Top image: Palo Alto City Hall, home of the City Auditor’s Office. Photo: Tomwsulcer / CC0 via Wikimedia Commons

Palo Alto’s program for helping moderate- and low-income households buy a home has a supply problem with a date attached. A new review from the City Auditor’s Office counts 247 active below-market-rate (BMR) ownership units, most of them built before 2000, and none built in the 2010s, Palo Alto Online reported after the City Council’s Policy and Services Committee discussed the findings Oct. 13.

The audit, conducted by Kate Murdock of Baker Tilly, the consulting firm that serves as Palo Alto’s city auditor, also flags something buyers often learn only after they sign: homeowners association dues, special assessments and maintenance costs that the BMR program does not control. The full audit report was not yet posted on the City Auditor’s publications page when we checked Monday morning, so this account relies on Palo Alto Online’s reporting from the committee meeting and on the city’s published program rules.

How the program works

Under the city’s BMR Housing Purchase Program, developers of three or more homes must contribute at least 15% of the units at below-market prices, and projects of seven or more units must include at least one BMR unit on site. The planning director sets the initial sale price; the nonprofit Alta Housing runs the waiting list, which gives preference to people who live or work in Palo Alto. When an owner sells, the city holds a right of first refusal. Income limits for each unit are calculated using the price, taxes, insurance, financing rates and, where applicable, HOA dues.

A lost decade, and a cliff ahead

The striking number is the zero. No BMR ownership units were built in the 2010s, in part because of legal challenges to inclusionary housing requirements, City Attorney Chris Jensen told the committee, according to Palo Alto Online. “The big zero there jumped out at me,” Councilmember Keith Reckdahl said. Production resumed this decade, with 15 more units built as of 2025.

That gap matters because the existing stock is aging out. Each development has its own timeline for when units can leave the program, and some of the earliest units from the 1970s that have not changed hands may expire by 2033, the audit noted. Because of the missing decade, the audit said, “there is no corresponding replacement cohort to offset potential future losses in the near term.”

The hidden costs

The audit’s central recommendation is disclosure. “These (HOA) expenses are not controlled by the BMR program, but they may affect a household’s ability to remain in the unit or maintain it over the long term,” it states, adding that interviews “did not identify a consolidated approach for tracking HOA dues, special assessments, or major maintenance pressures across the ownership portfolio.” The city does not currently track formal complaints for existing BMR units. The audit recommends working with Alta Housing to identify significant HOA and maintenance pressures, and tracking turnover and vacancies, as Mountain View does.

Michelle Kraus, who chairs the Human Relations Commission, urged the city to consider subsidies. “It is becoming an issue of retention,” she said. “It has been 20 years since subsidies have been offered, and we’re in a tremendously difficult financial time right now.”

The resale formula creates its own distortion. Because the long-standing formula makes older units much cheaper than newer ones, people on the waitlist tend to “hold out” for older units, Alta Housing told auditors, which may make newer units harder to place. Committee Chair Julie Lythcott-Haims pressed on vacancies: “If you build it, will they come? And if they don’t, what have we done wrong?”

The committee voted unanimously to approve the findings, but the full council may not take up policy changes until next year, Palo Alto Online reported.

The long view

Rental affordability gets most of the attention in Silicon Valley housing debates, but ownership BMR programs are one of the few ways a teacher, nurse or city worker can build equity in a city where market-rate homes routinely sell for millions. The audit’s findings point to a structural weakness in how inclusionary programs are built: they depend on market-rate construction to produce affordable units, so a slow decade for building becomes a slow decade for affordability, and the shortfall arrives years later as covenants expire.

They also show that the affordability of a “below-market” home is set not only by its price but by everything attached to it, from HOA budgets to roof replacements. As Peninsula jurisdictions push for denser, condo-style housing, including San Mateo County’s new requirement that affordable units be built on site in its new high-density districts, the long-term costs of shared buildings will decide whether those homes stay affordable for the people who buy them.

Sources

• Audit: Hidden fees hinder Palo Alto housing program, Palo Alto Online, Oct. 14, 2026
• Below Market Rate Housing, City of Palo Alto
• City Auditor Reports and Publications, City of Palo Alto