Eager to pull the city out of its prolonged housing rut, the Palo Alto City Council agreed on Monday to resurrect a zoning tool that has been used in the past to produce some of the city's most significant — and contentious — developments.
Two days after the council agreed to make housing a top priority for 2020, members voted unanimously to bring back the "planned community" zoning process to stimulate more housing construction. The council had agreed to stop using the planned community process in 2013, just after voters overturned in a referendum the last project to rely on that zoning designation — a 60-apartment building for low-income seniors and 12 single-family homes on Maybell Avenue.
On Monday, much as at their annual retreat on Saturday, council members stressed the importance of both making progress on the city's housing goals (as outlined in the Comprehensive Plan) and in creating housing for teachers, service workers and other employees who are struggling to afford to live in the city.
Planning Director Jonathan Lait noted at the onset of Monday's presentation that despite an extensive Housing Work Plan, the city is not on pace to meet the goal of the Comprehensive Plan, which calls for producing about 343 units annually.
"It is also anticipated that items in the Housing Work Plan will not get you there either, not without additional changes to our development standards or other conditions that make housing production more feasible," Lait said.
The planned community zone, which allows builders to exceed development standards such as height and density limits in exchange for negotiated public benefits, is the most dramatic of the new tools under consideration.
In the past, it has been used by residential and commercial builders with varying degrees of success. The tool has been effective in creating affordable-housing developments such as Alma Place at 753 Alma St. and the Treehouse at 788 W. Charleston Road. City staff estimated that planned community projects and development agreements (which similarly allow builders to negotiate with the city over zoning standards) accounted for about 64% of Palo Alto's housing units in the past 20 years.
The zoning tool has also sparked some of Palo Alto's most bitter and prolonged community disputes, with most of them centering on "public benefits" the developers had promised to provide but then failed to deliver. There was the redeveloped Edgewood Plaza, where the developer promised to restore a historic building but destroyed it instead. There was the public plaza near Sheridan Apartments, a public benefit that effectively became the patio dining area for Caffe Riace.
The most recent — and egregious — example is the College Terrace Centre, a development at El Camino Real and College Avenue that won approval a decade ago and that included as its primary benefit a grocery store. Once built, however, the development has had trouble keeping the grocery tenants, with two shuttering after only months, leaving the market space vacant. Khoury's Market closed shop last month, and the city is preparing to start fining the building owner for violating the terms of the zoning agreement.
The new planned community zone that Lait proposed would differ from past ones in several critical ways. It would only allow residential projects and mixed-use developments that provide enough housing to offset the jobs they produce. And the public benefit would be, exclusively and in all cases, housing.
"I say that with a little bit of hesitation, because I know that term generates a certain amount of reaction from folks in the community," Lait said of the planned community zone. "But as we think about housing production, the concept here is to introduce for the council an idea where we're not negotiating public benefits with property owners in exchange for certain development standards."
"The idea is that housing in and of itself — the production of housing units, including affordable-housing units — would in fact be a public benefit," Lait said.
While council members have attacked planned community zoning in the past (Councilwoman Lydia Kou, Vice Mayor Tom DuBois and Councilman Eric Filseth all opposed the Maybell Avenue development in 2013), they agreed on Monday that it's time to give the tactic another chance. Councilwoman Liz Kniss pointed to the dearth of housing proposals that the city has seen since 2013.
"We put (planned community) on hold ... we hesitated to deal with it again. In the meantime, the only affordable housing (project) that (has) gone through is one — and that's drained our coffers dry. We don't have anything else," Kniss said, referring to the 59-unit development called Wilton Court, which the council approved last year and which is slated to break ground in the fall.
Mayor Adrian Fine, who made the motion to bring back the planned community process, noted that staff is currently working on about two dozen housing programs and is not getting any tangible results. A more effective approach, he said, could entail asking developers to come in with proposals and have them work with staff to overcome the zoning hurdles that in many cases make residential developments financially infeasible to construct. These, according to Lait, typically involve parking standards that many developers say are too onerous.
In proposing the new program, the council is seeking to meet both its own housing targets and the increasingly stringent and ambitious state mandates for residential production.
Palo Alto is almost certain to fail to meet its regional allocations for low-income housing, which means that the city will be subject to Senate Bill 35. The 2016 state law creates a streamlined approval process for developers looking to build in cities that fail to meet their housing allocations.
By failing to meet its quota for below-market-rate units, housing projects in Palo Alto that offer at least 50% of their units at that level would have a right to win approval within 60 days.
If the city fails to meet its allocation for "above moderate" income units, consequences would be even more severe. In that case, the streamlining provision of SB 35 would start to apply to projects that designate just 10% of their units for affordable housing.
To avoid that eventuality, the city must generate 587 units in the "above moderate" income category in the 2015-2022 cycle of the state's Regional Housing Needs Allocation process. So far, the city has permitted 423 units.
In restoring the planned community zone, council members underscored its new residential-centric function by renaming it the "planned housing zone." Filseth and Kou both stressed the importance of making sure a significant number of housing units can accommodate residents with low and moderate incomes -- those making up to 120% of area median income (AMI). For a four-person household in Santa Clara County, 120% equals $157,680. For an individual, 120% AMI is $110,400.
"I think given the need for the 300 units a year and the focus on trying to attenuate the flight of 120%-AMI workers, I think this is a reasonable direction," Filseth said.
Council members also indicated Monday that they are also willing to invest more money in affordable housing. Having already contributed $20.5 million in loans to the 59-unit Wilton Court projects, which is geared toward low-income residents and adults with a disability, council members agreed to explore a tax to raise additional funding for affordable housing.
DuBois said he would like to see a portion of the council's planned business tax go to affordable housing. Councilwoman Alison Cormack said she would prefer to see a parcel tax.
"I think it's eminently appropriate for people who own property here to participate in making it more affordable for others," Cormack said.