HomeMy WebLinkAboutStaff Report 2510-5298, Staff Report 2506-4861CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Wednesday, October 22, 2025
Council Chambers & Hybrid
5:30 PM
Agenda Item
4.Update and Direction to Staff on the Downtown Housing Plan Project and
Implementation of Senate Bill 79 (2025-2026). CEQA Status: Exempt Under CEQA
Guidelines Section 15262. Late Packet Report Added, Staff Presentation
City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: October 22, 2025
Report #:2510-5298
TITLE
Update and Direction to Staff on the Downtown Housing Plan Project and Implementation of
Senate Bill 79 (2025-2026). CEQA Status: Exempt Under CEQA Guidelines Section 15262.
This report will be a late packet report published on October 16, 2025.
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City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: October 22, 2025
Report #:2506-4861
TITLE
Update and Direction to Staff on the Downtown Housing Plan and Implementation of Senate
Bill 79. CEQA Status: Exempt Under CEQA Guidelines Section 15262.
RECOMMENDATION
Staff recommends the City Council provide direction to staff on the next steps for the
Downtown Housing Plan, including citywide implementation of Senate Bill (SB) 79.
EXECUTIVE SUMMARY
This report provides an update on the Downtown Housing Plan and discusses the implications
of SB 79, which mandates increased residential density, height, and floor area within one-half
mile of major transit stations, including Downtown Palo Alto.
The Downtown Housing Plan, initiated in 2024, is intended to expand housing opportunities in
the downtown core while maintaining community character. Public outreach shows broad
support for additional housing near transit and jobs, though most projects are unlikely to
proceed under current market conditions due to high development costs, small parcel sizes,
and stronger financial performance of office uses.
SB 79, effective July 1, 2026, establishes new state minimums for building height, residential
density, and floor area near transit. Cities may prepare a state-approved Transit-Oriented
Development (TOD) Alternative Plan to guide how and where this new housing capacity is
applied.
Staff seeks City Council direction on completing the Downtown Housing Plan; a proposal to
refocus staff and consultant efforts on an SB 79 compliant TOD Alternative Plan, and potentially
formation of a Council ad hoc to support staff planning efforts given the limited time available
for Alternative Plan development.
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BACKGROUND
1 This followed City action to
designate the University Ave / Downtown Area as a Priority Development Area (PDA) on
January 13, 2020.2 This designation, later approved by the Association of Bay Area
Governments (ABAG), encompasses approximately 206 acres within a half mile radius of the
Palo Alto Caltrain Station and generally includes downtown University Avenue, the South of
Forest Area Coordinated Area Plan and the Stanford Shopping Center. PDAs as envisioned by
the Metropolitan Transportation Commission (MTC) are established to guide growth around
transit and connect housing to jobs and areas of interest.
1 https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment/?historyId=454870f4-
764a-4aef-a47a-85ea3f582fbb
2 Attachment E: Draft Resolution of Proposed Priority Conservation Area Designation of Foothills and Baylands
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In the project’s initial phase, extensive outreach was conducted to engage community
members. Key activities included:
Online Presence: A dedicated project website for updates and feedback.
Stakeholder Interviews: Confidential one-on-one interviews with key stakeholders to
gather interests and concerns.
Public Events: A Community Open House, a Community Workshop, pop-up booths at
local events, and meetings with property owners.
Surveys: Community surveys to capture broader resident feedback.
5
Community Assessment Report
6 In summary,
the document provides an overview of current conditions and key challenges affecting new
housing development in downtown Palo Alto. It finds that very little housing has been built in
the downtown area in the past decade, largely due to challenges such as small parcel sizes, high
land costs, a 50-foot building height limit, and requirements for ground-floor retail and parking.
These factors make most housing projects unlikely to build under current regulations and
market conditions. The report also identifies clear opportunities in this area due to the
downtown’s proximity to transit, services, and jobs, making it well-suited for smaller housing
types, including units for seniors and essential workers. Community input shows support for
more housing, especially if it is well-designed and in alignment with downtown’s character.
Housing Development Economic Feasibility Analysis
5 Downtown Housing Plan – City of Palo Alto, CA
6 https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/long-range-planning/area-
plans-and-studies/downtown-housing/june-16-item-b-staff-report.pdf
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production and identify policy opportunities for increasing the likelihood of development. The
analysis focused on key factors such as construction costs, potential revenues, and the impact
of City fees and requirements on overall project feasibility. This analysis is available on
Attachment A. The report findings are summarized below.
Key Findings
Current Feasibility: Under current market conditions, the development prototypes
analyzed do not generally meet financial feasibility thresholds.
Ownership vs. Rental: Smaller ownership prototypes (condominiums) outperform rental
prototypes due to a high local price premium for luxury ownership housing.
Mid-Rise Rental Projects: Mid-rise rental prototypes are unlikely to be built under
current conditions, but their feasibility can change quickly with shifts in development
conditions.
Office vs. Residential: Office uses continue to outperform residential uses financially in
the Plan Area, although office performance is also constrained by broader development
challenges.
Parking Costs: Parking spaces add substantial costs to housing development, ranging
from $25,000 to $123,000 per housing unit, depending on the parking format.
Impact Fees: Removal of affordable housing requirements has a minor positive impact
on financial feasibility. The removal of all City fees (including impact and permitting
fees) results in a substantial increase in the financial feasibility performance of the
prototypes.9
Challenges:
Broader Market Trends: Construction cost inflation and increased thresholds for return
on investment (related to higher interest rates) pose challenges to housing development
throughout the Bay Area.
Site Constraints: Difficulty providing market-required parking and efficiently using
smaller sites. Lot consolidation has historically been rare in Palo Alto, underscoring the
need for development incentives or other tools to encourage parcel assembly.
9 NOTE: The feasibility analysis and this report do not recommend eliminating fees as these serve other important
City service and infrastructure needs. However, the analysis suggests as part of a future policy discussion some re-
calibration to balance impact fees with housing production. This work is soon to get underway as part of the
Development Impact Fee update with results expected to be shared with Council in 2026.
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Office Competition: The strong desirability of office uses in the Downtown Housing Plan
area creates competitive challenges for housing development, as property owners may
prefer to maintain high-value office uses.
Fees: The City's affordable housing requirements and other fees are not the main reason
the prototypes are unlikely to develop under current conditions, but the requirements
and fees create an additional cost challenge that reduces the likely timing and pace of
housing delivery as development conditions improve.
Opportunities to Support Housing Production
Adjust Zoning and Land Use Requirements: Increase height and FAR (Floor Area Ratio) to
support higher-density housing, allow a greater variety of housing product types,
provide flexibility in accommodating parking, and increase the opportunity to produce
housing under different market cycles.
Link Office Production with Housing Production and Encourage Site Assembly: Create
requirements or incentives, such as an office transfer development rights program, that
link office production with housing production and encourage site assembly; modify
restrictive zoning that limits existing non-conforming office from redeveloping.
Reduce City Impact Fees for Housing: Consider reducing or waiving impact fees for
housing to improve financial feasibility, while also weighing the importance of these
fees in funding critical City infrastructure needs.
Flexible Affordable Housing Requirements: Consider greater flexibility in meeting
affordable housing requirements, especially for ownership housing products (e.g.,
allowing fees in lieu of on-site units).
Downtown Housing Plan: Next Steps
Prior to the adoption of Senate Bill 79, staff and the consultant team were preparing for a
community workshop event to refine input on where within the Downtown Housing Plan area
greater development potential, such as increased building height and floor area, should be
allowed, and where the existing downtown character should be preserved. The project team
assigned subareas to the project boundary to gather feedback on where to increase height and
floor area. While there was no clear consensus, there was general support for increased height
and floor area in Subarea A, closest to the Caltrain station. Opinions regarding future
development along Lytton and Hamilton Avenues in Subareas C and D, respectively, and along
University Avenue in Subarea B, were mixed between maintaining existing standards and
allowing varying levels of increased height (Attachment B). Figure 1 depicts the subareas.
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The community
workshop and related
outreach were also
intended to address
concerns about
potential impacts on
adjacent residential
neighborhoods and to
evaluate properties
unlikely to redevelop
due to factors such as
historic designation,
recent construction, or
continued office use.
Figure 1: Downtown Housing Plan Sub Areas
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Key provisions of an TOD Alternative Plan include maintaining at least 50 percent of the
statutory density for individual residential sites, except in high-risk areas such as very high fire
hazard zones, sites vulnerable to sea level rise, or those with historic designations. Additionally,
no single site may accommodate more than 200 percent of the capacity established by state
law.
11
Classification of Transit Stops: SB 79 designates transit stops as Tier 1 or Tier 2, with
corresponding development standards applicable to areas within one-half mile of a designated
stop. The Palo Alto Station, California Avenue Station, and San Antonio Station are all classified
as Tier 1 stops (Attachment C). (Gov. Code § 65912.156)
Applicable Development Standards for Tier 1 Stops (Downtown Palo Alto, California Avenue,
and San Antonio Caltrain Stops) (Gov. Code § 65912.157, subd. (a)):
Within one-quarter mile, local governments must allow:
o Building height of 75 feet.
o Residential density of 120 dwelling units per acre (average unit size 1,750 square
feet).
o Residential floor area ratio (FAR) of 3.5.
o If site is “adjacent” to the transit stop (within 200 feet of a pedestrian access
point) it is allowed an additional 20 feet in allowable height, an additional 40
11 SB 79 Legislative Text: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260SB79
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dwelling units per acre in allowable density, and an increase of 1.0 in allowable
residential FAR.
Between one-quarter and one-half mile, local governments must allow:
o Building height of 65 feet.
o Residential density of 100 dwelling units per acre (average unit size 1,750 square
feet).
o Residential FAR of 3.0.
Additional Provisions of Interest:
A project under SB 79 must include at least five dwelling units and meet the greater of a
minimum of at least 30 dwelling units per acre or the minimum density required under
local zoning.
Inclusionary Housing Requirements (Gov. Code § 65912.157, subd. (c) and (i))
o SB 79 requires each transit-oriented development to satisfy one of the following
minimum affordability standards:
7% of units affordable to extremely low-income households;
10% of units affordable to very low-income households; or
13% of units affordable to lower-income households.
o Where a local jurisdiction requires a higher percentage of inclusionary units, the
local requirement supersedes SB 79.
