Despite a recent push to build more housing, Palo Alto and other Santa Clara County cities will have to answer to the civil grand jury in September for their collective failure to address the regional housing crisis.

The June 21 report from the Santa Clara County Civil Grand Jury highlights the efforts — or lack thereof — made by 15 county cities to address the shortage of affordable housing. The 45-page report also offers 39 findings and recommendations for cities to close the housing gap, including new fees on employers to pay for affordable housing; development "bonuses" allowing greater density for below-market-rate (BMR) housing near transit hubs; and the creation of "sub-regions," in which cities with high real-estate costs would subsidize housing built in adjacent cities that have lower real-estate costs.

Above all, the report is a clarion call for denser housing. Titled "Affordable Housing Crisis: Density is Our Destiny," it makes a case for stronger state laws that will prod "flailing cities" to build more densely, particularly below-market-rate housing.

"Higher densities are a necessary solution, but cities are not fully embracing this solution in the face of resident resistance, and a lack of funding, land and urgency," the report's summary states.

The report suggests that Palo Alto is in many ways in the eye of the housing storm. Palo Alto has by far the county's highest ratio of jobs per employed residents, estimated at 3.02 (the next closest city is Santa Clara, which has a ratio of 2.08), a discrepancy that fuels the city's traffic and parking problems.

To narrow the gap, the City Council has pursued two broad strategies: hit the brakes on office developments and rev up housing construction. While the former strategy appears to have succeeded (new office developments in downtown, around California Avenue and along El Camino Real have failed to reach the city's 50,000-square-foot threshold in each of the past three years), the latter remains a struggle. The council is well short of its goal of producing 300 housing units this year; the only project to win approval so far is a 57-apartment complex at 2755 El Camino Real.

The report from the civil grand jury — a group of citizens appointed for a one-year term that launches investigations based on citizen complaints and (as in this case) of its own initiative — makes clear that the county's gaping housing shortage has been many years in the making. Palo Alto ranks close to the bottom countywide in numerous categories relating to housing production, both recent and historic.

According to the report, Palo Alto was 14th out of 15 cities when it comes to meeting its state-mandated Regional Housing Needs Allocation (RHNA) in the 2007-2014 cycle (the allocation process requires cities to plan for — though not actually build — housing units, a fact that the report suggested changing).

The city issued permits for 1,080 housing units during this period, which comprised 38 percent of its allocation of 2,860. Only Saratoga, which had a RHNA allocation of 292 units and issued permits for only 38, held a smaller percentage (13 percent).

Palo Alto's production of below-market-rate housing is even worse. Palo Alto issued only 293 permits for below-market-rate housing in the 2007-2014 cycle, just 16 percent of its RHNA allocation of 1,874 (it ranked 12th in this category). The city did somewhat better on "above moderate" housing, which targets those who make more than 120 percent of area median income, which in Santa Clara County amounts to about $99,225 for a one-person household. The city permitted 787 housing units in the "above moderate" price range, fulfilling 80 percent of its allocation of 986 units. Even so, it ranked 13th in this category, with only Saratoga and Campbell claiming a small percentage.

Despite a recent focus on housing, Palo Alto hasn't fared much better in the current RHNA cycle, which stretches from 2015 to 2023. In the first three years of the cycle, the city met only 15 percent of its total RHNA allocation (ranking 13th). And on below-market-rate housing, it issued 115 permits of the 1,401 units in its allocation, or 8 percent (ranking it 7th).-

Recommended: Cities should work together

To make it easier for cities to produce housing, the grand jury recommends that they form RHNA subregions — a structure already in use in San Mateo, Napa and Solano counties. Under the system, cities within a subregion collectively share the burden of building housing.

The Cities Association of Santa Clara County is considering the possibilities of this model, according to the report. Rather than following prescribed rules, cities in a subregion would "strike their own alliances depending on mutual needs." Those that build extra below-market-rate housing to compensate for their neighboring cities would get compensation from those partners, such as funding for transportation infrastructure, parks, schools, safety and social services, the report states.

The grand jury report also highlights several existing policies that it argues discourage housing production. Palo Alto is one of seven county cities, for example, that allows developers to pay "in-lieu fees" instead of actually building below-market-rate units in their residential projects. This, the report says, weakens the city's so-called "inclusionary" law because developers tend to see these fees as a bargain. And while the money is allocated for housing, the report notes that "it can be many years before the fees translate into BMR units."

