When Palo Alto's city leaders created a "planned housing" zone last year to encourage developers to build new housing, they did not anticipate projects like the one currently proposed for a quiet Wellesley Street block near the College Terrace Library.

With a height of 32 feet and a total of 24 apartments, the proposal from Cato Investment Company, a San Francisco-based limited liability corporation, is neither the biggest, the tallest nor the most dense project that the city is now evaluating. It does not include any office space and, as such, clearly meets the city's criterion that projects provide more housing than jobs.

So far, however, it's by far the most controversial.

The main difference between Cato's proposal and the other applications that the city has received under this zoning designation is one of location.

While others are sited along prominent commercial corridors, including El Camino Real and Fabian Way, the development eyed for 2239 and 2241 Wellesley eyes a pair of lots that are zoned for — and now occupied by — single-family homes. For residents who live near the site, that's a key factor and the main reason why they are dead set on keeping the project from advancing. Housing advocates, meanwhile, see Cato's foray into the middle of the College Terrace neighborhood as exactly what the city needs: a chance to rethink how the city views single-family neighborhoods and a way to address housing inequities across the community.

The debate will play out in the coming months, as the project moves toward a pre-screening in which the City Council will get its first look at the proposal and help the developer determine whether to submit a formal application. (The session is tentatively scheduled for March 25.) If the council signals its interest, Cato would then go through the city's review process and return to the council for official approval.

But regardless of whether the Wellesley project advances, the discussion will almost certainly force the council to refine its most promising zoning tool and to either reaffirm — or rethink — its historic opposition to bringing more density to single-family neighborhoods.

James Cook and many of his neighbors hope the project never gets beyond the pre-screening. Earlier this month, Cook was joined by about 50 other College Terrace residents at a Zoom meeting that included a discussion of the new proposal. According to various attendees, about 30 neighbors spoke out against the project, while three spoke in its favor. In a recent interview at the project site, Cook and other critics of the Cato proposal pointed to its three-story height, its general noncompliance with zoning regulations and the dangerous precedent that it would set for other Palo Alto neighborhoods by essentially declaring that single-family neighborhoods are ripe for dense, new developments.

"The proposal is like a punch in the face," Cook said. "The fact that you would take two homes and turn them into 24 apartments that's three stories tall — there's nothing like that in the neighborhood."

Cook, a former president of the College Terrace Residents Association, said he believes most residents share this view. In all his years of attending neighborhood meetings, he has never seen so many people come out in opposition to a project as they did during the recent discussion of the Cato proposal.

"The people of this community will not stand for it," Cook said. "If it takes us taking pitchforks to the City Council meeting, we will be there in force and in mass, and we will hold the developer accountable and we will also hold our elected officials accountable if they even consider supporting something like this."

In explaining their concerns, neighbors said they believe the new apartment complex would bring more traffic, increase parking problems and harm the neighborhood's character. Andrew Fetter and Anna Lembke, who live on Wellesley in between the project site and Mayfield Park, see the development as a threat to their privacy. It would essentially create "a 30-foot box right up against our property, with 10 bedrooms looking into our living room, backyard and front yard," Fetter said.

It doesn't help, they said, that Cato didn't reach out to any of the neighbors before submitting its pre-screening application. Several residents told this news publication that it feels as though the company is treating their neighborhood as an investment opportunity rather than a place to create affordable housing that fits the neighborhood's character. They worry that after convincing the council to upzone the site, the developer will flip the property and cash out with a sizable profit.

"This is not about creating affordable housing," Lembke said. "This is about turning College Terrace into Cato's piggy bank."

But while some see the project as a threat, others see it as a golden opportunity.

Kelsey Banes, a Palo Alto resident and executive director of the advocacy group Peninsula for Everyone, believes the proposal offers the city a chance to not only add much-needed housing but also to distribute such housing more equitably across the city.

College Terrace, despite its dominance of R-1 zoning, is made up of an eclectic mix of large and small houses, single homes, cottage clusters and small apartment buildings that were grandfathered in when R-1 zoning was adopted.