Density Bonus Eligibility (Gov. Code § 65912.157, subd. (d))
o A transit-oriented development shall remain eligible for density bonuses,
incentives, concessions, waivers, or reductions in development standards
pursuant to Government Code Section 65915 (Density Bonus Law) or a local
density bonus program.
o For purposes of calculating density bonuses, the base density shall be the
minimum density mandated by SB 79.
o If the proposed building height for a project exceeds the local limit, the local
jurisdiction need not provide a waiver of height beyond the height mandated by
SB 79.
Relationship to CEQA and Ministerial Approvals (Gov. Code §§ 65912.157, subd. (l), and
65912.159)
o SB 79 does not modify the requirements of the California Environmental Quality
Act (CEQA). However, individual projects may still take advantage of various
CEQA streamlining provisions and exemptions.
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o SB 79 does not establish a new ministerial approval process. However, projects
qualifying under existing state streamlining statutes (SB 35 and SB 423) may be
eligible for ministerial approval, subject to compliance with those statutes.
Affordable housing requirements for such projects are not contingent upon the
jurisdiction’s RHNA compliance status.
TOD Alternative Plan Provision: As noted above, a local jurisdiction may elect to adopt a local
TOD Alternative Plan in lieu of implementing SB 79 directly. Requirements for the TOD
Alternative Plan include (Gov. Code § 65812.161):
Maintains at least the same net zoned capacity (both total units and residential FAR) as
prescribed by SB 79.
Does not reduce the maximum allowed residential density for any site by more than 50
percent of the density required under SB 79, except in cases where the site:
o Is located within a Very High Fire Hazard Severity Zone;
o Is vulnerable to at least one foot of projected sea level rise; or
o Contains a designated historic resource on a local register.
In aggregate, such exceptions may not exceed 10 percent of the eligible TOD zone area.
Does not allow any site to exceed 200 percent of the maximum density prescribed by SB
79.
Excludes from capacity calculations any sites exempted on the basis of fire hazard, sea
level rise vulnerability, or historic resource designation.
A local TOD Alternative Plan may provide an opportunity to guide higher building height,
density and floor area away from lower density single family or lower density zoning or
potentially from University Avenue if there is interest in maintaining a lower profile experience
to match the existing character of this retail-oriented street. However, this effort will not
preserve the lower density development standards for single family districts within the SB 79
radius.
The most the City could reduce allowable density or a property’s floor area ratio through an
TOD Alternative Plan is to 50 percent of the new minimum standards established by the
legislation. This effectively establishes a baseline development capacity of 1.5 FAR and 50
dwelling units per acre for these sites. For comparison, the City’s R-1 Single-Family Residential
zoning currently allows an FAR of 0.45 for lots 5,000 square feet or smaller, and 0.30 for lots
larger than 5,000 square feet. In addition, it is unclear whether a 3.0 FAR development would
occur on a typically sized R-1 lot in Palo Alto if the statutory density is not modified by an
alternative plan.
ANALYSIS
The original intent of this scheduled discussion with the City Council was to provide an update
on the Downtown Housing Plan, describe upcoming community outreach, and receive feedback
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on the project’s next steps. With the passage of SB 79, staff’s focus now broadens to seek
Council feedback not only on the future of the area planning initiative but also on related
efforts connected to SB 79’s broader community implications. This discussion is also informed
by other recent legislative changes, including updates to state density bonus law, AB 2097
(which exempts on-site parking for new development), and AB 130 (which provides for
streamlined application processing and exemptions from certain state environmental laws).
Continue to work on the Downtown Housing Plan. Staff believes there continues to be
value in completing the Housing Plan. At a minimum, it can serve as a vision document
reflecting Council and community interests for the future development of this area.
Completing the Downtown Housing Plan is not a requirement of the Housing Element.
There is no obligation to reimburse MTC for any grant funds expended on this project
should the City choose not to complete the initiative. Staff recommends this effort continue
in parallel with but ultimately trailing work on item 2 below, the TOD Alternative Plan.
Focus Resources on Implementing a TOD Alternative Plan. If the City Council determines
that a more tailored approach to SB 79 standards is appropriate for Palo Alto, staff
recommends temporarily redirecting efforts on the Downtown Housing Plan to prioritize
development TOD Alternative Plan. Due to the substantial geographic overlap between the
Downtown Housing Plan area and the scope of SB 79, work on the TOD Alternative Plan
would also advance the broader goals of the Downtown Housing Plan. The TOD Alternative
Plan would be a distinct effort from the Downtown Housing Plan; at this time, staff does
not anticipate that this shift in focus will significantly impact the Downtown Housing Plan’s
overall timeline.
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3.Consider directing staff to create a TOD Alternative Plan for the California Avenue and San
Antonio Road Caltrain stops. If the City Council supports pursuing a TOD Alternative Plan
for the University Avenue Caltrain station, a similar approach may be appropriate for the
California Avenue and San Antonio Road stations, which also serve the Palo Alto
community. These areas, due to their proximity to single-family neighborhoods and historic
districts, may warrant additional attention to address potential impacts from the increased
height and density allowances permitted under SB 79.
While a TOD Alternative Plan would not preserve the current development potential on
lower-density parcels, it could facilitate improved transitions in height and density between
higher- and lower-intensity areas. To promote efficiency, staff recommends that, if the
University Avenue plan proceeds, the existing contract with WRT be amended to include
the development of SB 79 implementation strategies and TOD Alternative Plans for the
California Avenue and San Antonio Road stations.
If supported, this work would be conducted concurrently, with public outreach occurring
through scheduled, noticed meetings before City boards, commissions, and the City Council.
Initiating this additional task could also support the Council’s previous direction to
accelerate housing efforts around the California Avenue station.
4.Identify additional sites and opportunities for affordable housing development. Housing
Element Program 1.4 contemplates using the Downtown Housing Plan to identify alternate
sites for affordable housing development if the City is not on track to meet its quantified
objective of 290 affordable units by 2027. Given the current uncertainty surrounding the
City’s ability to meet this objective, staff recommends commencing this work as part of its
TOD Alternative Plan, if supported, or Downtown Housing Plan, as appropriate.
5.Consider input from the Transit Center ULI study. The Santa Clara Valley Transportation
Authority, City of Palo Alto, and Stanford University are hosting the Urban Land Institute’s
Advisory Services Program to assess operational efficiency and connectivity at the Palo Alto
Transit Center. At the time of this report, a panel of experts are conducting more than 60
stakeholder interviews. This initiative aims to improve transit circulation, enhance station
functionality, and explore redevelopment opportunities. Staff will consider the results of
this study when developing recommendations for the TOD Alternative Plan, if supported, or
Downtown Housing Plan, as appropriate.
6.Explore opportunities to unlock downtown properties for housing production.
Independent of SB 79, certain properties are unlikely to redevelop unless the City amends
policies that discourage the rebuilding of older, noncomplying commercial buildings. Staff
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recommends evaluating options to promote housing production, including allowing commercial
office floor area to be transferred from a sender site within the Downtown Housing Plan area to
facilitate higher-quality office space in conjunction with new multi-family housing, either as
mixed-use or standalone residential development, at another site.
Appoint a Downtown Housing Plan/SB 79 Implementation Ad Hoc Committee. Given the
volume of work and accelerated timeline, staff recommends considering a City Council ad
hoc committee to work with staff and serve as a resource to reflect Council and community
values related to changes in the development standards. While most of this work
implements state law, these changes represent a significant departure from current City
requirements. Where local discretion remains, the ad hoc committee could help staff
respond quickly and effectively. The ad hoc would serve for a limited term of less than one
year and would not have decision-making authority. Engagement with the ad hoc would not
be subject to Brown Act requirements; however, all recommendations and actions would be
reviewed through publicly noticed hearings before applicable boards, commissions, and the
City Council.
NEXT STEPS
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and Downtown Housing Plan will be directed to noticed public meetings before applicable City
boards, commissions and City Council. A contract amendment for expanded services and
resulting budget implications will be presented to Council in a separate consent calendar
report. While staff will work to get as close to the implementation schedule for SB 79 as
possible, conducting the analysis, preparing the plan, having it reviewed, potentially iteratively,
by HCD and preparing any required environmental analysis will likely extend the effort to Q4
2026. If supported, staff will engage the Council ad hoc to maximize Council and community
values and expectations in the TOD Alternative Plan and Downtown Housing Plan initiatives.
FISCAL/RESOURCE IMPACT
13 for this project, of which $0.6 million has been expended to-date. With
the enactment and forthcoming implementation of SB 79, staff anticipates the need to revise
the project scope to encompass additional geographic areas not previously included within the
Downtown Housing Plan boundary. Following Council direction, staff will return with an
updated cost assessment and contract amendment as appropriate.
STAKEHOLDER ENGAGEMENT
13 Professional Services Agreement with Wallace Roberts & Todd, LLC:
https://cityofpaloalto.primegov.com/api/compilemeetingattachmenthistory/historyattachment/?historyId=6a9a1f
e5-16fb-44c4-9675-89bbc13567a6
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Over the past year, the project team has conducted the following outreach activities:
Community Workshop (June 18, 2025) – Held at the Downtown Library and attended by
approximately 25 participants, the workshop included an interactive mapping exercise to
identify areas suitable for increased residential density within the Downtown Plan Area.
Community Survey (September 6–28, 2025) – Approximately 270 responses were received.
Staff is consolidating and analyzing the results.
Community Open House (October 10, 2024) – Hosted in the Community Meeting Room at
City Hall, the event provided an opportunity for participants to share perspectives on key
challenges and opportunities related to housing development in the Downtown area.
Essential and Service Worker Survey (Fall 2024) – Conducted through two focus groups and
a printed survey distributed to downtown business employees; approximately 50
participants provided input on housing needs and commuting patterns.
Resident Community Survey (November 18–December 20, 2024) – Received approximately
406 responses. Results have been published on the project webpage for public access.
Pop-Up Engagement Events – Project staff participated in the City’s Annual Tree Lighting
Event, the California Avenue “3rd Thursday” event, and the Farmers Market, and
distributed informational materials to commuters at the Palo Alto Caltrain Station.
Community Advisory Group (CAG) Meetings – Convened on January 14, 2025, and July 1,
2025, to review site test fits, discuss feasibility analyses, and provide feedback on
engagement strategies and preliminary planning concepts.
ENVIRONMENTAL REVIEW
ATTACHMENTS
Attachment A: Housing Development Economic Feasibility and Implementation Analysis
Attachment B: Community Outreach Summary and Preliminary Policy Recommendations Based
on Feasibility Analysis
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Attachment C: SB 79 Map Based on Caltrain Platform Location15
Attachment D: SB 79 boundary in relation to Downtown Housing Plan and SOFA Boundary
APPROVED BY:
Jonathan Lait, Planning and Development Services Director
15 The area impacted by SB 79 on based on pedestrian access points rather than platform location, which may
result in an expanded boundary. Identification of these points is still being evaluated by staff.
