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Home My WebLink AboutStaff Report 2505-4698CITY OF PALO ALTO CITY COUNCIL Monday, June 16, 2025 Council Chambers & Hybrid 5:30 PM Agenda Item C.Rental Residential Vacancy Rate Determination for Properties Containing Three or More Dwelling Units for the First Half of 2025. CEQA: Not a Project, Pursuant to CEQA Guidelines Section 15378(b). City Council Staff Report From: City Manager Report Type: INFORMATION REPORTS Lead Department: Planning and Development Services Meeting Date: June 16, 2025 Report #:2505-4698 TITLE Rental Residential Vacancy Rate Determination for Properties Containing Three or More Dwelling Units for the First Half of 2025. CEQA: Not a Project, Pursuant to CEQA Guidelines Section 15378(b). RECOMMENDATION This is an informational report and City Council action is not required. EXECUTIVE SUMMARY This report transmits the reporting of the vacancy rates of properties containing three or more residential rental units for the first half of 2025. The vacancy rate was below the 3% threshold at 0.85% for the first half of 2025; therefore, applications to convert residential rental to ownership units via a subdivision process are not eligible for consideration. BACKGROUND Planning staff prepares the Residential Vacancy Rate Determination Report twice a year to meet the requirements of Palo Alto Municipal Code (PAMC) Section 21.40.040, Determination of Vacancy Rate and Surplus. Section 21.40.0401 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. All conversions involving a change in the type of ownership of three or more rental units are subject to the provisions of this chapter. PAMC Section 21.40.020 includes a definition of Vacancy surplus as the number of rental units being offered for rent or lease more than the 3% vacancy rate. Per PAMC Section 21.40.050, the City cannot accept tentative or preliminary parcel map applications for subdivisions created from conversions unless there is a vacancy 1Municipal Code Chapter 21.40: https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0-0-83254 surplus of 3% or more as of the most recent determination. The purpose of the regulations pursuant to PAMC Chapter 21.40 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. The provisions are also intended to protect the supply of multi- family rental housing stock in the City for low- and moderate-income families, and to reduce and avoid displacement of tenants, particularly seniors and families. ANALYSIS 2 Staff prepared this analysis per PAMC Section 21.40.040 using the City of Palo Alto’s utility meter records. These records reveal the total number of “active” multi-family apartments and allow staff to determine the percentage of “vacant” multi-family apartments. Utility accounts associated with three or more rental units were identified. The results, along with those for the last 10 years, can be found in Table 1. Table 1: Average Annual Rental Vacancy Rates Year Estimated Housing Units3 Utility Accounts Deemed Vacant Estimated Vacancy Rate (Average)4 2025 (1st half) 2 Vacancy rate data was sourced from CoStar's Daily Vacancy Rate analytics for the Palo Alto Multi-Family Submarket. Data was accessed on May 9, 2025. https://product.costar.com/Market/#/search/detail/submarket/USA/type/1/property/11/geography/7449/slice/al l/chartDetail/DailyVacancyRate 3 The U.S. Census Bureau Decennial Census 2010 data is used as a baseline for the total rental stock data in Palo Alto and changes (addition or demolition) to the total rental dwelling unit stock are tracked by staff biannually using the City of Palo Alto’s land use management system (Accela) to generate the vacancy rate. Staff expected to update the baseline with the release of the 2020 Decennial Census; however, the U.S. Census Bureau decided to discontinue the rental data point and staff will continue to use the original methodology. 4 This percentage is the number of utility accounts deemed “vacant” divided by the utility accounts sample size. Staff acknowledge there may be gaps and inconsistencies in this data methodology. Multifamily properties could have different types of utility accounts and for various reasons, not all accounts could be identified. Examples of data limitations include but are not limited to, addresses between databases may not match utility account addresses, there is not a one-to one relationship between estimated three or more rental housing units and three or more rental unit utility accounts, instances where a property has one utility meter or all meters are billed to the property manager/owner, and some units with legacy “inactive” accounts may be vacant or no longer available to rent altogether. Accordingly, the data included in this analysis represents staff’s best effort to address these discrepancies. With the implementation of the new Rental Registry Program (RRP) in October 2024, staff has identified and included additional "three or more" rental properties in this report compared to the 2024 report. Staff analyzed the rental vacancy rate both with and without the inclusion of the newly added RRP rental units. The analysis showed a consistent reduction in the vacancy rate under both scenarios. Staff will continue to update and expand the list of qualifying properties in the second half of the 2025 reporting period, as the RRP continues to identify additional properties that meet the "three or more" rental unit threshold. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: