In a bid to push a proposed project through a stringent approval process in a Silicon Valley city, a local developer is looking to use unique laws aimed at addressing the state's housing shortage that some elected officials have criticized.
A partnership between Redco Development and Midar Investment Co. is developing a three-building residential and retail project in Palo Alto, California, a tech hub that hosts some of the nation’s highest housing prices and longstanding aversion to new developments.
The proposal, designed to include what could be one of the city's tallest residential structures, is aimed at taking advantage of Palo Alto's noncompliance with state housing laws, creating an opening for the joint venture to bypass local planning officials in order to get its project to the construction starting line.
That opening is known as California's "builder's remedy" provision, which gives homebuilders leverage over California cities and their zoning codes, is possible only when cities and local municipalities don't have an approved plan to meet their housing development goals. Similar proposals to the Redco and Midar plan have popped up with increasing frequency across the Bay Area, including some in nearby San Jose.
"With builder's remedy, builders can come in with development on pretty much any property and we don't have a lot of leeway to say no," San Jose City Councilmember Dev Davis said in a statement to CoStar News on the provision.
What's more, Davis said there isn't much the city can do to push back because it's a California regulation, so more builders could adopt the same process: "The state and our state representatives have basically sided with developers and said developers get carte blanche and the average resident gets no say."
The developers counter that the proposed Palo Alto development would be a significant step toward helping the Silicon Valley city meet its housing demands. It would also help revitalize the area, Redco Managing Partner Chris Freise said in a statement. What’s more, he added, it isn’t that different from what the city already has.
“I know people are saying that it's the third tallest building in Palo Alto, but these types of approximate heights already exist in several areas,” Freise said.
Pair of Towers
As proposed, the Palo Alto project would replace a local grocery chain's location at 164 California Ave. with a pair of housing towers that rise by 17 and 11 levels. It would also include a third, seven-story residential building with roughly 15,000 square feet of retail space on the ground floor slated to house a revamped store for the otherwise displaced Mollie Stone's location.
If built, the project would be the largest multifamily complex in Palo Alto and would include a total of more than 380 units, upward of 75 of which will be set aside for affordable housing.
The proposed development is the latest project proposed in the Bay Area to use such provisions for their proposals. Developers are using provisions such as California’s state density bonus law that lets builders exceed height and unit-count restrictions in exchange for a certain amount of on-site affordable housing.
To tackle the state's intertwined housing shortage and affordability problem, California’s housing laws — initially intended to promote development and cut through unnecessary red tape — have evolved to pit state officials against those from local municipalities.
Over the past two years, local governments across California have scrambled to stitch together new plans that collectively meet a statewide goal of 2.5 million new units by 2030. Plans from more than 200 jurisdictions have yet to be certified by state housing regulators, potentially opening them up to builder’s remedy projects.
Palo Alto's plan is currently under review, according to the California Department of Housing and Community Development. The Silicon Valley suburb is on the hook to build roughly 6,085 homes and was supposed to get plans to meet that target approved by the state earlier this year.
City Officials Concerned
Those plans have yet to secure the state's final sign-off, which means the builder's remedy provision takes effect.
City officials are contesting that status. After submitting a preliminary plan in June, California housing officials rejected it, claiming that "additional revision will be necessary to comply" with state law. Even so, Palo Alto claims it is in compliance with the basic elements of California's housing law and not susceptible to the builder's remedy provision.
On the city's online project page for the Redco and Midar proposal, Palo Alto planning officials stated that the builder's remedy "does not apply" for the California Street development and that the city "is committed to achieving [Housing and Community Development] certification and is working diligently toward that goal."
The proposal is one of several projects proposed in Palo Alto aiming to deploy the unique provision. The others are a mixed housing, hotel and amenity development at at 3400 El Camino Real; a 350-unit multifamily complex proposal at 3997 Fabian Way; and a 45-condominium development slated for 300 Lambert Ave.
There are about 8,000 multifamily units under construction across the greater Silicon Valley area, most of which have been concentrated in larger cities such as San Jose with little development landing in high-end suburbs where land is both scarce and only available at a steep premium.
There have been no new rental housing construction starts in Palo Alto since early 2021, for example, creating a shortage that has put pressure on pricing, giving landlords the upper hand in establishing rents that have long been some of the highest in the nation. A typical apartment in the Silicon Valley suburb can command an average of nearly $3,175 per month, according to CoStar data, double the national average of roughly $1,660 a month.