Housing Development Economic
Feasibility and Implementation
Analysis
PALO ALTO DOWNTOWN HOUSING PLAN
Housing Development Economic Feasibility and Implementation Analysis
Table of Contents
INTRODUCTION .............................................................................................................................. 4
APPROACH AND USE OF ANALYSIS RESULTS.............................................................................. 5
PROTOTYPES AND DEVELOPMENT ASSUMPTIONS ..................................................................... 6
FINANCIAL FEASIBILITY ANALYSIS FINDINGS ............................................................................. 9
OPPORTUNITIES FOR THE CITY OF PALO ALTO TO SUPPORT HOUSING PRODUCTION............18
APPENDIX: PRO FORMA ANALYSIS ASSUMPTIONS AND PRO FORMA STATEMENTS .............20
Housing Development Economic Feasibility and Implementation Analysis
Table of Figures
Figure 1: Development Prototypes Studied in the Feasibility Analysis ..................................................... 8
Figure 2: Residual Land Value per Square Foot of Land for each Development Prototype Compared to
Typical Current Land Costs per Square Foot ........................................................................................... 11
Figure 3: California Statewide Cost Inflation and Santa Clara County Rent Inflation, 2011 to 2025. 12
Figure 4: Cap Rates and Sales Price per Unit for Multifamily Rental Buildings (20+ Units) Sold
Between 2014 and 2025 in Santa Clara County ................................................................................... 13
Figure 5: Residual Land Value Sensitivity under Historic Market Conditions and Revenue Growth
Scenarios (Prototype #5: Mid-rise Residential) ....................................................................................... 13
Figure 6: Residual Land Values per Square Foot for each Prototype with Varying Affordable Housing
Requirements and Fee Level Scenarios .................................................................................................. 17
Figure 7: Revenue and Supportable Value Calculation and Results for Rental Prototypes................. 21
Figure 8: Revenue and Project Value Calculation and Results for Ownership Prototypes ................... 22
Figure 9: Total Development Cost Results for Rental Prototypes .......................................................... 23
Figure 10: Total Development Cost Results for Ownership Prototypes ................................................. 24
Figure 11: Pro Forma Feasibility Results for Rental Prototypes ............................................................ 25
Figure 12: Pro Forma Feasibility Results for Ownership Prototypes...................................................... 25
Figure 13: Revenue Assumptions for Rental Prototypes ........................................................................ 26
Figure 14: Cost Assumptions for Rental Prototypes ............................................................................... 27
Figure 15: Municipal Fee Calculations for Rental Prototypes ................................................................ 28
Figure 16: Revenue Assumptions for Ownership Prototypes ................................................................. 29
Figure 17: Cost Assumptions for Ownership Prototypes ........................................................................ 30
Figure 18: Municipal Fee Calculations for Ownership Prototypes ......................................................... 31
Housing Development Economic Feasibility and Implementation Analysis
Introduction
This report describes the findings and conclusions of an analysis completed to help identify ways to
enable and attract housing growth in the Palo Alto Downtown Housing Plan area (“Plan Area”). The
findings and recommendations can inform related policy considerations and decisions for inclusion in
the City of Palo Alto’s Downtown Housing Plan. The Downtown Housing Plan seeks to enable and
attract market rate housing development when market conditions allow, while also safeguarding
affordability, livability, and fiscal sustainability.
The analysis consisted of a “financial feasibility” assessment for seven market rate housing
development prototypes that correspond to typical site conditions in downtown Palo Alto. A financial
feasibility analysis reflects the perspective of a housing developer, since production of market rate
housing (along with any associated on-site affordable housing units or affordable housing fee revenue
for the City of Palo Alto) requires developer interest in pursuing projects. This report’s findings and
policy recommendations are one subset of the many considerations for crafting a plan that achieves
affordability and livability in downtown Palo Alto.
The approach to the analysis reflected the goals of identifying challenges and opportunities for
enabling housing production in the Downtown Housing Plan area through policy changes that are
within the control of the City of Palo Alto. A sensitivity analysis examined ways in which different policies
and evolving development conditions can improve the financial performance of the prototypes and
therefore incentivize housing development activity.
The remainder of this report opens with a discussion of the approach to and appropriate use of the
analysis results. The report then details the development prototype characteristics and describes
findings from the financial feasibility analyses of the prototypes. Section V describes conclusions
regarding potential policy changes to better enable and support market rate housing production in the
Plan Area.
Housing Development Economic Feasibility and Implementation Analysis
Approach and Use of Analysis Results
A financial feasibility analysis represents a developer’s perspective on whether the financial return for
a given potential development project merits pursuing that project. Strategic Economics examined the
financial feasibility of seven housing development prototypes using a static pro forma model that
estimated the current costs, required returns, and supportable land values for each prototype. The
assumptions used in the pro forma model were based on market research, review of recent feasibility
analyses, and interviews with experienced developers in the region who have completed or are
pursuing projects comparable to the prototypes.
The analysis measured the financial performance of each prototype using
residual land value analysis. In residual land value analysis, the land cost estimate is initially taken
out of the equation. Instead, the analysis begins by estimating project market value, hard costs, and
soft costs, and applies a minimum acceptable return threshold for a typical developer pursuing the
project. The supportable land value is then calculated last, as a residual value after all costs and the
minimum return are subtracted from the project’s market value.
The residual value
conceptually represents the price a developer could pay for a property while still achieving a financially
feasible project. If the residual land value is negative or below the typical range of sales prices for land
or underutilized properties, then the development project is likely to be infeasible under current
conditions.
The
results of the pro forma analysis represent current development conditions relevant to the generalized
and prototypical housing development projects in downtown Palo Alto. This approach aligns with the
analysis purpose of informing policy decisions for the Palo Alto Downtown Housing Plan. However, any
actual property and development project will benefit from or be challenged by unique conditions such
as existing uses, property owner motivations and acquisition/holding costs, access to financing, site-
specific land use regulations, and unique pricing for construction labor and materials.
As discussed
further in this chapter’s findings and conclusions, the financial performance of development projects
shifts over time as changes occur in factors often outside the City’s control. The analysis therefore
focused on local changes that can improve the financial feasibility of housing development in
downtown Palo Alto. This perspective emphasizes ways to better enable development under current
conditions and throughout the ongoing changes in the development market cycle. Market rate housing
production can be supported by ensuring housing developments in downtown Palo Alto are more likely
to provide a competitive return on investment and pose an acceptable level of risk for developers.
Housing Development Economic Feasibility and Implementation Analysis
Prototypes and Development Assumptions
The financial feasibility analysis examined five primary development prototypes based on two
differently sized sites, with three variations of Prototype 1 located at the smaller site. The development
prototypes represent a range of development densities, heights, configurations, and overall housing
product types. Figure 1 provides an overview of the prototypes, followed by further details.
The development prototypes and feasibility analysis do not reflect conditions at a specific site.
However, the prototypes derive from a series of buildout “test fits” prepared by WRT based on
properties in downtown Palo Alto. The relevant test fits reflected conditions for properties located at
318 University Avenue (a small mid-block parcel) and 136 Hamilton Avenue / 650 High Street (a large
three-parcel site with common ownership, located near the Palo Alto Caltrain Station). The test fits
were based on physical site characteristics and typical housing product types found in Palo Alto, rather
than on the existing zoning and development standards in downtown Palo Alto.
In addition to their residential components, all prototypes except Prototype 5 included office and
ground-floor retail space. This was to acknowledge ground floor retail requirements in areas of
downtown and is based on developer feedback that office space is desirable and financially beneficial
for development projects in downtown Palo Alto.
The prototypes include on-site parking for the residential units, but only in the minimal quantities likely
required to make the units marketable to buyers or renters. Most of the project area is located within
a half-mile radius of the Palo Alto Caltrain station. Under State legislation authorized by AB 2097, no
minimum parking requirements apply to those qualifying parcels.
and are four-story mixed-use buildings on a small 8,000 square foot (.18 acre)
site. The prototypes include 2,000 square feet of retail on the first floor, 6,000 square feet of office
on the second floor and up to eight residential units on the upper floors. The parking is accessed via
an alley at the rear of the building and tucked under the upper floors. Prototype 1a was analyzed as a
rental project and prototypes 1b and 1c were analyzed as ownership projects. Prototype 1b best
reflects recently completed and proposed development projects on similar sites in downtown Palo Alto,
with most projects including the maximum allowable office space and a limited number of larger
ownership condominium housing units.
is a horizontal mixed-use development that includes two buildings at a 20,937 square foot
site (.48 acres). The buildings consist of a seven-story residential building and a four-story retail and
office building. This prototype includes 55 rental housing units and approximately 21,000 square feet
of office space, with parking located underground. The average residential unit size for this prototype
is the same as Prototype 3 at 725 net square feet.
is a vertical mixed-use building located at a property with the same site characteristics as
Prototype 2. Prototype 3 includes 63 rental housing units above retail and office space on the first two
floors, with parking located underground.
is a horizontal mixed-use building located at a property with the same site characteristics
as Prototype 2. Prototype 4 is similar to Prototype 2, but includes fewer rental housing units, more
office space, and relatively cost efficient “podium” parking. This prototype was included to examine
whether additional office space improves the financial performance of a mixed-use housing project
and the impact of podium versus underground parking.
Housing Development Economic Feasibility and Implementation Analysis
is a mid-rise residential building located at a property with the same site characteristics
as Prototype 2. This prototype consists of an entirely residential seven-story rental apartment building
with podium parking. The prototype was included to examine the performance of this building type
without the influence of other commercial uses in the analysis results.
Building codes specify the use of different materials for different building heights and uses based
on safety requirements. Construction labor and materials costs vary with different construction
“types.” As a result, costs per square foot of the building area vary with the prototypes:
• The small-scale prototypes 1a, 1b, and 1c were assumed to primarily consist of Type II light
steel construction.
• Prototypes 2, 3, 4, and 5 were assumed to use mixes of “Type I” concrete or steel construction
for parking structures and office space, and Type IIIa wood frame construction for upper
residential floors above the concrete podium.
• Generally, construction costs per square foot are highest for Type I construction, lower for Type
II and lower still for Type IIIa.
