Faced with a mandate to plan for 10,000 new housing units, Palo Alto officials vowed early Tuesday morning to lodge a protest, even as they acknowledged that their resistance will likely prove futile.
The City Council approved by a 6-1 vote, with Mayor Adrian Fine dissenting, a letter to the Association of the Bay Area Governments challenging its recently approved methodology for divvying up 441,176 housing units among the Bay Area's nine counties and 101 cities. The regional planning organization, whose executive board is made up of elected leaders from throughout the Bay Area, agreed last month to adopt what's known as "Option 8A," which focuses more housing on areas with jobs, transportation services and educational opportunities.
While the actual housing allocations won't be formally released until early 2021, the methodology is expected to present Palo Alto with one of the toughest assignments in the Bay Area. Because the city has jobs and transit services and because it's designated as a "high opportunity" zone based on economic, educational and environmental factors, it is being asked to grow by 36% over the eight-year period between 2023 and 2031, more than any other city in Santa Clara County.
More than half of these units would be designated for below-market rate, according to the projected numbers. This includes 2,573 housing units in the "very low" income category, 1,482 in the "low" income category, and 1,673 in the "moderate" category.
For most council members, this is an impossible ask. Over the past two years, the only major affordable-housing project that the city has approved was a 59-apartment complex known as Wilton Court, which required a subsidy of more than $10 million from the city. And while Palo Alto has struggled to barely meet its regional mandate for market-rate housing, it has fallen well off the mark when it comes to affordable housing — a problem that council members frequently acknowledge and vow to address.
The new allocations also represent an exponential increase from the city's current housing target of 1,988 units in this eight-year Regional Housing Needs Allocation cycle.
But even as council members acknowledged Tuesday morning that they need to do more on affordable housing, the majority argued that the RHNA process is misguided and that the regional targets set Bay Area cities up for failure. Council member Eric Filseth called the projected allocation numbers "impossible" regardless of what type of zone changes the city undertakes, short of opening the Baylands for development.
"Intentionally or not, we're heading toward a sea change in how land use is done across the state of California," Filseth said. "Sacramento is giving out unreachable numbers and the remedies, when cities don't meet them, is to take over local zoning.
"It's a huge reworking on how California land use is done and it's going to apply to lots of cities across the state," he added.
Vice Mayor Tom DuBois said the problem isn't so much with the allocation method but with the total number of units that the Bay Area is required to plan for. The target of 441,176 units was determined by the state Department of Housing and Community Development (HCD), which assigns allocations to every region in California and then leaves it up to regional agencies like the Association of Bay Area Governments (ABAG) to determine the allocation for each city and county in its jurisdiction.
The "zero sum" nature of the process means that the city's protests are unlikely to succeed. Any unit reductions that Palo Alto could potentially obtain would have to increase allocations in another Bay Area jurisdiction. And as recent meetings of the various ABAG boards and committees have indicated, other cities aren't too eager to absorb Palo Alto's numbers. While the various boards ultimately settled on Option 8A as a compromise, many local officials argued that Silicon Valley cities should get even higher housing allocations, commensurate with the high job growth that they have been promoting and experiencing over the past several decades.
In a letter that they approved early Tuesday morning, Palo Alto leaders are arguing that the total number of housing units in the regional allocation is far too high because allocations are based on projections in Plan Bay Area 2050, a long-range vision document, rather than on existing conditions. For Palo Alto and other cities in Santa Clara and San Mateo counties, the anticipated allocations would "result in the need to plan for a population growth equivalent to building a new small city in eight years within existing built-out jurisdictional boundaries."
If Palo Alto meets the regional targets, it would see its population go up by 23,000 residents over the eight-year period, or nearly 3,000 annually. This, the letter argues, would require "significant increases in municipal services, including more parkland, expanded public safety services, greater access to libraries and public schools and other services." The city is also requesting in its letter a "housing cap" that would limit the percentage of new housing units compared to the city's existing housing stock.
"Development at this scale and pace is not realistic and not feasible for a built-out community," the letter states. "A growth cap is necessary to ensure jurisdictions can reasonably plan for and produce more housing units."
While council members agreed Tuesday that they should challenge the methodology and ultimately appeal the numbers after they are formally released, they have little hope that their opposition will bear fruit. Over the course of ABAG's protracted methodology discussion, the city has submitted five comment letters challenging the agency's assumptions. Planning Director Jonathan Lait acknowledged that the letters have "not been terribly effective in influencing the steady march forward of the RHNA methodology process."
Resident Kelsey Banes, a housing advocate, said that the prospect of ABAG changing its methodology at this point is highly unlikely and urged the city not to challenge the baseline on which the numbers are based.
