On paper, it seemed like a project no one could oppose: a 60-unit apartment complex for low-income seniors in one of the Bay Area's most jobs-saturated cities. It had construction financing in place, support from local elected leaders, and perhaps most important, a 2.4-acre plot of land on the pricey south side of Palo Alto.
But the Maybell affordable housing project never got so far as to put a spade in the ground. It was resoundingly rejected by Palo Altans in a 2013 voter referendum, becoming a sobering example among Bay Area urban planners of the uphill battle facing construction of low-income housing in suburban communities.
"Having some initial opposition is par for the course, but that's usually overcome once neighbors visit our other housing sites," explained Candice Gonzalez of the nonprofit Palo Alto Housing Corporation, the would-be developer of the project. "But this was a total shock. It was the perfect storm of people being opposed to development in Palo Alto."
To this day, Gonzalez's organization has not attempted another below-market-rate housing project in its hometown. Instead, it has shifted its focus to Mountain View and Redwood City, areas Gonzalez describes as easier and, in some ways, more welcoming.
Even the land-use and zoning rules in Palo Alto put up barriers to subsidized housing project. For example, Gonzalez's organization is currently working to build 67 affordable-housing units at a half-acre site on El Camino Real in Mountain View. They previously investigated going for a similar apartment project at a half-acre site just down the street in Palo Alto, but they would have been limited to just 13 housing units due to the city's density rules.
The regulations, and public sentiment, that sunk the Maybell project is indicative of the patchwork of rules in Bay Area cities, counties and communities that make tackling the regional housing shortage so difficult.
There's broad consensus on the cause of the problem. Bay Area policy experts and politicians are mostly in agreement that a surplus of jobs and a scarcity of housing is creating a mounting crisis for the Silicon Valley economy.
Part 1 of the Voice's series "Out of Balance" last week examined the widening gap between job growth and housing construction in Santa Clara County and the impact on Silicon Valley's economy. But this raises the question: If almost everyone agrees there's a growing problem here, then who's supposed to be solving it?
The answer? It's really complicated. The Bay Area includes nine counties and 109 cities, ranging from densely populated San Francisco to the rural stretches of Morgan Hill. Each of those communities comes with its own land-use authority and elected government.
To guide those assorted communities, state lawmakers created a hierarchy to be the steady hand on the tiller. Two agencies -- the Association of Bay Area Governments and the Metropolitan Transportation Commission -- are tasked with shepherding development toward a larger regional strategy. In very basic terms, state housing officials every eight years determine a total number of homes that need to be built in the Bay Area, and ABAG officials assign a quota to each city for how much housing to incorporate into their future plans.
The reality, however, falls far from that vision. From 2007 to 2014, Santa Clara County's goal was to build slightly more than 60,000 new homes. Only 45,000 homes were granted permits, and many of them were hardly the kind that were supposed to be built.
More than 80 percent of the housing approved for construction were high-end homes, priced for those earning more than $120,000 or more annually. Meanwhile, cities almost universally failed to meet their allocations for below-market-rate housing for low- and moderate-income residents.
Numbers for some cities were wildly off the mark. Mountain View was supposed to grant clearances for nearly 500 median-income units. Only four such homes were approved. Los Altos had a goal of around 70 high-end houses, but the city instead signed off on more than 700. To varying degrees, every city in the county was unable to meet its housing allocation, even though these were the same goals each city added to their respective housing elements, which serve as a blueprint guiding future development.
Trying to determine the reason for this is tricky, said Gillian Adams, ABAG senior planner. It could be that political forces in a city are firmly opposed to low-income housing, as demonstrated by Palo Alto in 2013, when citizens passed a ballot measure to stop a 60-unit affordable housing project for seniors. But it could also be a result of the market, Adams said. If developers aren't interested, cities have limited power to push forward costly housing projects on their own.
"There's no penalty for not approving housing," Adams said. "That's because it's hard to determine what's causing it. Is it a lack of will, or is it a lack of market interest?"