• The analysis did not include a prototype taller than eight stories. Towers taller than mid-rise
seven- to eight-story projects typically must consist entirely of Type I construction.1 These high-
rises therefore incur a relatively high increase in overall fixed costs and incur high construction
costs per square foot of building area compared to mid-rise “podium” buildings with a mix of
Type I and IIIa construction. Type I buildings often require substantial additional height to
include sufficient square feet of revenue-generating space that overcomes the large increase
in fixed development costs associated with these high-rise projects. High-rise projects are
typically only built under extremely favorable development conditions when rents or sales
prices exceed these high construction costs.
1 “Mass timber” construction (Type IVa.-c.) can also be used to construct buildings taller than eight stories, especially in conjunction with a
Type I concrete podium. Mass timber is a relatively new construction type in the Bay Area for taller residential development projects. Although
costs per square foot are slightly higher than Type I construction, mass timber may become an increasingly attractive alternative for taller
residential building construction as supply chains become better established and construction costs decline.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 1: DEVELOPMENT PROTOTYPES STUDIED IN THE FEASIBILITY ANALYSIS
7 (Residential) 7 (Residential)
Housing Development Economic Feasibility and Implementation Analysis
Financial Feasibility Analysis Findings
The financial feasibility analysis results illustrate the relative performance of the prototypes, factors
influencing that performance, and how changes in development conditions and City requirements
can enhance the feasibility of and better enable market rate housing development in downtown Palo
Alto. The findings therefore focus on how to enhance the financial performance of housing
development in the Plan Area to motivate developers and property owners to pursue new projects.
The findings cover the following topic areas and inform policy decisions for accelerating housing
development as part of the Downtown Housing Plan:
• Relative financial feasibility performance of the prototypes under current conditions
• Impacts of broader development trends and opportunities
• Mid-rise housing performance and opportunities
• Influence of office uses
• Parking impacts
• Sensitivity to City fees and requirements
RELATIVE FINANCIAL FEASIBILITY PERFORMANCE OF THE PROTOTYPES UNDER
CURRENT CONDITIONS
The prototypes do not meet general financial feasibility thresholds under current conditions. Typical
costs for developable sites in and near downtown Palo Alto vary widely, and few transactions have
occurred in recent years. However, typical sales of land and underutilized properties in and near
downtown Palo Alto range from $600 to $800 per square foot of land. As shown in Figure 2, no
development prototype achieves a minimum $600 per square foot residual land value under current
conditions; two prototypes support land values that are significantly positive but still below the $600
to $800 threshold. The following findings discuss results and implications for specific prototypes.
Property owners and
developers with low land costs may choose to pursue development of a project that does not achieve
the typical return on investment (expressed in this analysis as meeting the required residual land value
threshold). However, any development project must still generate a competitive return on investment
that corresponds to the relatively high risk of pursuing a development project. Developers and
landowners have a wide variety of options for use of property, including selling it, holding it for sale in
anticipation of improved conditions, receiving revenue from the existing conditions, or developing the
property.
As described in detail in Section
II, the financial feasibility analysis results are based on current and generalized conditions to provide
a tool for gauging how changes in market conditions and City policies can improve the prototypes’
performance. Later findings of this report describes broader challenges impacting housing feasibility
in the Bay Area—primarily construction cost inflation and increased thresholds for return on investment
Housing Development Economic Feasibility and Implementation Analysis
(related to higher interest rates)–and the report’s conclusions describe opportunities to better enable
housing development in the Plan Area.
As shown
in Figure 2, the analysis found that larger luxury ownership products—such as prototype 1c and
especially 1b—perform relatively well in downtown Palo Alto due to high achievable sales prices.
Prototype 1b achieves the highest residual value per square foot of land, at $505. Prototypes 1b and
1c represent small boutique condominium projects. Palo Alto attracts a substantial price premium for
condominiums compared to the larger region, with the “Zillow Home Value Index” for July 2025
estimating that typical condominiums in Palo Alto command a 149 percent value premium compared
to typical condominiums in Santa Clara County overall.2 While achievable rents in downtown Palo Alto
are also among the highest in the surrounding area, they do not command a comparable overall
premium. As of April 2025, CoStar reported that average effective rents per square foot for apartments
in Palo Alto were only 6.3 percent higher than in Santa Clara County overall.3
As shown in Figure 2, Prototypes 2, 3, 4, and 5 generated residual land
values of between -$437 and $12 per square foot of land. These rental prototypes represent a mid-
rise product that achieves a relatively high density in an efficient format—especially when built at sites
of at least half an acre. However, broader market challenges are temporarily constraining the financial
feasibility performance of these prototypes. The following subsection of this chapter describes these
challenges and how shifting development conditions can especially support higher density mid-rise
housing products.
2 Based on data gathered in August, 2025, the Zillow Home Value Index (ZHVI) estimated condominium values of $1,258,451 in Palo Alto
and $842,418 in Santa Clara County. More details regarding the ZHVI are available at https://www.zillow.com/research/data/.
3 Based on CoStar data for all tracked apartments, gathered in April, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 2: RESIDUAL LAND VALUE PER SQUARE FOOT OF LAND FOR EACH DEVELOPMENT PROTOTYPE COMPARED TO
TYPICAL CURRENT LAND COSTS PER SQUARE FOOT
Source: CoStar, 2025; Strategic Economics, 2025.
IMPACTS OF BROADER DEVELOPMENT TRENDS AND OPPORTUNITIES
The following findings discuss how broader regional and national factors are influencing the financial
feasibility outcomes of the housing development prototypes for downtown Palo Alto, and how changes
in these factors can readily improve the prototypes’ performance in the future.
Project costs can fluctuate due to changes in construction labor costs,
materials costs, and a variety of other factors. Similarly, a development project’s revenue can vary
depending on the availability of housing supply in the local market, changes in the attractiveness of a
project’s location, or other factors impacting demand in the local market. The minimum threshold for
investment return can also fluctuate based on external factors such as interest rates and trends in
real estate capital markets—recognizing that real estate development must compete against all other
investment options.
These are shared challenges that are slowing housing development
throughout the Bay Area. Figure 3 shows the annual percent change in the California Construction
Cost Index produced by the State of California. The index measures change in labor and materials
costs in the San Francisco Bay Area and Los Angeles regions. Costs rapidly increased in 2021 through
2023, greatly outpacing rent growth in Santa Clara County. However, rent growth also often outpaces
construction cost growth, such as in 2012 through 2015, 2018, and 2024.
$23
$505 $394
($437)
($259)
$12
($76)
-$600
-$400
-$200
$0
$200
$400
$600
$800
Prototype
1a:
Small
Vertical
Mixed-Use
Apartments
Prototype
1b:
Small
Vertical
Mixed-Use
Condos (4
Unit)
Prototype
1c:
Small
Vertical
Mixed-Use
Condos (8
Unit)
Prototype 2:
Horizontal
Mixed-Use
Apartments
Prototype 3:
Vertical
Mixed-Use
Apartments
Prototype 4:
Horizontal
Mixed-Use
with Higher
Commercial
FAR
Prototype 5:
Mid-rise
Residential
Typical Range of Land Values in Downtown Palo Alto
Housing Development Economic Feasibility and Implementation Analysis
Figure 4 shows that capitalization rates (which describe the ratio between a property’s annual income
and its market value) increased in 2023, indicating a decline in investor confidence in multifamily
investments. This decline was in response to higher interest rates at the national level and a softening
of the rental market throughout much of the Bay Area.Increased perceptions of risk and required
return on investment also led to a decline in the average market value of multifamily properties per
housing unit in Santa Clara County since 2020, as also shown in Figure 4.
Figure 5 demonstrates the variability of residual value for development
Prototype 5 (the mid-rise housing-only product) in response to changes in cap rates and achievable
rents.4 Essentially, the chart demonstrates that this prototype was financially feasible during a period
of lower cap rates and required return on investment, and could again become financially feasible with
modest increases in rents and eventual declines in required investment returns. These changes will
take time to occur; however, changes to local policies could better enable housing development in
downtown Palo Alto once these market conditions turn favorable.
Developers continue to propose new
housing development projects anticipating future improvements in conditions and situation-specific
advantages related to project financing, costs, investment goals, and site or project efficiency. For
example, developers are pursuing at least five large mid-rise market rate housing projects within the
boundaries of Palo Alto’s San Antonio Road Area Plan.
FIGURE 3: CALIFORNIA STATEWIDE COST INFLATION AND SANTA CLARA COUNTY RENT INFLATION, 2011 TO 2025
Source: California Department of General Services, 2025; CoStar, 2025; Strategic Economics, 2025.
4 The analysis presents a simplified example of current versus historic conditions and outcomes for two variables to gauge whether and how
the mid-rise development prototype could become financially feasible. As noted earlier in this report, all aspects of development costs,
revenues, and returns are, in reality, complexly dynamic and inter-related.
-5%
0%
5%
10%
15%
20%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
California Construction Costs Santa Clara County Multifamily Rents
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 4: CAP RATES AND SALES PRICE PER UNIT FOR MULTIFAMILY RENTAL BUILDINGS (20+ UNITS) SOLD BETWEEN
2014 AND 2025 IN SANTA CLARA COUNTY
Source: CoStar, 2025; Strategic Economics, 2025.
FIGURE 5: RESIDUAL LAND VALUE SENSITIVITY UNDER HISTORIC MARKET CONDITIONS AND REVENUE GROWTH
SCENARIOS (PROTOTYPE #5: MID-RISE RESIDENTIAL)
Note: As previously described, developers and landowners have unique investment goals, property holding costs, and other unique conditions
that may allow projects that do not meet the typical land cost threshold to still proceed—although any project must generate a competitive
return on investment relative to risk.
Source: CoStar, 2025; Strategic Economics, 2025.
MID -RISE HOUSING PERFORMANCE AND OPPORTUNITIES
While the small ownership prototypes currently perform relatively well, these prototypes are likely
insufficient to meet the housing needs of downtown Palo Alto due to the prototypes’ high sales prices,
creation of small increments of housing, high construction costs, and limited opportunity sites.
Prototypes 1b and 1c, located on a small typical site in downtown Palo Alto, support relatively high
residual values. However, developers interviewed for this study noted that these prototypes are
challenging to deliver due to the inefficiencies inherent in providing market-required parking and in
making efficient use of small sites while meeting safety and circulation needs. Notably, Prototypes 1b
0%
1%
2%
3%
4%
5%
6%
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Ca
p
R
a
t
e
Sa
l
e
s
P
r
i
c
e
p
e
r
U
n
i
t
Sales Price per Unit Cap Rates
-$50,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
0%5%10%
Change in Market Rents
Typical Land Values per Unit in
Downtown Palo Alto
Range of Residual Land Values based
on Historic Cap Rates
Residual Land Value under
Approximate 2017-2019 Cap Rates
Residual Land Value under Current
Cap Rates
Housing Development Economic Feasibility and Implementation Analysis
and 1c assumed use of tuck-under parking off a rear alley, but most sites in downtown would likely
require the more expensive underground parking.
