast says these workshops open applicants eyes to the "nitty gritty" and makes them realize that purchasing a house is a "different investment than renting."

PAHC is careful to attend to the applicants because if a BMR homeowner is unable to make their mortgage payments, they risk losing a BMR unit to the bank, which would compromise the already small supply of homes available to the program.

Opportunities to purchase don't come up often. "On average, there are fewer than five resales per year and fewer than 70 new units will be added to the program in the next several years," the PAHC Web site states.

Guo has no plans to move. On a late Tuesday afternoon in October, his two cats slip in and out of the kitchen and bathroom on the second story of his new home.

Boxes overflow in the garage and upstairs bedrooms, and the walls are for the most part still bare. But there are some signs that the Guos are settling in to their new home: A few folding chairs sit out on the small balcony facing El Camino Real; a vase of flowers rest on the windowsill. Ten-foot-high ceilings give the entire condominium a spacious airiness, a feeling that there's room to breathe -- and perhaps room to let out a sigh of relief.