"The main things we look at is access to opportunity and jobs, and Palo Alto has both of those things," Banes said. "We don't really have a case to make in terms of why we shouldn't get homes here because this is a place that needs a lot more homes."
Others supported a more aggressive stance. Greg Schmid, an economist and former Palo Alto vice mayor, called the RHNA numbers for Palo Alto "overwhelming." They are also, he added, flawed because they concentrate housing in job areas and neglect to consider the impact of job dispersion.
While the council is pushing back on the allocation of housing to Palo Alto, several speakers and council members simultaneously criticized city staff for citing in their comment letter an analysis issued in September by the research group Embarcadero Institute, which is composed of Palo Alto residents who are aligned with slow-growth policies.
Council member Liz Kniss argued that the group's paper should not be included or cited in the city's complaint because the researchers are known to "have a particular philosophy." The group's board includes Greer Stone, a teacher who was elected to council earlier this month, former Planning and Transportation Commission member Asher Waldfogel and downtown resident Gabrielle Layton. Both Waldfogel and Layton have been major donors in recent council elections to candidates affiliated with the council's "residentialist" wing. Stone has also been loosely aligned with the slow-growth camp in both his recent council campaign and in his prior council bid in 2016.
The Embarcadero Institute alleged in its September report that the state Department of Housing and Community Development exaggerated the housing need in Southern California, the Bay Area and the Sacramento area by more than 900,000 units by "double counting." The document specifically challenges the state agency's determination that a 5% vacancy is considered healthy, a determination that helps drive up the housing projections. The Embarcadero Institute analysis argues that while a 5% rate is reasonable for rental properties, a more reasonable figure for owner-occupied housing would be 1.5%.
The paper also alleged that state agencies "double counted" factors pertaining to overcrowding and cost-burdening, further driving up numbers.
"The state's approach to determining the housing need must be defensible and reproducible if cities are to be held accountable," the Embarcadero Institute paper states. "Inaccuracies on this scale mask the fact that cities and counties are surpassing the state's market-rate housing targets but falling far short in meeting affordable housing targets. The inaccuracies obscure the real problem and the associated solution to the housing crisis — the funding of affordable housing."
Since its release, the Embarcadero Institute paper has become a political hot potato. Even as local officials in cities such as Palo Alto and Beverly Hills have cited it as evidence that state projections are flawed, numerous economists and academics have challenged the paper's assumptions and conclusions. Stephen Levy, an economist who has worked with HCD to develop projections, argued in his letter to the city that the 5% vacancy rate is the agency's "normal assumption for the total housing stock" and that the rate reflects "important state housing priorities in light of very large price and rent increases in recent years."
Levy also pushed back on the argument from Embarcadero Institute that the state agency double counted factors relating to overcrowding. The HCD's criteria in fact omits some overcrowding scenarios, such as when a young adult moves back with their parents.
Chris Elmendorf, a law professor at the University of California, Davis, also pushed back against the assertion in the Embarcadero Institute paper that the region's housing need should be equal to projected household growth, with a small vacancy adjustment.
"No 'conventional economist' would equate California's housing need with projected household growth," Elmendorf wrote in a series of tweets challenging the study.
The Embarcadero Institute study also proved contentious at Tuesday's discussion, with the council voting 4-3 along its usual political lines to exclude references to the report from the city's protest letter. DuBois, Filseth and Council member Lydia Kou all supported referencing the study in the city's letter; Fine, Kniss, Greg Tanaka and Alison Cormack voted for exclusion.
Fine characterized the report as "positional" and argued that it is based on the group's known opposition to new housing. He also voted against the letter, which will bear his signature despite his vote of dissent.
"We have all the tools at our disposal to being able to solve this problem, to meeting our own Comprehensive Plan goals, and this council is split on using that tool and extending it to a certain area to promote more housing," Fine said, alluding to the council's 4-3 vote earlier in the meeting to extend the "housing incentive program" — which gives density bonuses to housing developments — to a two-block stretch of San Antonio Road. "That's why other cities are not happy with us. That's why we are dark red on that map and getting one of the highest assignments in the entire Bay Area."
Despite the council majority's critique of the Embarcadero Institute analysis, most council members supported challenging the proposed numbers. DuBois called the projections "a dramatic increase" that is "really setting us up for failure."
"I'm not interested in shifting our allocation to other cities," DuBois said. "I'd rather see us align with other cities to ensure that the total is something that is achievable and makes sense.
He also suggested that the city should be prepared to support or join lawsuits that challenge the HCD housing allocation.
"Government can't be arbitrary and capricious," DuBois said. "We need numbers that are based on realistic assumptions. If we get numbers that are not achievable and those have repercussions on our ability to govern our city, then we have an obligation to defend ourselves and defend our city."