As noted above, the mid-rise housing prototype can move
closer to becoming financially feasible through changes such as increased achievable rents, changing
thresholds for returns on investment, and slower increases in construction costs. Mid-rise housing
developments are relatively efficient development products that concentrate a large amount of
housing units at a given site—enabling mid-rise developments to become attractive investments under
conditions in which each square foot of space provides a return on investment. Larger mid-rise housing
products—such as those in Prototypes 2, 3, 4, and 5—also support production or relatively large
increments of housing that can help meet the production goals of the City of Palo Alto.
As described in the Community Assessment Report for the Downtown Housing
Plan, the ideal site for a mid-rise housing development is a rectangular site of at least a half-acre in
size. Few sites in downtown Palo Alto fall within this size range, making it likely that developers would
prefer to assemble properties to create larger development opportunity sites; however, lot
consolidations have historically been rare in Palo Alto, underscoring the need for development
incentives or other tools to encourage parcel assembly.
INFLUENCE OF OFFICE USES
Based on the financial feasibility analysis of the prototypes, office uses currently outperform
residential uses in the Plan Area—although office performance is also constrained by broader
development challenges. As shown in Figure 1, Prototype 5 consists of an entirely residential mid-rise
podium building while Prototype 4 consists of an office building (with 34,385 square feet of office
space rather than the 20,937 square feet that is currently allowed) and a residential building. The
prototype floor area ratios (FAR) are 3.91 and 3.56 overall, respectively. The financial feasibility results
in Figure 2 show that the entirely residential Prototype 5 only supports a -$76 residual value per square
foot of land area, compared to $12 for Prototype 4. Office use supports higher residual land values
than the residential use for these prototypes under current conditions, although office products are
still unlikely to be financially feasible due to broader weakness in the office market and increased
thresholds for required return on investment.
The relatively strong performance of office space in downtown Palo Alto
reinforces input from local developers that the area has long been a highly desirable office location
that commands exceptionally high rents within the Silicon Valley. This creates a challenge for housing
development in that property owners would often prefer to maintain existing high value office uses
rather than pursue redevelopment to include other uses. This is especially true given that the base
zoning in downtown Palo Alto only allows a maximum 1.0 base FAR for office space, discouraging
developers from redeveloping properties that exceed this FAR under a prior nonconforming use.
Examples include allowing
transfers of office development rights between properties in exchange for housing development or
allowing “bonus” office space in exchange for housing development on the same property.
Housing Development Economic Feasibility and Implementation Analysis
Examples of these concerns include the potential to exacerbate the City’s already high ratio of jobs to
housing, and the risk of spillover impacts on adjacent neighborhoods from additional automobile
traffic and demand for limited on-street parking—especially since minimum parking requirements for
new development projects do not apply within one-half mile of the Palo Alto Caltrain station under AB
2097.
PARKING IMPACTS
Parking spaces add substantial costs to housing development. The parking spaces included in the
development prototypes serve the housing units. The parking components of these prototypes added
$25,000 to $50,000 in additional “hard” costs (labor and materials) per housing unit for Prototypes
1a through 1c, $107,000 to $123,000 per unit for Prototypes 2 and 3, and $17,000 to $34,000 for
Prototypes 4 and 5. These varying costs relate to the parking format and ratio of spaces to housing
units, but demonstrate the high additional costs for providing parking.
As noted in the
Community Assessment Report for the Downtown Housing Plan, nearly the entire Plan Area falls within
a half mile radius of the Caltrain station and is therefore subject to AB 2097. AB 2097 eliminates
minimum parking requirements near robust transit service such as the Palo Alto Caltrain station.
Parking ratios can typically be reduced more for rental housing projects than
ownership projects. However, developers still typically seek to provide at least 1 to 1.25 spaces per
unit, but with the opportunity to reduce ratios below 1.0 in locations with excellent regional transit
service (such as blocks immediately adjacent to the Caltrain station) and access to local jobs and
amenities.
The cost to provide a parking space increases
significantly when built underground versus in an at- or above-grade podium level. Developer
interviews suggest an approximate hard cost of $40,000 per space in a podium versus $100,000 or
more per space below grade (with especially high costs if space constraints result in the need for
parking access solely via a vehicle elevator). Parking lifts or stackers can increase efficiency, but the
spaces are less desirable for residents and still add $15,000 to $40,000 in additional construction
cost per space for the mechanical equipment (which then must be maintained and eventually
replaced).
SENSITIVITY TO CITY FEES AND REQUIREMENTS
Strategic Economics analyzed the sensitivity of the financial feasibility outcomes to two sets of
requirements directly imposed on housing development by the City of Palo Alto. These analyses
complement the preceding findings that discussed financial feasibility outcomes and opportunities
related to land uses, housing product types, broader development conditions, competition with office
uses, and parking quantity and format.
The sensitivity analysis explored two scenarios to gauge relative improvement of the prototypes’
financial performance. The first scenario examined outcomes if all local affordable housing
Housing Development Economic Feasibility and Implementation Analysis
requirements applicable to the housing uses were waived. As originally applied to the prototypes based
on City of Palo Alto mandates, these requirements included:
• payment of an affordable housing impact fee for all rental prototypes (1a, 2, 3, 4, 5),
• payment of a fractional inclusionary housing in-lieu fee for the small four-unit ownership
housing project in Prototype 1b, and
• provision of one inclusionary unit and payment of a fractional in-lieu fee for Prototype 1c.
The second sensitivity analysis scenario examined outcomes if, in addition to the removal of local
affordable housing requirements, all other City impact fees and entitlement/permitting fees were also
waived (regardless of whether those fees apply to the residential, retail, or office components of the
prototypes).
The testing of these scenarios was not intended to directly represent a recommended course of action
since the waived requirements support other City of Palo Alto goals. Affordable housing requirements
impact where and how the City provides affordable housing and supports the creation of mixed income
communities. Impact fees support capital improvements that serve new public infrastructure and
facilities associated with housing.
The positive financial feasibility impact of removing affordable
housing requirements from the development prototypes was relatively minor, as shown in Figure 6.
However, the cost impacts of Palo Alto’s affordable housing requirements can vary depending on the
type and magnitude of the requirements. For example, a large gap exists between sales prices for
market rate housing units versus affordable housing units. For Prototype 1c, this gap is equivalent to
an $800,000 revenue loss due to inclusion of its single affordable housing unit. In contrast, the in-lieu
fee payment for the affordable housing unit would be approximately $412,000. This difference partly
explains why Prototype 1b, which was assumed to pay an in-lieu fee for its fractional .6 affordable
housing unit obligation, outperforms prototype 1c.
As shown in Figure 6, elimination of
all City impact and permitting fees markedly improved the residual value of the development
prototypes. This includes Prototype 5, which solely consists of residential use. Removal of the Park
Impact Fee resulted in the greatest cost savings for the prototypes, with this fee constituting a quarter
to half of total fee costs for all prototypes—except for Prototype 1b in which the affordable housing in-
lieu fee is higher than the Park Impact Fee
Due
to the broader challenges for housing development identified earlier, Figure 6 shows that only the
small ownership prototypes 1b and 1c are relatively likely to achieve financial feasibility without
application of affordable housing requirements and impact fees. However, Figure 6 also shows that
the residual values of all prototypes significantly improve without those requirements. Such
improvements can better enable housing development by reducing risk for developers and creating
further financial incentives for them to pursue new projects.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 6: RESIDUAL LAND VALUES PER SQUARE FOOT FOR EACH PROTOTYPE WITH VARYING AFFORDABLE HOUSING REQUIREMENTS AND FEE LEVEL SCENARIOS
Source: Strategic Economics, 2025.
-$600
-$400
-$200
$0
$200
$400
$600
$800
$1,000
Prototype
1a:
Small
Vertical
Mixed-Use
Apartments
Prototype
1b:
Small
Vertical
Mixed-Use
Condos (4
Prototype 1c:
Small
Vertical
Mixed-Use
Condos (8
Unit)
Prototype 2:
Horizontal
Mixed-Use
Apartments
Prototype 3:
Vertical
Mixed-Use
Apartments
Prototype 4:
Horizontal
Mixed-Use
with Higher
Commercial
FAR
Prototype 5:
Mid-rise
Residential
Typical Range of Land Values in Downtown
Palo Alto
Residual Land Value (Current Requirements
and Conditions)
Residual Land Value (no Residential
Affordable Housing Requirements/Fees)
Residual Land Value (no Affordable Housing
Requirements/Fees and no Municipal Fees)
Housing Development Economic Feasibility and Implementation Analysis
Opportunities for the City of Palo Alto to Support
Housing Production
Based on the pro forma analysis findings, the following conclusions describe opportunities for the City
of Palo Alto to better enable housing production in the Downtown Plan Area by improving the financial
feasibility of market rate housing projects. These conclusions indicate potential policy changes for
further exploration and refinement by the WRT team based on input from City decision makers.
Developers and landowners each have their own
unique investment goals, property holding costs, and other unique conditions. Developers and
landowners also have a wide variety of options for use of property, including selling it, holding it for
sale in anticipation of improved conditions, receiving revenue from the existing conditions, or
developing the property. Furthermore, current regional conditions—such as high construction materials
and labor costs and elevated interest rates and required return on investment—are unfavorable for
housing development. Palo Alto has a range of options to better enable downtown homebuilding in
response, from modest adjustments that position housing to move forward when conditions improve,
to more proactive measures that could stimulate housing production even under today’s challenging
market environment.
Adjust zoning and land use requirements—including increased height and FAR to support
higher density housing—to allow a greater variety of housing product types, provide flexibility
in accommodating parking, and increase the opportunity to produce housing under different
market cycles: Allowing additional flexibility to increase building heights and FAR, and
potentially relaxing other design and use requirements can increase the potential for the
Downtown Housing Plan area to produce new housing. For example, these relaxed
requirements could enable Downtown Palo Alto to produce a significant quantity of housing in
mid-rise housing projects during periods when those products are financially feasible as
discussed in this report13. Increased allowable heights can also reduce construction costs by
enabling less expensive above-ground parking options as opposed to the more expensive
subterranean parking option15.
