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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

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Housing Impact Fees and the Economy

Uploaded: Mar 25, 2017
This is the letter I sent to council.

Impact fees to provide funding for subsidized housing for low and moderate income residents should, in my professional opinion, have two objectives:

1) To maximize the number of units that can be funded, taking into account the possible disincentive effects of fees that are out of line with neighboring jurisdictions and

2) To maintain funding from future development for the city budget, again taking into account the disincentive effects of being out of line with neighboring jurisdictions.

The staff report does indicate that the proposed fees are in most or all cases above those in neighboring jurisdictions.

I support the staff recommendation to make it easier for new housing developments to pay in lieu fees instead of providing units. I support the recommendation of the housing professional that fees can be leveraged to obtain additional funds and that building larger developments can reduce the cost per unit form economies of scale versus having developers build two or three units on each site.

I support fees on non-residential developments that are comparable to those in neighboring jurisdictions but do not support fees that are much higher compared to neighboring jurisdictions especially the large differences in the proposal before council and even more so for hotels, which bring in substantial revenue to the city and for infrastructure.

If the council approves fees that are well out of line with our neighbors, I support the PTC recommendation for phasing and do not find the staff argument that phasing would be burdensome to outweigh the potential loss of city revenue from disincentive effects of high fees.\

The local and regional economy has had a sustained period of growth and that has led some to believe that development in Palo Alto is impervious to out of line fees.
I find that to be a risky and unsupported argument and forgetful of the property market following the dot com bust or following the 2007 recession.

Residents are requesting a high level of local services and council should understand the connection between funding these services and revenues from new developments, even if residents disregard or do not care about these connections.

It is a mistake in my professional opinion to assume that new developments will occur no matter how high our impact fees are compared to those of our neighbors.

Stephen Levy
Center for Continuing Study of the California Economy
What is it worth to you?


Posted by Marie, a resident of Midtown,
on Mar 26, 2017 at 10:51 am

Marie is a registered user.

As usual, I almost completely disagree with Steve Levy's views, particularly on low-to-moderate housing. Allowing in-lieu fees, usually not equivalent to the actual cost of building new low-to-moderate income housing, means money sits in accounts while the cost of land and building inevitably escalates, making the in-lieu fees even less effective.

Integrating low-to-moderate rental units amongst market rate properties ensures that Palo Alto has units throughout the city, not concentrated in a few (mostly south Palo Alto) locations, and avoids stigmatizing low-to-moderate renters. I do support rental housing over below market rate purchases, as there is far more need for rental housing.

Finally, if high impact fees negatively affect new commercial (office space) development, that is all to the good. I encourage more zoning of residential land with incentives for housing compatible with current zoning. The only way we can begin to meet ABAG's absurd requirements for growth is to have housing units far outweigh new office development or the worker to resident ratio, used by ABAG to require more and more housing. will continue to rise. Every development plan submitted to the city council, calls for development with more employees than the amount of proposed housing needed to house that many employees, again worsening the ratio.

The only way to change the worker to resident ratio (greater than 3 to one) is to restrain office development and encourage more low-to-moderate housing. There is no shortage of luxury housing, that does not optimize what space is available for housing. There is also plenty of new luxury housing going up in Mountain View and Redwood City to absorb that need for years to come.

I also hope the county when considering Stanford's GUP will encourage Stanford to provide housing for its lower income employees, not just professors, students and professionals. As far as I know, and I would love to be wrong, very little of Stanford's housing is below market rentals, except possibly for graduate students. This will not help house the many new nursing assistants, cafeteria workers, cleaners and similar lower income employees that will probably be a majority of new hires when the new hospital is completed.

Posted by stephen levy, a resident of University South,
on Mar 26, 2017 at 3:58 pm

stephen levy is a registered user.

Thanks for your respectful comment Marie though i disagree with both your points as each will lead to fewer units able to be provided for low and moderate income families.

I agree with the housing professionals that the in lieu fees, far from "sitting in accounts" will be able to be leveraged into additional funds for low and moderate income housing projects.

As to your wish for no more commercial (office) development, isn't that a pretty clear statement of how low a priority you place on housing for low and moderate income families if you are willing to forgo that revenue.

I know the no more office development argument is favored by some but I hope that the city council actually promotes fees that will bring in money for housing as well as funds to support city services.

Do you include the research park, the medical complex on Welch Road, hotels, retail facilities your list of no mores?

Are you willing to support a local bond measure for housing like Measure
A passed recently in the county?

