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HomeMy WebLinkAboutStaff Report 14664 City of Palo Alto (ID # 14664) City Council Staff Report Report Type: Information Reports Meeting Date: 9/19/2022 City of Palo Alto Page 1 Summary Title: Condominium Conversion Report Title: Rental Residential Vacancy Rate Determination for Three or More Dwelling Units for 1st Half of 2022 From: City Manager Lead Department: Planning and Development Services Recommendation: This is an informational report and City Council action is not required. Executive Summary: This staff report transmits the biannual reporting of the vacancy rates of three1 or more residential rental units for May of 2022. The vacancy rate is 1.16%. When the vacancy rate is less than the 3% threshold, applications to convert residential rental units to ownership units through the subdivision process are not eligible for consideration. Background: Planning and Development Services (PDS) Department staff prepares the Residential Vacancy Rate Determination Report twice per year to meet the requirements of Palo Alto Municipal Code (PAMC) Section 21.40.040, Determination of Vacancy Rate and Surplus. Section 21.40.040 states the following: “In April and November of each year, the director of planning and community environment shall determine from the city utility meter records the vacancy rate and the vacancy surplus, if any, within the city limits. New market-priced rental units available to the general public, for which a certificate of use and occupancy has been issued since the last vacancy survey, shall be added on a unit-for-unit basis either to reduce the vacancy deficiency or to increase the vacancy surplus”. 1 Three or more housing units on the same parcel of land are considered Multiple Family Residential housing City of Palo Alto Page 2 All conversions involving a change in the type of ownership of three or more rental units are subject to the provisions of this chapter. Vacancy surplus is defined as the number of rental units being offered for rent or lease in excess of the 3% vacancy rate. No tentative or preliminary parcel map application for a subdivision for condominium purposes, created from a conversion from rental units, may be filed with and/or considered by the city unless there is a vacancy surplus of 3% or more as of the most recent determination pursuant to Section 21.40.040. The Planning and Development Services Department has records of tracking the three-plus units’ rental vacancy rate since 2002. Historically, the vacancy rate varied from 1.2% to 1.9%. Discussion: The purpose of the ordinance requiring this report is to seek a reasonable balance of rental and ownership housing in the city in a variety of individual choices of tenure, type, price, and location of housing. It is also to protect the supply of multi-family rental housing stock in the city for low- and moderate-income families. Finally, it is intended to help reduce and avoid displacement of tenants, particularly seniors and families. Staff prepares this report using various data sources. As per PAMC Section 21.40.040, staff uses the City of Palo Alto’s utility meter records to access the total number of “active” multi-family apartments. The Bureau of the Census Decennial 2010 data is used as a baseline for the total rental stock data in Palo Alto. Changes (addition or demolition) to the total rental dwelling unit stock are tracked by staff biannually using building permit issuance data. Both data points are used to generate the vacancy rate. In 2021, staff initiated a data reconciliation effort to increase the accuracy of the database. Staff from Utilities, Information Technology (IT), and Planning & Development Services (PDS) collaborated to ‘join,’ relate, and refine the Utilities account database to the Geographic Information System (GIS) database system. In the report produced in March of 2021 for the calendar year 2020, the data reconciliation work was still in progress and the generated data was less accurate. Since then, further refinement and quality control in the data set was completed leading to a cleaner and more dependable data set. Updated Utilities Database In November 2020, the City’s Utility Department upgraded its legacy data recording system. This major system upgrade was necessary to accommodate data storage and software issues. For this upgrade, some data reconciliation and refinements were made to the old data recording system, enabling staff to take advantage of data points previously unavailable. This City of Palo Alto Page 3 resulted in a more precise dataset relative to the previous year's reporting in the legacy system used prior to November 2020. The system upgrades permitted address reconciliation between the Utility accounts database and the City’s GIS address database. This significant cross-department work effort created a link between certain attributes or data points in the City’s GIS and the Utility account database. This ‘linkage’ facilitated a more accurate unit count focused on rental multifamily utility accounts instead of all multifamily accounts, which includes ownership/condominium type and rental multifamily utility accounts. The collaboration successfully identified most Utility accounts associated with 3+ rental units; for various reasons, not all accounts could be identified (e.g., GIS address may not exactly match Utility account addresses on corner lots or address formatting discrepancies between GIS address and Utility account databases). Staff will continue to research discrepancies on a case-by-case basis to further enhance both datasets. During this effort, staff also recognized that several multi-family residential (MFR, 3+ units) rental housing utility accounts have one utility meter for all rental units (e.g., 657 Everett Middlefield Rd) or individual unit accounts that were always billed or invoiced to the property manager or owner regardless if the unit is occupied or vacant (e.g., senior housing apartment units). Some MFR (3+) rental housing units’ individual utility accounts also have been ‘inactive’ or have not had a utility bill for some time. It is difficult to determine whether the unit associated with the account is vacant or is no longer available to rent; in other words, ‘taken off the rental market’ altogether. These variations between the GIS and Utility account datasets help clarify the discrepancy between the estimated number of 3+ rental housing units (~8,057) and the number of ‘identified’ active Utility accounts in 3+ rental housing (~4,639). Latest Vacancy Rate For the May 2022 data reporting cycle, the multifamily rental vacancy number is 1.16% percent (based on reconciled data source). Applications to convert residential rental units to ownership units through the subdivision process are not eligible for consideration at this time since the vacancy rate is less than the 3% threshold. Table 1: Average Annual Rental Vacancy Rates Year Estimated Housing Units Estimated Vacancy Rate (yearly average of biannual report) Estimated Vacant Units 2015 7,901 1.22% 92 2016 7,912 1.45% 118 2017 7,928 1.58% 131 City of Palo Alto Page 4 2018 7,928 1.52% 132 2019 7,931 1.83% 141 2020 8,057 2.8% 226 2021 8,057 1.13% 91* 2022 (thru May 2022) 8,057 1.16% 93 *03/21/2022 Condo Conversion report had a typographical error. The correct value for Estimated Vacant Units for 2021 is 91. Policy Implications: This report is prepared as a requirement for Municipal Code 21.40.040 and provides information on the City’s rental vacancy rate and whether conversion from rental housing to ownership condominium units is permitted. Based on recent data, conversions are not permitted at this time. Resource Impact: Planning staff prepare this report biannually and there are no resource impacts. Timeline: This informational memo is prepared twice a year for Planning division staff use. The previous report, discussing estimated vacancy rate for calendar year 2021, was delayed due to the updated Utilities database discussed above and completed in March 2022. The next report will be prepared in November/December 2022.