Create requirements or incentives that link office production with housing production and
encourage site assembly: 14Office space in downtown Palo Alto has stronger long-term
demand and performs relatively well from a financial feasibility perspective. The City of Palo
Alto historically limited office development downtown through imposition of a 1.0 FAR limit
(unless using transfers of development rights from other properties) and configuration and
location requirements that essentially limit the ability to replace existing office use at a
Housing Development Economic Feasibility and Implementation Analysis
property. These limitations create an opportunity to link highly valued office development rights
to housing production. Examples include:
o Creating an incentive structure that links granting of office development rights with
production of housing;
o Allowing transfers of office development rights between properties when linked to
housing production at the property that “sends” office development rights to a
“receiving” property—thereby creating larger and more efficient office development
opportunities while potentially freeing housing development sites and encouraging lot
consolidation for creating more efficient housing development projects.
o Reducing allowable commercial FAR from the current 1.0 in order to reduce
competition between office and residential uses or to increase the attractiveness of
the incentive concepts described above.
Reduce City impact fees for housing: 15Removal of impact fees significantly improves the
financial feasibility of the development prototypes. However, any waivers or reductions in fees
should be weighed against the important role these fees play in funding critical City
infrastructure needs. For example, the analysis found that the Park Impact Fee represents a
substantial share of total housing development fees. However, the fee provides a critical
source of revenue for acquisition of land and improvements for parks in Palo Alto.
Consider potential flexibility in ways to meet affordable housing requirements, especially if
linked with the other incentives described above: 15Affordable housing requirements reduce
the financial feasibility of the development prototypes, although this impact varied depending
on whether the prototype was subject to an impact fee, in-lieu fee, or on-site affordable housing
requirement. However, these requirements do support the critical affordability needs and
goals of Palo Alto. Therefore, greater flexibility to pay fees for ownership housing products
(rather than provide on-site affordable housing units) could be considered as a means of
reducing the substantial cost impact of the inclusionary requirement. These fees would still
generate revenues that the City of Palo Alto can leverage to produce more affordable housing
units at deeper levels of affordability in 100% affordable housing projects.
Housing Development Economic Feasibility and Implementation Analysis
Appendix: Pro Forma Analysis Assumptions and
Pro Forma Statements
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 7: REVENUE AND SUPPORTABLE VALUE CALCULATION AND RESULTS FOR RENTAL PROTOTYPES
Residential
Retail
Office
Residential
Retail
Office
NOI: Net Operating Income
Source: CoStar, 2025; Strategic Economics, 2025
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 8: REVENUE AND PROJECT VALUE CALCULATION AND RESULTS FOR OWNERSHIP PROTOTYPES
Residential
Retail
Office
Residential
Commercial
NOI: Net Operating Income
Source: Costar, 2025; Strategic Economics, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 9: TOTAL DEVELOPMENT COST RESULTS FOR RENTAL PROTOTYPES
Source: Strategic Economics, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 10: TOTAL DEVELOPMENT COST RESULTS FOR OWNERSHIP PROTOTYPES
Source: Strategic Economics, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 11: PRO FORMA FEASIBILITY RESULTS FOR RENTAL PROTOTYPES
Source: Strategic Economics, 2025.
FIGURE 12: PRO FORMA FEASIBILITY RESULTS FOR OWNERSHIP PROTOTYPES
Source: Strategic Economics, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 13: REVENUE ASSUMPTIONS FOR RENTAL PROTOTYPES
GSI: Gross Scheduled Income
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 14: COST ASSUMPTIONS FOR RENTAL PROTOTYPES
Target Developer Yield-on-
cost
NSF: Net Square Foot
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 15: MUNICIPAL FEE CALCULATIONS FOR RENTAL PROTOTYPES
NSF: Net Square Foot
Note: Permit fees, connection/capacity fees, and other miscellaneous fees are included in general soft cost assumptions.
Note: Fees charged for all applicable square feet; analysis did not include credits for hypothetical pre-existing square feet at the development prototype sites.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 16: REVENUE ASSUMPTIONS FOR OWNERSHIP PROTOTYPES
NSF: net square foot
GSF: gross square foot
GSI: gross scheduled income
NOI: net operating income
Source: Strategic Economics, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 17: COST ASSUMPTIONS FOR OWNERSHIP PROTOTYPES
SF: square foot
GSF: gross square foot
NSF: net square foot
Source: Strategic Economics, 2025.
Housing Development Economic Feasibility and Implementation Analysis
FIGURE 18: MUNICIPAL FEE CALCULATIONS FOR OWNERSHIP PROTOTYPES
GSF: gross square foot
NSF: net square foot
Note: Permit fees, connection/capacity fees, and other miscellaneous fees are included in general soft cost assumptions
Note: Fees charged for all applicable square feet; analysis did not include credits for hypothetical pre-existing square feet at the development
prototype sites
Source: City of Palo Alto Fiscal Year 2025 Adopted Municipal Fee Schedule, 2025; Strategic Economics, 2025.
1
Attachment B: Community Outreach Summary and Preliminary
Policy Recommendations Based on Feasibility Analysis
Community Outreach
As a part of the community outreach and engagement strategy, the project team created a
large map of the downtown area sectioned into smaller subareas based on locational
attributes, general character of development, and shared physical features were provided
as the base. The subareas were intended to encourage participants to take a contextual and
place-based approach towards distributing density.
The subareas1 as presented to the community were:
•Subarea A: Encompasses blocks adjacent to the Caltrain Station, including Alma
and High Streets, characterized by its proximity to regional transit and existing
development.
•Subarea B: Parcels on University Avenue, characterized by development with active
retail frontage, a mix of uses, smaller scale, fine-grained development pattern, and a
consistent street canopy that defines University Avenue’s characteristic experience.
•Subarea C and D: Parcels along Lytton and Hamilton Avenues, generally
characterized by adjacent residential neighborhoods.
As a part of the exercise, participants were asked to distribute three dimensional blocks
representing residential and commercial development within the identified project
boundary. The following were recurring themes that emerged from the exercise, the pop-up
event, and the survey:
•Subarea A should accommodate the highest levels of new density due to transit
proximity.
•University Avenue’s existing character should be preserved, with minimal changes
to scale and form.
•Increased residential density is appropriate in Subareas C and D, provided
transitions to adjacent neighborhoods are context sensitive.
While feedback received at the pop-up event regarding Sub Areas A, C & D are
similar to those stated here, the feedback received through the pop up exhibited
more openness to height on University Avenue ranging up to 8 stories.
Feasibility Analysis
The project team analyzed five market-rate housing development prototypes on three
representative sites within the plan area to assess their financial feasibility. Financial
1 https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/long-range-
planning/area-plans-and-studies/downtown-housing/cag-meeting-2-presentation-slides.pdf
2
feasibility of a project indicates the potential return on investment and helps determine the
likelihood that a project would be built by developers. The analysis also identifies key factors
influencing financial feasibility and highlights opportunities and policy considerations to
encourage housing production under favorable market conditions, while advancing the City’s
goals for housing affordability, fiscal sustainability, and overall livability.
• Prototype 1 (1a–1c): Four-story mixed-use buildings on 8,000 sq. ft. parcels with
retail, office, and four to eight housing units.
• Prototype 2: Seven-story residential building with four stories of office/retail on a
0.48-acre parcel; 55 units with underground parking.
• Prototype 3: Seven-story residential-over-office vertical mixed-use development on a
0.48-acre parcel; 63 units, FAR 2.73.
• Prototype 4: Horizontal mixed-use development emphasizing office uses with
podium parking on a 0.48-acre parcel.
• Prototype 5: Seven-story mid-rise residential development with podium parking,
entirely residential on a 0.48-acre parcel.
Findings and Assumptions in the Feasibility Analysis (Attachment A) were developed using a
static pro forma financial model based on the current market research, review of recent
financial feasibility analyses of development projects (including construction costs,
require returns, land values), interviews with experienced developers, and assumptions
including affordable housing funding gap needs, fees, parking provisions, and changing
market conditions. Each prototype developed is built on comparable protypes of current
projects and account for the current construction costs, required returns, and supportable
land values to ensure feasibility.
Findings from the Feasibility Analysis
The analysis used the residual land value approach. This method estimates a project’s
market value, hard and soft costs, and applies a minimum return threshold. The land cost
is excluded initially, with supportable land value determined in the end; representing the
maximum price a developer would pay while maintaining financial viability. The feasibility
analysis conducted yielded the following results:
1. Market conditions are cyclical, and the broader challenges currently impacting
housing production are not limited to the project area, but affect the region. This is
expected to change when the market conditions improve.
2. None of the development prototypes are likely to be financially feasible under current
conditions due to high land value.
3. Small luxury ownership products significantly outperformed rental products due to
high achievable sale prices; and
3
4. Mid-rise rental prototypes are relatively infeasible in downtown Palo Alto under
current conditions, but as development conditions shift, feasibility outcomes can
change quickly for projects that can achieve higher densities in an efficient format,
especially on half-acre or larger sites. This indicates a potential need for parcel
assembly in the Plan Area.; and
5. Office uses outperform residential uses in the Plan Area, creating a strong
desirability, increasing the competitiveness for residential development.
Preliminary Policy Recommendations
The analysis takes into consideration associated project costs such as labor, construction
materials, and other factors such as market demand and interest rates to determine the
investment return in the current market. While no prototype tested yields favorable results
to make a project financially feasible, the analysis identifies local strategies to improve
development viability and accelerate housing production by ensuring competitive returns
and manageable risks for developers, recognizing that market conditions and project-
specific factors will vary over time.
1. Amending development regulations to allow for greater variety of housing product
types, flexibility in accommodating parking, and increased opportunity to produce
housing under different market cycles:
a. Increased maximum building height to encourage mid-rise residential typology:
Blocks closer to the Caltrain Station (between Alma and Emerson Streets),
parcels in the Plan area interfacing with the South of Forest Ave (SOFA) district
and blocks along Lytton and Hamilton Avenues could potentially have a greater
building height of up to 85’-0”. This could facilitate increased ground floor
heights ideal for ground floor active uses, stacked parking, and the use of
modular/prefabricated construction materials.
2. Increased maximum Floor Area Ratio (FAR) by-right for residential use:
a. Downtown Commercial (CD-C) and RM-zones in the Plan area can take
advantage of increased residential FAR to maximize residential capacity and
encourage variety of unit types at different affordability levels.
b. Additional FAR (beyond the inclusionary requirement) can be used to incentivize
Below Market Rate (BMR) units.
c. Granting “bonus” office development rights through the production of housing,
allowing for transfer of office development rights between properties; and
facilitating lot consolidation in the Plan Area for residential development.