Banes believes the three-story building fits reasonably well on a block that already has two-story apartment buildings directly across the street. (One complex has eight apartments; the other has six.) Given the eclectic nature of the neighborhood, it is the R-1 zoning designation — not the Cato project — that doesn't fit the neighborhood context, she said.

"My concern about retaining R-1 zoning means that the only thing that would get built there is a detached single-family house. Maybe there would be a couple of ADUs, but certainly no actual affordable housing," Banes said. "I don't think it's a great idea to keep R-1 zoning. I don't think it's in the character of the street and neighborhood."

The brewing battle over R-1 zoning

The idea that single-family neighborhoods need to accommodate more housing has become increasingly prevalent in Palo Alto, across California and in other states that are looking for ways to increase residential housing. Some cities have taken dramatic actions to encourage that. Last month, the City Council in Sacramento supported a zoning law that would allow any single-family lot to accommodate up to four housing units.

The move in Sacramento followed similar actions in Minneapolis, where officials voted in 2019 to allow up to three units on a single-family lot, and in Portland, which voted to allow between four and six units.

In Palo Alto, however, council members have shown little appetite for such reforms. The city's Housing Element and Comprehensive Plan exclude single-family zones from consideration when it comes to major new housing initiatives, a conspicuous omission given that such districts comprise 72% of city land.

And the council's recent efforts to create new zoning tools to encourage housing have generally focused on either prime commercial areas such as downtown and California Area or on busy corridors such as El Camino Real, San Antonio Road and Fabian Way.

To date, all of the planned-housing applications that the city has received, with the exception of Wellesley Housing, have targeted commercial areas. Technically, however, the zoning designation could apply to R-1 blocks.

As it stands, the planned-housing zone is a concept rather than an official zoning designation. The council in February 2020 adopted rules for planned housing that function more like guidelines to evaluate what are actually "planned community" applications. Historically contentious, "planned community" zoning allows developers to exceed all sorts of zoning regulations in exchange for negotiated community benefits. In the past, the planned-community zone was used to construct Alma Village, Edgewood Plaza and the College Terrace Centre development on El Camino and College Avenue. But after numerous controversies involving the zoning, the council decided in 2013 to no longer use the "planned community" designation — until last year, when the council agreed the zoning would be limited to housing projects. Planning Director Jonathan Lait told the council at the Feb. 3, 2020, meeting that the idea is to clarify that "the production of housing units, including affordable housing units, would in fact be a public benefit."

He also said at that meeting that the city would "limit the applicability to just commercial areas."

"The reason being is that if you make deviation from the development standards, it's further away from single-family zones and other areas," Lait said.

Since then, the council has received several proposals for planned-housing projects, all of which have targeted commercial areas. The first proposal, submitted by Sand Hill Property Company, envisioned 187 housing units and an office complex near Stanford Research Park at 3300 El Camino Real. (The proposal was withdrawn after it received lukewarm reviews from the council.) The second one, proposed by Acclaim Companies, would bring 113 apartments as well as 5,000 square feet of office use and 1,000 square feet of retail to 2951 El Camino Real, in the Ventura neighborhood. Council members broadly supported that plan during a Jan. 19 pre-screening.

A third, from Far Western Land & Investment, seeks to demolish an existing commercial building at 3997 Fabian Way, at the corner of East Charleston Road, and construct a 290-apartment complex. (The council supported the change in use but criticized the project's proposed height and density during its Feb. 8 pre-screening.)

The Cato Investment Company proposal is the first application that is targeting a single-family district. And while company heads are well aware of that fact, they also note that the action is within the bounds of the new zoning tool. Cynthia Gildea, Cato Investment representative, told this news organization that she believes the planned-housing zone is perfectly aligned with Cato's plan to adjust zoning in the R-1 district. She pointed to the site's proximity to jobs and transit, as well as the existence of other multifamily residences on the block.

