A little more than a year ago, Palo Alto elected officials approved a zoning program meant to get housing developers to build more homes in the city. On Monday, the city’s new slate of council members will rethink the initiative after fielding a proposal that has put residents on edge.

The project in question, proposed by San Francisco-based Cato Investment Co., would bring 24 units in a three-story apartment building on two side-by-side lots at 2239 and 2241 Wellesley St. Today, two unoccupied single-family homes sit on the land. The problem with the proposal, according to a recent city memo and neighbors, is that the project would rise in an area zoned for single-family homes, making it out of place and unwelcome.

The program Cato Investment is using, called Planned Home Zoning (PHZ) offers incentives to developers that propose residential projects, including upzoning or letting denser developments rise than typically allowed, in exchange for affordable homes—namely that 20 percent of the units in a proposed development must be affordable to lower income residents.

The program comes in response to staggering state-imposed housing goals that will task Palo Alto to build more than 6,000 new residential units in the next decade, per its Regional Housing Needs Allocation (RHNA), or “housing element” that would go into effect in 2023.

Hitting those goals is a feat Mayor Tom DuBois told residents during a recent community meeting that the city isn’t likely to achieve, despite a slew of programs in the city aimed at encouraging housing development.

“Even with these changes, I remain concerned about state setting excessive housing goals, requiring us to build three times as much as our current housing element without funding for affordable housing,” DuBois said.

City documents also acknowledge that the city has struggled to meet all of its affordable housing goals. As a result, the city is subject to a 2017 law known as SB 35 that streamlines the approval process for housing projects in which at least half of residential units are affordable.

Palo Alto appears to be on track to hit its current state-mandated targets for building market rate homes. But if the city fails to meet the higher benchmarks in its new RHNA goals, it could be subject to state-mandated streamlined approval on more projects, according to city documents. “Without significant land use policy adjustments to local zoning, meeting the anticipated market rate housing targets will be challenging,” the memo states. 

Programs like the PHZ initiative are meant to help Palo Alto meet those goals—or get as close as possible.

“Part of the question is how much flexibility does the council want to entertain?” Rachael Tanner, assistant director in the city’s planning department told San Jose Inside earlier this year. “The direction at the time was to put out these goalposts, like the 20 percent affordable [requirement], … and then to property owners and developers say ‘bring us your ideas.’”

Hold on

It seems Cato Investment may have asked for a little too much flexibility.

The city put the entire program on hold last month after city planners told Cato Investment their project wasn’t likely to gain traction due to its location. The developer still wanted to push forward because the project was a “direct response” to Palo Alto’s PHZ program, according to Cynthia Gildea, a representative for Cato Investment.

Though city officials in early March set an April 12 pre-screening appointment with the developer, the meeting was canceled days later as officials scrambled to figure out what to do—not only with the project that immediately frustrated residents in the College Terrace neighborhood, but with the entire program.

“If Palo Alto retreats, by shifting to outlaw this type of housing, how will they ever meet their internally set Comp Plan goals or the state mandated housing goals?” Gildea said in a statement to San Jose Inside. “The city is proving they don't have a solid solution which implies they are resolute to fail. Our question is, at the risk of losing local control for land use, what is so scary about a new apartment building in a neighborhood that contains many existing apartment buildings among single-family homes?”

But Palo Alto officials say that the zoning initiative was always to be used in commercially zoned parts of the city, even if it doesn’t explicitly say that in related documents. A recent city memo on the matter recommends council members rectify that by changing the verbiage of the program to allow PHZ proposals only in commercial, industrial or multifamily parts of the city.

Sentimental Value

Neighbors, meanwhile, say that while other apartments exist in the neighborhood, those buildings are all much smaller in size and have a fraction of the units that Cato Investment wants to build. Plus, the land where the apartment building is proposed also holds some sentimental value to residents, according to James Felix Cook, president of the College Terrace Residents Association, though he spoke to San Jose Inside on his own behalf.

Before Cato Investment purchased the properties in January last year, 99-year-old Lucille Mellish had lived on the property for years. She was a pillar of the neighborhood and her home a community spot where neighbors kept a garden and were welcomed to take apricots from a tree in the yard, Cook said.

That’s why some residents are also frustrated that they only learned of the development through a San Jose Inside report in January, Cook said.

“We'd like to see more affordable housing… so is there a way to, instead of doing 24 units, could they do four units of affordable housing?” Cook said. “I think there's lots of opportunities, but you wouldn't know that until the developer just sat down with people and really discussed it with them openly.”

But whether that will be an option for Cato Investment going forward remains to be seen.

If city staff members’ recommendation to reign in the program is adopted Monday, Cato Investment’s proposal would no longer qualify under the incentive program.

Notably, even if the project did still qualify under the PHZ program, approval of such developments has always remained entirely in the hands of the City Council. Cato Investment’s proposal, it seems, may not have had much support from the current slate of elected leaders either way.

“The Wellesley project is an example of what we'll be facing if zoning controls are taken away from cities in California,” DuBois said. “Council is reviewing and clarifying our Planned Housing Zoning … to clarify where it applies in the city. My position, and I think it is supported by the majority of council, is to really focus on our commercial areas for denser housing.”

Palo Alto's City Council meeting will be held Monday, April 12 at 5:30pm and can be viewed on Youtube or via Zoom.