3. Updated open space and common use space requirements to improve project
feasibility.
4. Updated maximum unit size standards and updated development requirements on
smaller parcels:
4
a. A parcel size-based approach to on-site inclusionary unit and open space
requirements.
5. Reducing impact fees for housing and providing flexibility with affordable housing
requirements.
5
R-1
PF (D)
RP
PF
PF
R-1
PF
RE
R-1
R-1
PF
GM
RE
R-1
R-1 (8000)
CC
RP-5
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PF
R-1 (10000)
RP-5 (D)
AC (D)
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R-1
R-1
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ROLM
PF
PF
R-1 (7000)
R-1
R-1
R-2
PF (D)
R-2
PF (D)
R-1 (S)
CN
RP
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CN
R-1 (10000)
PF
R-1 (8000)
R-1 (S)
RM-30
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R-1 (8000)(S)
R-1 (7000)(S)
RM-30
PF
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R-1
CN
PC-4637
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PF
RT-35
PF
PF
PF
R-1PF
RP-5 (D)(L)
CS
CS (H)
PF
R-1 (8000)
PF
CN
CS
CD-C (GF)(P)
PF
PF
R-1 (S)
R-1 (S)
RM-20
RM-20
RP (AS2)
R-1 (10000)
PF
RM-30
PF
PC-2711
PF
OS
R-1 (20000)
PF
ROLM (E)(D)(AD)
PF
PF
NV-R4
CS
CS
ROLM (D)(AD)
GM
PF
PF
R-1 (7000)(S)
RMD (NP)
PF
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CS
NV-MXM
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RM-20
CD-C (P)
RM-40
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RM-30
ROLM (E)(D)(AD)
PF
R-2
RM-30
PF
RM-30
RM-40
CN (GF/P)
PC-4918
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CS
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RM-20
RM-20
CD-C (P)
RM-30
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PF (AS3)
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PC-3023
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PC-4182
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PF
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CS
RM-20
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CN
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CN (GF/P)
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PC-4956
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PC-5150
PC-4843
PC-4917
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CS (AD)
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PF
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CD-C (P)
PC-2962
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CS (AD)
CS
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RP (L)
CC (2)(R)(P)CC (2)(R)(P)
RP (L)
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RM-40
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PC-5596; PC-5597
PC-5600
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NV-R2
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CC (2)
PC-2744
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RM-20
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PC-1889
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PC-2236
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PC-5116
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PC-4374
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PC-3183
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PC-5069
RM-20
PF
PF
PF
CS (AD)
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RM-40
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PF (R)
PC-4511
RM-40
RM-30
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PC-3405
PC-2224
RM-20
PC-2545
RT-50
PF
PC-4173
PC-4465
PC-2130
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RM-30
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PC-4779
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PC-4053
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PC-2343
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PF (D)
Middlefield Road
Cowper Street
Waverley Street
Alma Street
El Camino Real
Louis Road
Hy 101 South
Ross Road
Hy 101 North
Webster Street
Bryant Street
Channing Avenue
East Bayshore Road
Page Mill Road
Hamilton Avenue
Oregon Expressway
Lincoln Avenue
San Antonio Road
University Avenue
Newell Road
Seale Avenue
South Court
High Street
Park Boulevard
East Meadow Drive
Stanford Avenue
West Bayshore Road
Colorado Avenue
Hanover Street
Miranda Avenue
Foothill Expressway
Fabian Way
Homer Avenue
Greer Road
Ramona Street
Charleston Road
Edgewood Drive
Loma Verde Avenue
Everett Avenue
Churchill Avenue
Arastradero Road
Matadero Avenue
Lowell Avenue
Center Drive
Tennyson Avenue
Los Robles Avenue
California Avenue
Barron Avenue
Hillview Avenue
Palo Alto Avenue
Kingsley Avenue
Maybell Avenue
Hansen Way
Wilkie Way
Coleridge Avenue
Byron Street
Ely Place
Manuela Avenue
Oregon Avenue
Amarillo Avenue
Marion Avenue
North California Avenue
Emerson Street
Pitman Avenue
Laguna Avenue
Grove Avenue
Ferne Avenue
Nelson Drive
Porter Drive
Castilleja Avenue
Chimalus Drive
Hale Street
College Avenue
Amherst Street
Seneca Street
Lane 66
Bowdoin Street
Stockton Place
Harker Avenue
Deer Creek Road
Embarcadero Road
Ames Avenue
El Dorado Avenue
La Para Avenue
Grant Avenue
Birch Street
Hawthorne Avenue
Harriet Street
Coyote Hill Road
Columbia Street
Clara Drive
Georgia Avenue
Rhodes Drive
San Antonio Avenue
El Verano Avenue
Olive Avenue
La Donna Street
El Camino Way
Parkinson Avenue
Kipling Street
Kellogg Avenue
Heather Lane
Alger Drive
Florales Drive
Oxford Avenue
Forest Avenue
101 Oregon-Embarcadero Ramp North
Greenwood Avenue
Monroe Drive
Cornell Street
Sherman Avenue
Boyce Avenue
Amaranta Avenue
Oberlin Street
West Charleston Road
Nathan Way
Donald Drive
Urban Lane
Harvard Street
Hopkins Avenue
Wilton Avenue
Dana Avenue
Sutherland Drive
Fife Avenue
Iris Way
Fulton Street
Lambert Avenue
Marshall Drive
Josina Avenue
101 Oregon-Embarcadero Ramp South
Williams Street
David Avenue
(none)
Old Adobe Road
El Carmelo Avenue
Geng Road
Orme Street
Montrose Avenue
Parkside Drive
Princeton Street
Walnut Drive
Maddux Drive
Sheridan Avenue
Curtner Avenue
Wildwood Lane
Elsinore Drive
Morris Drive
Mariposa Avenue
Fernando Avenue
Stanley Way
Miller Avenue
Leland Avenue
Moreno Avenue
Barbara Drive
Creekside Drive
Sutter Avenue
Margarita Avenue
Edlee Avenue
Ventura Avenue
Arbutus Avenue
Chaucer Street
Shopping Center Way
Embarcadero Way
Walter Hays Drive
Jackson Drive
Willmar Drive
Kenneth Drive
Carolina Lane
Martin Avenue Patricia Lane
Whitclem Drive
Cereza Drive
Paul Avenue
Guinda Street
Towle Way
Old Trace Road
Tennessee Lane
Orinda Street
Ilima Way
Santa Ana Street
Encina Grande Drive
Briarwood Way
Bruce Drive
Los Palos Avenue
Commercial Street
Lane 21
Faber Place
Ruthven Avenue
Miramonte Avenue
Lois Lane
West Meadow Drive
Gailen Avenue
Laguna Way
Whitsell Street
Northampton Drive
Southampton Drive
Scripps Avenue
Pomona Avenue
Janice Way
Bibbits Drive
Madrono Avenue
Warren Way
Yale Street
Mayview Avenue
Evergreen Drive
Stelling Drive
Rorke Way
El Centro Street
Ivy Lane
Ashton Avenue
Military Way
McKellar Lane
Cedar Street
Robb Road
Jefferson Drive
Dake Avenue
Santa Rita Avenue
Addison Avenue
Saint Claire Drive
Rinconada Avenue
Seminole Way
Alester Avenue
Silva Avenue
Kelly Way
Indian Drive
Escobita Avenue
Quarry Road
Glenbrook Drive
Manuela Court
Garland Drive
Hubbartt Drive
Christine Drive
Lane 39
Kings Lane
Bryson Avenue
Talisman Drive
Campana Drive
Oak Hill Avenue
Fabian Street
Murdoch Drive
Deodar Street
Terman Drive
Nevada Avenue
Madison Way
Sequoia Avenue
Southwood Drive
Crescent Drive
Colonial Lane
East Meadow CircleRichardson Court
Lane 33
Lupine Avenue
Campesino Avenue
Hilbar Lane
Portola Avenue
Park Avenue
Suzanne Drive
La Calle
Cypress Lane (Private)
Chestnut Avenue
Roble Ridge (Private)
Kendall Avenue
Mumford Place
Sycamore Drive
Vernon Terrace
Celia Drive
Washington Avenue
Redwood Circle
Dennis Drive
Arboretum Road
Roosevelt CircleLa Selva Drive
Solana Drive
Manzana Lane
Ash Street
De Soto Drive
Rambow Drive
Portage Avenue
Bryant Court
Ruthelma Avenue
Magnolia Drive
Paradise Way
Cork Oak Way
Manuela Way
Carlson Circle
Clemo Avenue
Coastland Drive
Wellsbury Way
Fairmede Avenue
Stern Avenue
Mitchell Lane
Fallen Leaf Street
Maclane
Community Lane
Verdosa Drive
Thomas Drive
Abel Avenue
Fielding Drive
Maplewood Avenue
Tulip Lane
Ross Court
Mackay Drive
Berryessa Street
Ilima Court
Tasso Street
Mesa Avenue
Stone Lane
Lane B East
Coulombe Drive
Lytton Avenue
Lane D East
Miranda Green
Mark Twain Street
El Cerrito Road
Maple Street
Whitman Court
Lane B West
Orchard Lane
Laura Lane
Dinah's Court
Lane D West
Gaspar Court
Primrose Way
Tanland Drive
Lane 59 East
Irven Court
Agnes Way
Baker Avenue
Morton Street
May Court
Murray Way
Driftwood Drive
Melville Avenue
Silva Court
Pear Lane
Greenmeadow Way
Corina Way
Phillips Road
Palm Street
Saint Michael Drive
Lane 30
Blair Court
Gilman Street
Paloma Drive (Private)
Wellesley Street
Thornwood Drive
Holly Oak Drive
Cerrito Way
El Cajon Way
Tioga Court
Wright Place
Vineyard Lane
Pistache Place
West Crescent Drive
Duncan Place
Sandra Place
San Jude Avenue
McGregor Way
Miller Court
Downing Lane
Ben Lomond Drive
Shasta Drive
Ensign Way
Diablo Court
Wilson Street
Bret Harte Street
Erstwild Court
Carmel Drive
Cass Way
Arcadia Place
Burnham Way
Saint Francis Drive
Ramos Way (Private)
Cardinal Way
Hemlock Court
Flowers Lane
Timlott Lane
Lindero Drive
Wintergreen Way
Marlowe Street
Shauna Lane
Dixon Place
Corporation Way
Maybell Way
Sierra Court
Portal Place
Cowper Court
Chabot Terrace
Ashby Drive
El Capitan Place
none
Maureen Avenue
La Mata Way
Quail Drive (Private)
Clifton Court
Arrowhead Way
Higgins PlaceLawrence Lane
Federation Way
Sharon Court
Lane 20 East
Juniper Lane (Private)
Randers Court
Manchester Court
Rosewood Drive
Sweet Olive Way
Moffett Circle
Magnolia Drive South
Adobe Place
Metro Circle
Anton Court
Toyon Place
Amherst Way
Louisa Court
Van Auken Circle
East Greenwich Place
Kent Place
Matadero Court
Saint Michael Court
Pena Court
Columbia Place
