As Palo Alto prepares to transform a largely industrial area around San Antonio Road into the city's next residential hub, housing advocates and developers are calling for the city to further loosen development standards to enable taller and denser housing projects.

The area around San Antonio and East Charleston Road plays a prominent role in the city's plans to meet its mandate of 6,086 new residences between 2023 and 2031. Of the new units, more than 2,000 are slated to go into areas in southeast Palo Alto that are currently zoned for "general manufacturing" (GM) or "research, office and light manufacturing" (ROLM) use.

To turn this vision into reality, city planners and consultants are proposing a revision of the zoning plan to allow 90 dwellings per acre, well above the current maximum of 40 dwellings per acre in existing residential and commercial zones. They are also looking to revise the city's "housing incentive program," which allows residential developers to claim density bonuses and other zoning exceptions when they propose projects in main commercial areas.

Both of these strategies, however, are now facing some blowback. The state Department of Housing and Community Development (HCD) has rejected the city's submitted Housing Element twice, including the version that the council formally approved last May. In its Aug. 3 letter, the state agency argued that the city has failed to prove that the non-vacant sites on its adopted housing inventory are actually suitable for housing.

At least two property owners seem to share the view. An attorney for Grubb Properties, a developer that recently purchased the property at 788-796 San Antonio Road, wrote a letter to HCD last month slamming the city for adopting policies that hinder residential development. The letter from Margo Bradish, attorney with Cox, Castle & Nicholson LLP, is particularly notable given that the council had already approved a 102-apartment project at this site.

While the project at 788 San Antonio Road has to date been viewed by the city as proof of concept for Palo Alto's plans for the southeast corner, the letter throws cold water on these plans. The project, Bradish wrote, is now in jeopardy and the project serves as a "prime example of how barriers to development in the form of restrictive development standards, permitting delays and high development fees, combined with poor market conditions, prevent residential units from getting built in the city."

Notwithstanding the density bonus that the project received, Bradish argued that the base densities in these areas are "too low to provide a sufficient economic incentive for redevelopment with residential uses." She also took issue with the city's parking policies, including its policy of counting above-ground parking in floor-area-ratio (FAR) calculations, which she argued has the impact of either limiting the number of dwellings that can be built, limiting height or forcing the applicant to build costly subterranean parking.

Another barrier that Bradish cited is development fees, particularly those pertaining to parks, community centers and libraries. The council's decision to raise these fees in 2021 has added more than $4 million to the project's costs, according to the letter. But thanks to the council's decision to significantly raise the park fees, the residential project is no longer feasible, Bradish said.

Bradish noted in her letter to the HCD she was not surprised to see the state agency reject Palo Alto's housing plans.

"In order to demonstrate that its HEU (Housing Element Update) is compliant, the City should be required to revise its zoning code to address barriers to housing in the areas of maximum density, FAR, and building height, and development standards pertaining to parking and per-unit parking requirements, as well as shifting all residential development fees for multi-family projects to a per-square-foot formula," Bradish wrote. "Each of these issues represent unreasonable constraints on the development of sorely needed multi-family housing in the City."

Grubb Properties isn't the only developer in the industrial corridor urging the city to think bigger. Presidio Bay Ventures, a developer that recently completed construction of the Springline development in Menlo Park, owns several GM-zoned parcels south of San Antonio Road, between Charleston Road and Highway 101. In May, its founder and CEO K. Cyrus Sanandaji and its consultant Kerry M. Williams submitted a letter to the city that made the case for bolder changes when it comes to zoning.

Sanandaji and Williams generally supported the city's plan to promote residential use in the East Charleston area. He noted, however, that doing so will require extensive planning, significant infrastructural improvement and additional density. He specifically requests that the city move to a density of 120 dwelling units per acre, well higher than the 90 du/acre standard in the city's Housing Element. He also recommended allowing heights of at least 80 feet for new buildings.

"The East Charleston Area has the potential to become a vibrant, mixed-use destination that provides a variety of community-centric offerings in the southern part of Palo Alto, including new market rate and affordable housing, neighborhood retail services, new industrial/R&D space adding to the daytime workforce population, open space, and new pedestrian and bicycle facilities," the letter states. "However, we are concerned that the proposals under the current Housing Element draft plan will be insufficient to realize this potential."

The criticism comes at a key time for the city, which is now pressing ahead with zone changes to comply with the programs in its newly adopted Housing Element, notwithstanding the state's rejection of the document. These include raising the allowed densities at the housing "opportunity sites" that are listed on the city's housing inventory and revising the development standards in the manufacturing and commercial zones around San Antonio.

The city's Planning and Transportation Commission discussed the proposed zoning changes on Sept. 13 but did not take any action during the hearing. It is scheduled to continue the conversation and potentially approve these changes on Oct. 11 before they go to the council for formal adoption.

Not everyone is thrilled with the city's strategy of clustering its housing plans in the southeast, next to the Mountain View border. Scott O'Neil, member of the pro-housing group Palo Alto Forward, argued that the city needs to do a better job in considering other neighborhoods for future housing. Focusing so much growth in the San Antonio Road corridor runs afoul of the state's requirement that the city do more to "affirmatively further fair housing," O'Neil suggested.

"The city is in a fair housing hole and it needs to stop digging and one way to do that is to take these proposals more broadly," O'Neil said.

In their preliminary discussion, commissioners acknowledged that the city would need to do more planning to create a successful neighborhood in the southeast. This includes considering factors like landscaping standards, schools and street amenities. Commissioner Cari Templeton said the city will have to be very "intentional and aware" when it comes to focusing growth in this area.

"What are we doing to our community if we create a place so physically separate?" Templeton said. "It's easy to write that off and say, ‘Gosh, every neighborhood is different!' but we're talking about significant differences here."

Commissioner Keith Reckdahl defended the strategy and said this area is more likely than other parts of the city to see redevelopment. The conversation, he said, made him think of the prolific bank robber Willie Sutton.

"He robbed banks because that's where the money was. We're putting all that stuff there because that's where the land is," Reckdahl said. "Those areas – there are dumpy buildings, they are single story, they are more likely to be redeveloped than something that's brand new with a second story and very lucrative because they're renting out office space."