After passing an urgency law earlier this year to preserve ground-floor retail from converting to offices, Palo Alto officials are now working on a more lasting solution.

The urgency ordinance, which the City Council endorsed in March and formally extended on June 15, imposes a citywide ban on conversions of retail to other uses. It includes exemptions of automotive-service establishments, day care centers, theaters and projects with four or more housing units.

The ordinance does, however, have one limitation: as an "urgency" measure, it has an expiration date of April 30, 2017.

A new law, which the city's Planning and Transportation Commission discussed Wednesday night, would not have this limitation. Though it is otherwise identical to the urgency ordinance, it will not have a sunset date. And unlike the stop-gap law, which the council passed after a single long discussion and which did not go through the city's normal vetting process, the new ordinance is subject to close scrutiny from the planning commission.

In its first round of scrutiny Wednesday, commissioners expressed general support for the law with one notable exception: the clause that exempts multi-family projects. The commission's split on this provision, with Chair Greg Tanaka, Vice Chair Adrian Fine and Commissioners Przemek Gardias and Mark Michael opposing it.

Commissioners Michael Alcheck, Kate Downing and Eric Rosenblum disagreed and, citing the city's housing shortage, asked that the exemption be retained.

The debate was, in many ways, a clash between two city priorities: protecting retail and creating more housing. Downing said the city's housing shortage is now of "crisis-level proportions" and noted that there is no incentive anywhere in the ordinance for building more housing.

Alcheck agreed and said that removing this exemption will not allow existing stores to be redeveloped to have upper-story housing because it would effectively prohibit the creation of elevator shafts, mailbox areas and other residential necessities on the ground-floor level.

"Yes, we're losing some ground-floor retail, but we're creating multi-family housing, which is a very, very important endeavor in this town," Alcheck said.

Removing the exemption, he said, would create a "incredible hurdle" for new developments that would include housing.

"This is about encouraging mixed-use," Alcheck said of the exemption. "What I want to see is the whole downtown, from Alma to Middlefield, with ground-floor retail and four stories of housing on top ... (or) with a mix of housing and office on top."

Rosenblum also supported an exemption for housing-heavy projects.

"We are talking about a broad ordinance to protect retail in the city," he said. "I think this is a reasonable exemption."

Others disagreed and said the exemption should be struck to ensure retail is protected. Fine noted that developers who need to install elevator shafts or make other adjustments to accommodate housing can rely on a separate exemption that deals with economic hardships.

Tanaka cited the challenge of retaining retail in the current real estate market, where offices and houses fetch more in rent. While the city does have a housing shortage, Tanaka said, losing retail for the sake of four units "would be a loss to the city," he said.

The commission did not formally endorse the new ordinance, opting instead to continue its discussion to July 8.