Tevis Place
Columbia Court
Palo Road
Nelson Court
Ames Court
Rincon Circle
Island DriveHamilton Court
Newell Place
Duluth Circle
Piers Court
Regent Place
Gary Court
Genevieve Court
Gailen Court
Elmdale Place
Charleston Court
Green Manor
Forest Court
Old Page Mill Road
Magnolia Drive North
Frandon Court
Carlitos Court
Wilkie Court
Victoria Place
Boronda Lane
Somerset Place
Loma Verde Place
Newberry Court
Laguna Oaks Place
Laguna Court
Darlington Court
Fairfield Court
David Court
Marion Place
Ferne Court
Dymond Court (Private)
Amherst Court
Emma Court
Martinsen Court
Wellsbury Court
Los Palos Circle
George Hood Lane
Byron Street
Page Mill Road
Hawthorne Avenue
Emerson Street
Hamilton Avenue
Bryant Street
High Street
Park Boulevard
Ramona Street
Emerson Street
Kipling Street
Oregon Avenue
Dana Avenue
Sutter Avenue
Matadero Avenue
Santa Rita Avenue
Emerson Street
South Court
Sheridan Avenue
Fulton Street
Santa Rita Avenue
Byron Street
Georgia Avenue
Miranda Avenue
Guinda Street
Foothill Expressway
Fulton Street
Ramona Street
Kipling Street
Addison Avenue
Washington Avenue
Moreno Avenue
San Jude Avenue
Moreno Avenue
Kendall Avenue
Tasso Street
Ramona Street
Wilkie Way
Quarry Road
Maclane
Ames Avenue
North California Avenue
Lytton Avenue
Thomas Drive
San Antonio Road
Tasso Street
Hy 101 North
Oregon Avenue
Park Boulevard
Oregon Expressway
Arastradero Road
South Court
Webster Street
Ash Street
West Bayshore Road
Colorado Avenue
Oregon Avenue
Kellogg Avenue
Kipling Street
Sycamore Drive
Ramona Street
Palo Alto Avenue
Fulton Street
Byron Street
Emerson Street
Addison Avenue
Nevada Avenue
Tasso Street
Los Altos
Los Altos Hills
Stanford University
Menlo Park
Mountain View
East Palo Alto
Atherton
CC (2)(R)
This map is a product of City of Palo Alto GIS
[
0 0.35 0.70.175 Miles
Quarter-Mile & Half-Mile from SB 79 Transit Platforms
Legend
SB 79 Transit PlatformSB 79 Buffer from Transit Platform≤1/4 Mile>1/4 - ≤1/2 MileZoningSchoolsParksCity Limit
£¤101
§¨¦280
Rev: July 3, 2025
Palo Alto Caltrain Station
California Ave. Caltrain Station
San Antonio Caltrain Station
Location Distance to Transit Stop(Miles)
Max Height (Feet)
Maximum Density(dwelling units per acre (du/ac))
Minimum Residential FAR(du/ac)
Additional DBL Concessions
≤ ¼ 75 120 3.5 3> ¼ and ≤ ½ 65 100 3 2Adjacent to transit stop +20 +20 1 0
Tier 1
Downtown Housing Plan and SB 79 Implementation
Presented by: Vishnu Krishnan – Senior Planner
October 22, 2025 www.paloalto.gov
Downtown Housing Plan -Objective
Focused on housing production in downtown
•Housing Element baseline capacity - 334 new
housing units across 32 opportunity sites in the
Plan Area.
Scope of the Downtown Housing Plan includes:
•Establish policies, development standards, and
design standards to make housing development
more feasible.
•Plan for public infrastructure necessary to
accelerate housing production and promote fair
housing.
2
Favorable conditions that support housing
1.High-Opportunity Area with access to transit, jobs, and services.
2.Community support for Affordable and Workforce Housing
3.Regional and State level regulatory support for housing development.
4.Public interest in downtown revitalization.
5.Regional Success Models.
6.City-Owned Land for Housing.
3
Challenges to housing production
1.High Land Value
2.Office Market Outperforms Housing
3.Parcel Limitations: Recent Development, Small Size, Historic Designations
4.Development Standards / Limited Housing Incentives
5.Impact of Parking on Development Cost
6.Potential Need for Infrastructure and Utility Upgrades
4
5
Market snapshot today
Broader challenges are impacting housing
development regionally, but conditions can change.
•Prototypes tested do not meet general financial
feasibility thresholds under current conditions.
•Some developers/landowners may still proceed
with projects if their individual costs or goals
make them financially viable.
•Broader market recovery and City actions could
improve future feasibility.
6
California Statewide Cost Inflation and Santa Clara County Rent
Inflation, 2011 To 2025
Source: California Department of General Services, 2025; CoStar, 2025; Strategic Economics, 2025.
Mid-rise housing can perform well as conditions change
•Mid-rise housing concentrates density
•Project value rapidly adjusts as conditions change
•Performed well at pre-pandemic investment return
thresholds
•City actions can enhance value and accelerate mid-
rise development as conditions gradually improve
7
Source: CoStar, 2025; Strategic Economics, 2025.
Residual Land Value Sensitivity Under Historic Market Conditions and Revenue Growth
Scenarios (Prototype: Mid-rise Residential)
Preliminary considerations for the Downtown area
•Increase maximum building height and total FAR within the
Plan Area through a nuanced approach, to maximize
development potential of mid-rise residential.
•Revisit current requirements related to non-conforming
commercial uses/buildings and consider relocating office floor
area to incentivize residential development.
•Update development requirements, such as open space and
common use space, to improve project feasibility.
•Explore options to incentivize lot consolidation.
•Increase predictability for developers and ability to shorten the
overall project schedule.
8
October 22, 2025 www.paloalto.gov
SENATE BILL (SB 79)
Signed on October 10, 2025
SB 79 (2025 – 2026)
•Seeks to increase the supply of affordable housing,
reduce greenhouse gas emissions through reduced
vehicle miles traveled, and enhance the efficiency of
public transit systems.
•Mandates upzoning of land located within proximity to
rail stations and rapid bus corridors to encourage transit-
oriented development.
•Degree of upzoning depends on the classification of the
transit and the distance from the station, as measured
from the pedestrian access points.
•Effective July 01, 2026.
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SB 79: Transit-tiering and applicable standards
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Distance from TOD
Stop
Minimum Height
Requirement
Residential Density
(du/ac)Residential FAR
Directly Adjacent Sites
(≤ 200 ft)95 ft (75 + 20 ft bonus)160 du/ac (120 + 40
bonus)Up to 4.5 (3.5 + 1 bonus)
Within ¼ Mile ≥ 75 ft ≥ 120 du/ac Up to 3.5
¼ – ½ Mile ≥ 65 ft ≥ 100 du/ac Up to 3.0
•Inclusionary Housing requirements (one of the following):
•7% of units affordable to extremely low-income households;
•10% of units affordable to very low-income households; or
•13% of units affordable to lower-income households.
•California Environmental Quality Act (CEQA):
•Does not modify requirements.
•Does not establish a new ministerial approval process.
•Projects qualifying under SB 35 and SB 423 are exempt.
SB 79: TOD Alternate Plan
•Requirements
•Maintain the net zoned capacity.
•Does not reduce maximum allowed density and exceptions (sites in a Fire
severity zone, flood zone, designated historic resource) may not exceed 10
percent.
•Does not allow any site to exceed 200 percent of maximum density
prescribed.
•Excludes from capacity calculations any sites exempted.
•Timeline:
•Up-to 120 days for HCD review.
•Impact of SB 79 Unknown:
•Potentially significant land use policy shift.
•Property owner willingness and property size may influence participation.
•Potentially more impactful near California Avenue and San Antonio stations.
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Downtown Housing Plan / SB 79 Implementation
•Option 1:
•Continue with the Downtown Housing Plan
•Incorporate development potential mandated by the state
•No HCD review required / No change to project schedule or budget
•Option 2:
•Prepare a SB 79 TOD Alternative Transit Plan
•Explore opportunities to redistribute housing density and building height
within the University Avenue Caltrain station mandated radius
•Consider creating SB 79 TOD Alternative Transit Plan for California Avenue
and portions of San Antonio Caltrain station in Palo Alto
•Requires HCD review (process, requirements, timing uncertainty)
•Requires change in consultant scope and budget; may impact schedule
•Resume Downtown Housing Plan upon completion of Alternative Plan(s)
•Consider at a future date a more comprehensive TOD Transit Plan that
considers factors of visioning, placemaking, amenities, mobility,
connections, parking, schools, infrastructure, financing, etc.
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Downtown Housing Plan / SB 79 Implementation
•Option 3:
•Stop work on the Downtown Housing Plan effort
•SB 79 answers the question of housing location within the plan area.
•Additional staff work likely required for Downtown surface parking lots.
•Terminates the grant funding, some work completed will not be
reimbursed.
•Left over City funds returned to General Fund.
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Council direction
1.Complete the Downtown Housing Plan – tied to MTC grant funding.
2.Explore opportunities to unlock downtown properties for housing production –
Evaluating options to allow for redevelopment of legal non-confirming properties.
3.Appoint a Downtown Housing Plan/SB 79 Implementation Ad Hoc Committee.
Related to TOD Alternative Plan:
a.Focus Resources on Implementing a TOD Alternative Plan – accelerate development
of Alternative Plan and incorporate into Downtown Housing Plan.
b.Consider directing staff to create a TOD Alternative Plan for the California Avenue and San
Antonio Road Caltrain stops – amend contract with the consultant to include additional areas.
c.Identify additional sites and opportunities for affordable housing development – through this
process Housing Element Program 1.4 quantified objective.
d.Consider input from the Transit Center ULI study – supplemental analysis for the
TOD Alternative Plan.
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Vishnu Krishnan
Senior Planner
vishnu.krishnan@paloalto.gov
650.329.2425 16