In both size and quantity, "second-dwelling units" are a small solution to one of Palo Alto's colossal problems.

Known also as "accessory dwelling units," "in-law units" or "granny units," these additions to single-family homes make up a relatively minuscule proportion of the city's housing stock. Staff estimates that only about four secondary dwelling units get built annually in Palo Alto, according to the city's recently adopted Housing Element. The vision document commits the city to exploring ways to encourage more such units, though it projects that only 32 will be constructed in the next eight years -- hardly the kind of lift that housing advocates are pining for.

But despite their relative dearth and obscurity, granny units are now emerging as a key strategy for dealing with the city's housing shortage -- a problem that continues to grow more severe and urgent as living costs soar to new heights and as seniors, recent graduates and long-time residents are increasingly getting priced out on the city. On Wednesday night, several residents made a case at a Planning and Transportation Commission hearing that these units could play an important role in keeping Palo Alto more diverse and affordable.

Mary Jane Marcus, a resident of College Terrace, called them one of the "lowest hanging fruit" when it comes to solving the city's housing problem.

"I really want Palo Alto to be inclusive," Marcus told the commission. "I want to stick around here and I want us to be welcoming people and not keeping people out. I think this is one of the first ways we could do that."

Others voiced similar sentiments. Economist Steve Levy said the effort to promote more housing is about helping aging people who want to remain in Palo Alto; about keeping families together; about helping residents who need a little extra income; and about the character of the city that is losing its diversity.

Sandra Slater, co-founder of the citizens group Palo Alto Forward, said one area of the housing issue that the city should take a fresh look at its parking requirements. She noted that many young people today are less attached to their cars than their predecessors, given the availability of car-share services and companies like Uber and Lyft. Two cars, she said, take up about the same amount of space as a small second-dwelling unit, while three cars are about the size of a small unit with a bedroom.

"Let's make our neighborhoods about people, not parked cars," Slater said.

Housing advocates aren't alone in calling for more second-dwelling units. The City Council, which has been cautious about approving new housing developments, last year signaled its intent to encourage their construction in late 2015 when it endorsed a memo by three council members who argued that these units can serve as a promising source of affordable housing.

"Palo Alto's housing crisis and aging population have led many residents to call for a renewed discussion of this topic and timely, appropriate action," council members Greg Schmid, Cory Wolbach and Vice Mayor Greg Scharff wrote in an October 19 memo. "Palo Alto has, by some reports, the highest median rent in the country. We have high demand for housing at a variety of income levels, with limited supply."

The broader topic of promoting more housing is also featuring heavily in the council's ongoing discussions about sustainability. During a Monday night discussion of the topic, Wolbach made a case that restrictive housing policies and cumbersome approval processes around housing "cause racial and economical segregation."

"That is not a recipe for an equitable, sustainable community," Wolbach said. "That's not what Palo Alto residents want. Palo Altans do not dream about a racially and economically further segregated city beyond what we already have. They remember when we had more diversity and they want to return to that."

The memo from Wolbach, Scharff and Schmid directed the planning commission to consider ways to encourage more secondary-dwelling units, a task that the commission attacked with gusto on Wednesday night. Among the proposals they discussed was reducing the city's parking requirements and design restrictions for secondary-dwelling units and using city funds to provide incentives for property owners to develop these units.

Under the city's existing rules, homeowners looking to build accessory-dwelling units face so many design restrictions that most are disqualified from the get-go. Out of the city's roughly 15,000 residential parcels, only about 3,050 have lot sizes large enough to accommodate second-dwelling units under existing regulations. To build such a unit, a property owner must have a lot size 35 percent greater than the minimum lot size established in the district. Then there is the city's laundry list of design restrictions and requirements, including parking spaces, minimum setbacks and a stipulation that the second-dwelling unit have street access from a driveway in common with the main house to prevent the need for a new exit.

Amy French, the city's chief planning official, said that the lot-size requirement throws many properties off the list of potential sites. Those that do have the adequate lot size often have a hard time meeting the other development standards.

"Trying to have the perfect storm of the right size, the available parking and all of that -- it's hard for those 3,000 to have the right mix," French said. "If there are more parcels that could participate, they might have more options."

The lot-size requirement, as well as the parking guidelines, are among the issues that the commission (and, ultimately, the council) will likely explore in future meetings. Commissioner Eric Rosenblum echoed many of the speakers Wednesday when he cited the local population's changing demographics and shifting behaviors when it comes to transportation.

"There's clearly a decrease in dependence of cars around certain generations," Rosenblum said.

Rosenblum also observed that many houses now have "older people and smaller families," which has implications for the ratio of people to floor space. He urged the city's planning staff to further explore these trends.

"Is it the case that there's lots and lots of unused capacity that we're not considering?" Rosenblum asked.

Commissioners Michael Alcheck said he would support eliminating all parking requirements for second-dwelling units. He and Kate Downing also suggesting coming up with programs that would give homeowners incentives to add second-dwelling units. Alcheck proposed exploring a program that would provide no-interest loans for the construction of these units, provided the units would be rented out at below market rate to accommodate people who otherwise wouldn't be able to live in Palo Alto.

Alcheck also said the city should explore offering density bonuses to people who build secondary units, though he acknowledged the proposal could prove unpopular. In fact, the city's past discussions of the topic (in 2004) were marked by a tension between residents calling for more housing and those seeking to protect neighborhoods from the noise, privacy and parking impacts (perceived and real) that a second-dwelling unit would have on surrounding properties.

On Wednesday, only one side in this old debate showed up for the hearing. While Commissioner Asher Waldfogel said he feels strongly that income producing units in neighborhoods should be "low impact," most of his colleagues focused on ways to encourage these units, rather than curb their potential impacts.

Another question that the commission has yet to tackle is what to do about property owners who have built their secondary units illegally. One possibility is amnesty for those who step forward, though planning staff noted that property owners would have to show compliance with fire and safety codes for the second-dwelling unit before the city can have a discussion about what aspects of these units can remain out of compliance. Chair Adrian Fine encouraged staff to take a look at what other cities have done and return to the commission for more discussion of the topic.

"If we are trying to have people come forward with their illegal units and try to make them legal and conforming, we don't want the legislative jaws to clamp down on them," Fine said.