Some council members, meanwhile, have indicated that they believe that extending the planned-housing zone into single-family residential neighborhoods is a step too far.

Vice Mayor Pat Burt noted that these neighborhoods are already seeing more housing because recent laws eased restrictions on the construction of accessory dwelling units (ADU). As of last October, the city has issued building permits for 146 accessory dwelling units and approved final permits for 84 of them, according to Lait.

Burt told the Weekly that just about any single-family lot can now add an ADU and a junior accessory dwelling unit (an independent living space carved out of an existing home). The laws represent a "drastic change that allows for significant increases in the number of housing units in what was formerly R-1 zoning."

"If you look at the number of R-1 lots in Palo Alto and you say, 'We only had a small fraction of those eligible for one ADU as of three years ago and now virtually all are eligible for two ADUs' — that's more than 20,000 additional housing units in terms of what would be allowed in R-1 neighborhoods. And it's done in a way that doesn't drastically alter the character of R-1 neighborhoods."

In Palo Alto's political environment, Cato's proposal remains the longest of long shots. The City Council's two most passionate housing advocates — Adrian Fine and Liz Kniss — concluded their terms at the end of last year, and the majority of the current council has strongly opposed recent state laws that would have allowed greater density in residential neighborhoods.

Burt, a former planning commissioner and two-time mayor who has often been a swing vote on land use issues, said he does not believe planned-housing zoning was ever meant to include single-family neighborhoods.

"It was never the intention of the planned-housing zone (PHZ) to have that apply in R-1 zoning in any way," Burt told the Weekly. "And proposals to use the PHZ in R-1 should be viewed as non-starters."

Mayor Tom DuBois also said that he believes the new zoning tool should be restricted to commercial areas. While he did not discuss the Wellesley project specifically, he told this news organization that he is generally not in favor of converting R-1 zones to create multi-family apartment complexes.

"I do think if there are places where we have cottage clusters or existing buildings, they should be grandfathered in," DuBois said. "But a lot of people in Palo Alto and elsewhere in California are kind of house-rich and cash-poor, and they put a lot of their personal money into their house I think with the expectation of what the zoning is, and I think we should respect that."

Neighbors of the Wellesley project site echoed that sentiment. During the recent meeting, several talked about the years that they had spent on planning, saving up and renovating their College Terrace homes, which involved navigating the city's rigorous building regulations. With its proposal, they argued, Cato is looking to circumvent all the rules that help the neighborhood retain its character.

"We generally appreciate that even though (the city) forced us to follow all those rules, and we couldn't do everything we want — that's fine because it's important to the neighborhood and important to the city," Cook said. "I just want to know that everyone who buys property here has to abide by the same rules. We've all had to live by those rules, had to adjust our dreams and hopes to be in this wonderful, eclectic neighborhood."

Banes, for her part, believes that the time has come to change these rules. In her view, every single-family lot should be allowed to have at least four units, and those that are located closer to jobs, transit and other services should accommodate even more. The location of the Wellesley Street project warrants a greater change, she argued, because it's in a resource-rich neighborhood that is close to transit.

She acknowledged, however, that such an argument might not carry the day when the council reviews the project.

"I don't have any illusions that this council will look at R-1 zoning, and I understand that changing it even by allowing duplexes would be a dramatic change from the status quo," Banes said. "But I think the status quo in Palo Alto is extremely toxic and demands action."

Gildea said in a statement that Cato Investments appreciates "both the outpouring of support and constructive feedback we have received since we submitted our project to provide missing middle housing."

She cited the council's recent comments, in reviewing other projects, in support of building housing for teachers, nurses and retailers. The company, she said, is happy to see the council recognize the dire need for such housing.

She also said that the proposed project "fits with the community character."

"We are currently undertaking a robust community outreach effort and will be holding a community meeting — all of which goes above and beyond the city requirements," Gildea said. "We look forward to a constructive dialogue with the community about how best to meet the needs of the missing middle."