housing supply
Below Market-Rate Housing Provided Through Inclusionary Zoning
Palo Alto was one of the first communities in California to incorporate affordable housing into most new developments by requiring them to include below-market-rate units.

Organization

 City of Palo Alto, CA Jurisdiction: Municipal

  Setting: Suburban

  Population: 60,492

Year Initiated

 1974    

Description

 Through its Below Market Rate (BMR) Program, the City of Palo Alto requires new developments of 10 or more units to provide at least 10% of the units at costs affordable to low- and moderate-income households. On sites greater than five acres, 15% of the housing units must be below-market-rate. The program is designed to spread affordable housing units throughout the city and in all projects. BMR housing is encouraged in areas of the city that are well served by transit, schools, and other public services; this encompasses much of the city. As an alternative to providing affordable units, developers can pay in-lieu fees, which are deposited into the city’s Housing Development Fund. Due to the high costs of land and development, the city typically prefers housing construction over payment of in-lieu fees. Sales and resales of BMR units are administered by the private non-profit Palo Alto Housing Corporation, which requires BMR housing to remain owned and occupied by low- and moderate-income people.

Results:
  • Between 1974 and 1999, the program generated a total of 147 ownership units and 38 rental units.
  • In-lieu fees have been used to assist non-profit housing organizations in purchasing low-income housing from private investors who would otherwise have converted it to market-rate housing at the end of their 20-year Section 8 contracts. In 1998 and 1999 two projects with a combined total of 213 units were purchased by non-profit affordable housing organizations using funds generated by the collection of in-lieu fees.
  • Most BMR housing provided through the program is incorporated into condominium projects of 15 to 30 units per acre.
  • Although the program is successful for those who participate, it cannot offset the extremely high overall housing costs in the area. The program also has limited ability to solve the housing problems of very-low-income people (i.e., those whose incomes fall substantially below the area’s high median income).

Vital Statistics:
  • “Below-market-rate” units are defined as units affordable to people making 80 to 100% of median income.
  • The Housing Development Fund contains in-lieu residential housing funds, in-lieu funds from commercial development, and federal and state housing funds.
  • Funds from in-lieu payments and federal and state housing funds are used to develop affordable housing, usually through local non-profit housing organizations.

Key Player(s)
  • City of Palo Alto
  • Palo Alto Housing Corporation

Contact Info

 Cathy Siegel, City of Palo Alto, (650) 329-2108, FAX: (650) 322-0952, Email: cathy_siegel@city.palo-alto.ca.us

References

City of Palo Alto, “Housing Element Technical Document, City of Palo Alto Comprehensive Plan, 1997-2002,” 1997.