Regional planning agencies like ABAG and MTC operate under the theory that they can catch more flies with honey, with $600 million in government grants they've been doling out since 2012 to cities, primarily for transportation improvements to encourage high-density developments near transit hubs.
That funding goes a long way toward helping overcome local resistance and encouraging local officials to see the larger picture, said MTC principal planner Doug Johnson.
But is it enough? "I do feel that housing is a little bit of a tragedy-of-the-commons situation, and we're still not getting to the collective impact," Johnson said. "We have to acknowledge there's a tension here -- it's great for folks who already live there, and it's not so great for people who are having kids and need a new home."
Some experts say that only offering incentives simply isn't enough, particularly as some cities continue to resist housing growth. Some form of beefed-up system may be needed to compel local authorities who willfully flout the greater regional problems, said Gabriel Metcalf, president of the San Francisco Bay Area Planning and Urban Research Association. He proposes rescinding some of cities' local land-use control -- a controversial idea that probably sounds like heresy to pretty much every Bay Area city council and planning commission.
"We have proven definitively that the current system doesn't work," Metcalf said. "Ultimately, I think Bay Area cities need to either change their ways and allow housing to be built, or I think we need to consider moving away from the system of local control."
That shift may come faster than expected. In an effort to streamline new housing, California Gov. Jerry Brown is proposing laws to allow developers to bypass local building restrictions for housing projects with at least 5 percent of their units affordable to low-income residents.
Hurdles to affordable housing
The majority of new homes constructed in Santa Clara County over the last decade are affordable only to families making six-figure salaries, raising the question: What's holding back affordable housing development in the region? The answer, according to housing advocates in Silicon Valley, is that the high cost of land -- combined with a dearth of city-sponsored affordable housing funds -- is making it financially infeasible or outright impossible to compete with companies putting luxury apartments on the market.
Housing Trust Silicon Valley has been a key player in the affordable housing development market. Since 1998, the organization has leveraged more than $55 million in loans to help affordable housing companies and nonprofits acquire land in the Bay Area, including affordable housing developers in Mountain View. The Housing Trust put down $350,000 in early loans for the Franklin Street Apartments in Mountain View, as well as $625,000 in loans for San Antonio Place, both with units for low- and extremely low-income families.
But to make developments like these a reality, it takes a big commitment by the city. Kevin Zwick, CEO of Housing Trust Silicon Valley, told the Voice in an interview that federal and state tax credits are critical if a developer wants to build an affordable housing development. And in order to compete for the limited pool of government subsidies, some kind of third party -- whether a local government or a private company -- needs to contribute about a third of the total project cost as a subsidy or loan.
"Far and away, the biggest limiter is local investment from the public side," Zwick said. "For affordable housing projects to get completed, the most important thing is the local money."
The affordable housing shortage in Santa Clara County can be tracked going back to 2007, but Zwick said the situation got a whole lot worse in late 2011, when Gov. Brown signed a bill that dissolved California's redevelopment agencies, which had traditionally been a big source of affordable housing money.
State law required that at least 20 percent of redevelopment agency funds had to be earmarked for housing projects for low- and moderate-income families, creating a local funding source for cities to pursue affordable housing projects. With redevelopment agencies, Zwick said, cities in Santa Clara County had about $65 million each year for these projects, all of which has now been redistributed to other services.
"That was funding cities could use to not only start up new affordable housing, but also provide the permanent subsidies needed to keep the developments affordable," he said. "Now cities don't have enough to do both."
That's exactly what happened in Milpitas, a South Bay city that traditionally has had more affordable housing. After the city lost redevelopment funds around 2011, the number of affordable-housing projects "slowed to a trickle," and the situation has yet to improve significantly, said Milpitas Planning Director Tim Wong.
What did spring back was a series of high-end apartment and townhouse developments. Private investors were keen on building residences near the city's future BART station, Wong explained. Milpitas ended up building more than 6,400 housing units priced for those earning more than $126,000 annually, more than six times the number the city was slated to approve in its ABAG allocation. During the same period, only about 700 units were built for all lower-income categories.
Wong gave assurances that the lopsided development wasn't something to be concerned about.