Posted by Curmudgeon, a resident of Downtown North,
on Mar 26, 2017 at 10:55 pm

If in-lieu fees can be leveraged to obtain additional funds for mitigation measures, then it seems eminently wise to maximize the total fees collected on the developments necessitating those mitigation measures, doesn't it? And if higher fees deter developments requiring mitigation measures, then the most sensible strategy is to minimize the need for mitigation fee monies by raising the fees to a level well above what the market will bear, right? What sane city would want to attract an avoidable problem?

Posted by stephen levy, a resident of University South,
on Mar 27, 2017 at 10:04 am

stephen levy is a registered user.


The impact fees are leveraged with other funds to produce MORE housing units.

They are not mitigation fees so your point sounds like either you misunderstood the case for in lieu fees or like Marie are no so much interested in maximizing new housing for low income residents compared to restricting overall growth.

I argue for fees in line with neighbors precisely to maximize housing revenue taking into account disincentive effects of out of line fees.

Do remember that the people whose job it is to support housing for low income residents support in lieu fees.

Posted by Greg Schmid, a resident of Palo Verde,
on Mar 27, 2017 at 11:32 am

Thanks for continuing to share your valuable and provocative insights on important City issues. I'd just like to add a couple comments on data that supports the notion of relatively higher fees on commercial properties.

Our current "Housing Element: 2015-2023" (adopted in 2014) cites data that during the period of our previous Housing Element (2009-2014) the fees imposed on new housing exceeded the fees imposed on new commercial development by some $2 million (page 78). This does not take into account the value of low income housing units built in place of in-lieu fees. In total this would probably raise the value of low income housing contributions by home builders to almost twice what commercial developers pay. And remember this is during a time period when commercial development was adding square footage that created three new jobs in Palo Alto for every new employed resident added (Palo Alto has just about the highest ratio in the country of jobs per employed resident for any city over fifty thousand people).

It is time for commercial development which has a higher dollar return per square foot to pay its fair share towards creating and maintaining a balanced community.

Posted by Marie, a resident of Midtown,
on Mar 29, 2017 at 2:50 pm

Marie is a registered user.


I voted for Measure A and hope that it will be used soon as the situation for low and moderate income workers is dire. My suggestions:

1. Require Stanford as part of its GUP to provide more subsidized housing to their lower income employees (not just graduate students) not just market rate housing (more profits for Stanford.)
They should also be required to build an upstream basin to reduce the risk of flooding as asked for by the State Water Resource Board. They have responsibilities to the community, especially when asking for massive growth (which I reluctantly support as long as they meet the responsibilities I have outlined above.

Great Palo Alto projects:

The low-moderate income building near Hassett Hardware, although they could have used a better architect and not look so much like a prison.

The project to build on existing land near the train tracks next to existing low-moderate income housing is great out-of-the-box thinking, although I have some concerns that they will have adequate parking unless they require the new tenants to not own cars, which I doubt is legal. For moderate income workers who do shift work (restaurant workers, Stanford Hospital at night, skilled nursing facilities at night etc. ), what pathetic mass transit we have just won't work. It has the additional benefit of making it even more difficult for HSR to expand to four tracks (I favor the electrification of Caltrain, HSR, and the blended solution, even though it will cause great inconvenience to me as I live on Alma �" so please no nimby accusations).

The SOFA project in downtown Palo Alto is the gold standard for me. They did a great job and I believe included their share of low to moderate income housing.

Bad: The Maybell project which was a giveaway to developers for a project that made no sense given there was minimal parking, no services included and no services nearby, unless you agree with the PAHC that Walgreens and Whole Foods were adequate sources for groceries for moderate income most likely working seniors. I don't consider $1,200 per month (the one number I ever saw) for a small one bedroom apartment with no parking much of a bargain and way too much for low income.

Intriguing possibilities (it is all about finding land):

1. Have the city donate any excess land for low and moderate rental income housing. If there is no cost of land, I think the housing will not need subsidies to cover the cost of building apartments with moderate rents.

2. Zoning to allow housing on top of parking garages.

3. Once Buena Vista is acquired, build apartments suitable for families (3-4 bedrooms) giving preference to the people living there, gradually moving people out of decrepit housing difficult to upgrade - on their schedule. Building only micro units for singles, will further change the culture of Palo Alto. With our great schools, and decreasing enrollment, we should be encouraging more families, who can benefit from them.
4. Donating city land that is not needed for other purposes for low-to-moderate apartments. Again, I think rents would not need to be subsidized, if the cost of land does not need to be recovered.

5. Encourage the city and the PAUSD to consider building apartments on school properties with excess land dedicated to teachers. This would not be official low income housing as you cannot restrict low income housing to a particular group. Again, if there is no charge for land, the cost of building can be recovered by reasonable rents. Cubberley comes to mind.

6. If the city finally buys the Post Office, build housing in the back with underground parking, restricted to city and school district employees. Again, although not traditional low income housing, the city could set reasonable rents and the employees could walk to work.

