When Palo Alto's elected leaders rail against new housing laws, they usually focus on legislation that increases residential density, streamlines approval and curbs their power to influence the designs of new projects.

But it's a less discussed law, Assembly Bill 2097, that is now threatening to upend local zoning policies and potentially redirect development trends in the city's two most prominent commercial areas, University Avenue and California Avenue.

The law, which was authored by Assembly member Laura Friedman, D-Glendale and took effect on Jan. 1, eliminates parking requirements within half a mile of transit stops. Because each of the city's two downtowns has a Caltrain station, the bill effectively allows developers in these two areas to not provide any parking for commercial and residential projects.

Housing advocates and business groups, including California YIMBY and Bay Area Council, have praised the bill, which they say is a critical tool for overcoming a major hurdle to residential developments: the high cost of parking.

When Gov. Gavin Newsom signed the bill into law in September, Friedman noted in a statement that in San Diego more than four times the number of affordable housing units were built in its transit areas after the city eliminated its parking minimum.

"Mandatory parking requirements worsen California's severe housing shortage by raising the cost of housing production," Friedman said in a statement, noting that an average garage space costs between $24,000 and $34,000 while an underground parking space costs between $50,000 and $65,000. "These costs get passed onto individuals and families, even if they don't own or cannot drive a car."

But in Palo Alto, AB 2097 may do more than spur new housing projects. City officials believe the law may accelerate commercial growth, which has been anemic in recent years thanks to local policies that cap non-residential development.

Around California Avenue, the law may trigger some retail establishments to become restaurants, a transformation that was difficult previously because restaurants require more parking.

The law may also influence the city's economic development strategy, which is now being developed. And it will likely doom the city's in-lieu parking program, which collects money from developers who do not build enough on-site parking and instead pay into a fund that pays for future parking facilities.

These are among the impacts of AB 2097 outlined in a new memo from the city's Department of Planning and Development Services. According to staff analysis, the two Caltrain stations and the University Avenue transit hub (which is next to the downtown Caltrain station) are the only two areas that meet the criteria for AB 2097 eligibility. While the law also applies to major bus routes, the city's other bus stops don't meet the frequency requirement for bus service.

AB 2097 still allows cities to impose parking requirements if they can make written findings, supported by a preponderance of evidence, that not doing so would hinder its ability to meet its housing targets for residents with low and very low incomes, or it would make it difficult to accommodate housing for seniors and individuals with disabilities, or it would have a negative impact on existing residential or commercial parking within half mile of the proposed housing development.

A test of AB 2097

The city got an early taste of what the new law will bring on June 1, when the Architectural Review Board considered a new four-story, mixed-use development at 640 Waverley St. Board Chair Peter Baltay noted that the plans for the project don't provide parking for its commercial portion but acknowledged that there's little the city can do to change that.

"Regardless of what the code of the law says, it's responsible of you to park the people who live there, otherwise they're just going to park on the street and that's not fair," Baltay said. "We're not going to be able to force you to do anything it seems like, but with the force of persuasion, consider doing something more because it's not enough right now."

The project team did not appear to be open to persuasion. Architect Ken Hayes said the team had been considering ways to develop the site since 2012 but was only able to propose its current plan after AB 2097 became law.

"What really made the project feasible this time is the fact that we don't need to provide commercial parking," Hayes said. "AB 2097 gave us the window to be able to do this."

While the law is new and, as such, has not seen much usage so far, planning staff expect that to change. The planning memo notes that numerous developers have expressed interest in relying on AB 2097 and that staff expect to see more applications looking to take advantage of its provisions.

On California Avenue, the law could both accelerate development and change land uses, which have been relatively static in recent years. City staff notes that there has been little new construction in the area (recently public projects on Sherman Avenue -- a garage and police headquarters -- are conspicuous exceptions). Staff attributes this dearth of new private development to local requirements for retail preservations, small parcel sizes and on-site parking requirements. Now, the lattermost barrier is removed.

"Accordingly, staff anticipates California Avenue may experience increased development pressure for new building construction," the memo states. "At a minimum, staff expects an increase in requests to change retail to restaurant use, or other more intensive land uses both on California Avenue and nearby commercial streets."

Staff also believes that California Avenue's proximity to the Caltrain station may encourage new housing or mixed-use developments with no parking. Small lot sizes have historically made housing projects cost-prohibitive, the memo notes, which is one of the reasons that the city's adopted Housing Element does not envision a significant amount of new housing in this area.

"However, with AB 2097, new mixed-use housing with ground floor commercial and multi-family units at upper levels may be seen as more feasible by some property owners or developers," the memo states.

In downtown, the city will have to rethink its in-lieu parking fee program, which staff expect will no longer receive any funding.

The program's remaining money will be used to help pay for a new development that combines a parking garage and housing and that would occupy a downtown parking lot. The city last year released a request for proposals, and it plans to share responses with the City Council later in the summer, according to the memo.

It's not just University and California avenues that will be affected by the law. The city is about to adopt the North Ventura Coordinated Area Plan, a vision document for a centrally located neighborhood just south of California Avenue. About half of the Ventura planning area is within half a mile of the Caltrain stop and one of the questions that staff is considering now is whether to waive parking requirements for cars in the entire area. (That question will come up when the plan moves on to the council for final approval.)

The bill would also allow residents in single-family districts close to the Caltrain stations to convert their garages to habitable spaces, eliminating on-site parking. Unlike in the past, they will no longer be required to create another parking space. Thanks to other recently adopted laws, property owners can already do that when developing accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs). AB 2097 broadens this to also capture garage conversions that do not entail plumbing and cooking facilities, which are required for ADUs and JADUs.

Even though the law allows jurisdictions to impose parking requirements under limited circumstances, this rule would not apply if the proposed development contains fewer than 20 dwellings, if at least 20% of its housing units are designated as affordable housing, or if it qualifies for parking reductions under other laws. Furthermore, cities have only 30 days from when an application is filed to conduct the analysis and meet the "preponderance of evidence" standard laid out in AB 2097, a timeline that the memo suggests would be difficult to meet.

"Based on the foregoing restrictions and the limited time to conduct the analysis (30 days from the filing of a complete application), staff does not envision being able to make required findings that would compel a project to meet minimum on-site parking requirements," the memo states. "Such analysis would need to occur in advance of the city receiving a qualifying application and then be applied to the project.

"Unless the City Council provides this direction at a noticed public hearing, this advanced analysis is not envisioned being conducted and use of this provision is not expected to be applied to qualifying projects in Palo Alto."