"This is the direction the Milpitas community decided to take," he said.
There are some local efforts to bring affordable housing funds back to Santa Clara County. Earlier this year, the Santa Clara County Board of Supervisors agreed to put a $950 million affordable housing bond on the November ballot to build housing for low and extremely low-income families in the area. If the bond passes, Zwick said, its revenue would provide the badly needed local money required to make affordable housing developments a feasible option for developers. Zwick estimates that the bond could leverage between $2 billion and $3 billion in additional state and federal dollars.
"That's going to spur a tremendous amount of new affordable housing development," Zwick said.
Throughout the entire development process, from land acquisition to construction, affordable housing developers never get a leg up over private developers creating market-rate homes. Alex Sanchez, the executive vice president of ROEM corporation, a private company that specializes in building affordable housing throughout California, told the Voice that subsidies are a necessary incentive to even compete in the development market.
In Mountain View, ROEM built the subsidized Franklin Street Apartments and Studio 819 Apartments on North Rengstorff Avenue that are available to families making less than 50 percent of Santa Clara County's median income of $106,000. In the coming months, the company plans to break ground on the recently approved 116-unit affordable housing project at 779 Evelyn Avenue. In all of its affordable projects throughout the state, Sanchez said, the company has had to build on market-rate land, design the project with market-rate architects, and use market-rate contractors to build them. With no measures to cut costs in sight, he said, it's practically impossible to finance the project without equity from tax credits and local subsidies -- usually in the form of city loans.
"All the engineers and planners, they're all paid the market rate, and the financing has no place to go to make it affordable without subsidies," he said.
Although it sounds like an uphill battle, Sanchez said that the finance structure is the only thing that really changes, and the company doesn't take a financial hit for pursuing affordable housing projects.
Mountain View's example
Although development patterns show that Santa Clara County didn't even come close to building its target number of affordable housing units in recent years, there are some signs that cities have changed tempo, and are now rigorously pursuing ways to generate more affordable housing funds and encourage development of low-income apartments in areas filled with homes for the well-heeled.
In Mountain View, for example, the city contributed $5.8 million towards an affordable housing project aimed at serving veterans late last year, and in March committed $22 million toward building ROEM's apartment complex on Evelyn Avenue. And as city planners prepare for a windfall in new affordable housing funding in the coming years, Mountain View could be one of the few cities turning the tide.
Over the next month, the city of Mountain View will be holding a workshop with affordable housing groups including MidPen Housing and Palo Alto Housing Corporation to brainstorm ways to bring more affordable housing developments to the city. The workshop could prove timely, as Mountain View city staff expect to see between $70 million and $80 million in additional affordable housing fees rolling in over the next three years, said Randy Tsuda, the city's community development director. By comparison, the city collected $25 million over the last three years.
"I think we're pretty confident ... that we will be getting additional funds and substantial affordable housing funds over the next year or two," Tsuda said "We are constantly contacting affordable housing developers and constantly being contacted by them."
Mountain View's City Council laid the groundwork for more affordable housing back in December 2014, when council members agreed to charge higher development fees on new office and rental housing development than any other city in the region. Companies looking to build offices larger than 10,000 square feet now have to pay the city $25 per square foot of new development, all of which will flow into the city's affordable housing fund.
Sanchez commended Mountain View for its efforts to work with developers and bring more affordable housing to the city, and said the Franklin Street apartments are a "jewel of a project," that's compatible with the neighborhood and adds value to the area.
"I think Mountain View is a model community. They have figured out how to do this. I think they have invested in quality and affordability at the same time, which is very unique," Sanchez said.
Zwick, working with the housing trust, said Mountain View, Sunnyvale and San Jose have traditionally been the "major forces" trying to seek resources for more affordable housing. But he said Mountain View is ahead of the game, and has taken the initiative to increase fees in preparation for what is now an affordability crisis in the housing market.
"If every city did what Mountain View did, we'd be in great shape. We'd be back in the position (when) we had redevelopment agencies," Zwick said.
Read the entire Out of Balance series:
Part 1, Acres of office space