"The Grand Jury believes that in-lieu fees should be avoided and that cities should incentivize developers to build BMR units within their developments," the report states. "If cities retain in-lieu fees, they should be raised above the comparable inclusionary requirement."

At the same time, the grand jury report wholeheartedly endorses several other policies that Palo Alto has in place. The city is one of five — along with Santa Clara, Cupertino, Mountain View and Sunnyvale — that charge commercial developers "linkage fees" to pay for below-market-rate housing. Palo Alto's fee of up to $35 per square foot of new commercial space built is currently the highest in the county.

The grand jury also favors relaxing rules for residents interested in constructing accessory dwelling units (also known as granny units) on their properties and favors "residential impact fees" on new residential developments to pay for below-market-rate housing — efforts that Palo Alto has already undertaken.

NIMBYs versus YIMBYs

In putting the report together, the grand jury conducted 65 interviews, including ones with government officials, developers and leaders of nonprofits, according to the report. But while the report is chart-filled and data-heavy, it is also — as the name implies — very much an advocacy document for density.

The report strikes a particularly forceful tone when it frames the debate over housing as a tussle between the "NIMBY" mindset (a derisive acronym for "Not In My Backyard"), which calls for limiting job growth and city population to near current levels and which holds sway with many politicians, and the YIMBY ("Yes In My Backyard") movement, which is led largely by millennials and which "has started to exert influence in support of denser developments."

The document acknowledges that there are often sound reasons to limit development, which requires "acceptance of greater traffic congestion and therefore the need for modes of travel other than the automobile." It also notes that a "big piece of the puzzle is the stress that added population puts on overburdened schools."

These issues notwithstanding, the grand jury recommends that Santa Clara County lead "a unified communication campaign that aims to convert NIMBYs into YIMBYs and ease the road ahead for higher densities and more BMR housing." Such a campaign, the report states, should "analyze the need for higher densities in the context of the leadership consensus for preferred pace and limits for housing and employment growth."

The council is scheduled to discuss the report in late August, before staff submits its response. The report is already, however, generating divergent responses. Councilman Adrian Fine, a staunch housing advocate who authored a November 2017 memo advocating for more housing near public transit hubs, told the Weekly that the grand jury's decision to author the report is demonstrative of the scale of the problem.

"They point their recommendations at two obvious targets: the necessity for density and the issues with local control of housing," Fine said.

Councilwoman Karen Holman, who holds a philosophy of slower city growth and who voted against the 2755 El Camino Real development, sees things differently. Holman said the grand jury report is "curious in that it inserts itself into local land use matters in a similar fashion that the state has in imposing its housing mandates."

"While the Grand Jury has not the ability to impose regulations, the report does take a very political and partisan position (NIMBY vs. YIMBY) on how cities should solve its housing issues without also considering the other land-use impacts that such actions would drive," Holman told the Weekly.

These issues, Holman said, include how new office development exacerbates the housing shortage and the effects of an influx of new residents on local schools.

"To contemplate these other issues does not make one anti-housing but rather more rational in understanding that rarely can a single concern be addressed without also considering the practical and very real results of actions being contemplated in isolation," Holman said.

A regional approach?

One of the key recommendations of the report "Affordable Housing Crisis: Density is Our Destiny" by the 2017-18 Santa Clara County Civil Grand Jury is that the 15 cities in the county unite as one or more "sub-regions" of the Bay Area to address the housing shortage.

Here's how it might work:

* The cities in each "sub-region" would work collectively to build affordable housing.

* By joining together, cities would gain more control and flexibility to meet their individual housing requirements mandated by the state.

* Subregions would consist of contiguous local governments and require the approval of the Association of Bay Area Governments, which is the regional planning body for the nine Bay Area counties.

* If wealthier and less wealthy cities form a subregion, both could benefit: By building housing in the city where real estate is less expensive, more housing could be constructed for the same amount of money. Wealthier cities would contribute funds not only for housing but to ease the impacts of that housing on public transportation, roads, schools, parks, social services and retail access.

* An estimate of the cost to build the state's allocation of below-market-rate housing in each of Santa Clara County's cities is $32.5 billion; however, if — theoretically — all of the affordable housing were built in the least expensive city (Gilroy), it would cost only $20.4 billion. This, the report states, makes the case for cities to form alliances on the housing issue.

—Palo Alto Weekly staff

Source: Santa Clara County Civil Grand Jury report, "Affordable Housing Crisis," June 2018.