7. Allow Stanford to build housing out near 280 or in the Stanford Research Park, aimed at attracting people working at Stanford Research Park or Stanford. I have no problem with 8 story apartments buildings in Stanford Research Park or on Stanford owned land near 280. It would make much more sense than continuing to degrade Palo Alto. Mass transit has not worked. What works is private bus systems and within the next 10 years, driverless cars. Of course, we can also hope that there would be visionaries who would bring BART around the Bay, along 280, where there is lots of empty land (remember eminent domain) without destroying the quality of life of people in existing towns and cities.

"Leveraging" the cash often means a sellout to developers and investors, giving them major concessions for developing commercial or market rate housing, generally paid for by reducing parking and increasing traffic to build a few low to moderate income units nearby. And most of these "leveraged" developments, attracting investors looking for tax credits expire in 30 years. One example is Casa Olga, which also suffered from poor reimbursements from the state. They definitely got an exemption to build an 8 story building and I would assume the public benefit was that it was an intermediate care facility, I suspect they got tax credits as the aging owners decided to cash out after 35 years. it is now the luxury Epiphany Hotel (with almost no parking) owned by Larry Ellison, who has no record of any civic responsibility. There was no effort to acquire this property by low income housing sources resulting in a big loss for seniors. There was also a low-to-moderate income apartment complex on San Antonio that converted to market rate in the 90's. Fortunately, mid-peninsula housing was able to purchase it and have it revert to subsidized housing.

Fewer units that are in perpetuity, are better than projects good only for 30 years. I'm more into long term planning than quick fixes, mostly at the expense of neighbors. I think most money should be spent purchasing whatever land is available as quickly as possible as once again prices are going up astronomically. For example the city foolishly gave up an option to buy land on Park for a public safety building during the last downturn because they didn't have the money to build. They should have bought it, as when the economy turned around, as it always has, money to build was forthcoming. And it could have been repurposed for low-to-moderate income housing.

Building most apartments could be financed by moderate income rents if there is no need to pay for land.

Commercial growth is fine as long as it complies with zoning. I do not support changes to zoning to further enrich developers. Cities and counties should plan for growth and zone accordingly. Zoning exceptions disrupt thoughtful planning. Of course developers want exceptions that allow them to upzone, with them pocketing the difference in cost between purchasing land already zoned for their purpose and land that was not zoned for development. There is no need for our local government to do so if they have done their job.

I do believe there is no urban planning need for more office development in Palo Alto, in excess of the existing zoning. I think the urban planning goal, from a regional perspective, should be to encourage more projects close to successful mass transit or potential mass transit. We are not landlocked. Coyote Valley is still available. Out near 280 is a possibility. Suitable planned communities including jobs and sufficient housing for those jobs nearby, have always been the gold standard. Government needs to encourage development that maximizes quality of life and sustainability, not be bought off by developers whose only goal is profits (as it should be.)

The role of government is to plan and zone to maximize benefit of everyone, not just business interests. It is embarassing to see the newest council members jump to the tune of developers and their dark campaign contributions, recorded after the election to hide their support from developers.

For example, 429 University should have been required to have an onsite loading dock, which would have reduced the mass. Funny thing �"our pro-development majority did not insist on that.

There are plenty of sources of money for low and moderate income housing besides in-lieu fees - including Measure A and hopefully more such sources in the future. Existing residents should not have to pay with loss of retail, increased traffic and decreased parking etc. etc. so developers can make even more profits at their expense �" not in a democracy.

Posted by musical, a resident of Palo Verde,
on Mar 30, 2017 at 12:04 am

"no cost of land"
"the cost of land does not need to be recovered"
"no charge for land"
"no need to pay for land"
Wow, free land! Buying it up fast as I can with donations to POST.

Posted by Native to the BAY, a resident of College Terrace,
on Mar 30, 2017 at 1:19 pm

How about the impact fee on our City, our citizenery and our community as a whole, all for not housing our own - RV's along El Camino, tents, trash and refuse along our creeks and in our parks, permanent motel stays, sleeping on sidewalks? How much is that fee impact fee costing us?? I'd say a lot. Homes for all, first! If only FEMA could address this Bay Area wide HUGE economic disaster!

Posted by chris, a resident of University South,
on Mar 30, 2017 at 10:10 pm

Marie must have skipped her economics classes if she thinks there is such a thing as free land, even if it is owned by Stanford or the city. When Stanford leases or sells a house, it still owns the land. When the city sells land to low-income housing, it is either selling at market rate or it is selling at a discount that reduces the assets available to it.

Marie, I don't think many people are talking about upzoning more sites to increase commercial development. The issue is that current zoning would permit significant additional development.

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