Item No. 9
Town of Atherton
CITY COUNCIL STAFF REPORT – PUBLIC HEARINGS
TO: HONORABLE MAYOR AND CITY COUNCIL
GEORGE RODERICKS, CITY MANAGER
FROM: BRITTANY BENDIX, CONSULTING TOWN PLANNER
DATE: JANUARY 21, 2026
SUBJECT: INTRODUCTION AND FIRST READING OF AN ORDINANCE TO ADD CHAPTER 17.57, RELATING TO INCLUSIONARY HOUSING, TO THE ATHERTON MUNICIPAL CODE.
RECOMMENDATION:
Staff recommends that the City Council add Chapter 17.57 “Inclusionary Housing” to the Atherton Municipal Code with the purpose of implementing the goals and programs in the certified Atherton 2023-2031 Housing Element.
BACKGROUND
Since 2025 the City Council and Planning Commission have held two joint study sessions to discuss and consider recommendations for the Town’s inclusionary housing program and to provide feedback to staff. An Inclusionary Housing Ordinance (IHO) is a policy tool that the Town included in the 2023-2031 Housing Element update to ensure that new multifamily development will contribute to meeting state-mandated affordable housing requirements.
The first study session occurred on January 8, 2025, and introduced the inclusionary housing program, provided requirements by the State of California for program adoption, and addressed how the program aligned with Town’s efforts to achieve certification of its 2023-2031 Housing Element update by the state’s Department of Housing and Community Development (HCD).The information presented by staff for the January Study Session also introduced the following two reports prepared by Bay Area Economics (BAE), Inc. (Attachment 1):
• Inclusionary Housing Feasibility Analysis:
An evaluation of the financial feasibility of residential development in Atherton with the inclusionary housing requirements that the Town is currently considering.
December 10, 2025, Planning Commission Staff Report
Inclusionary Housing Ordinance
• Inclusionary Housing In-Lieu Fee Analysis:
An analysis of potential in-lieu fees that could be considered as part of an inclusionary housing program. In-lieu fees are fees that may be applied “in-lieu” of on-site construction of affordable units.
The complete materials for the January 8, 2025 study session are available on the Town’s Inclusionary Housing Website: https://www.ci.atherton.ca.us/677/Inclusionary-HousingOrdinance On June 23, 2025, the Town of Atherton held a second study session with the City Council and Planning Commission to further discuss and consider recommendations for the Town’s inclusionary housing program and to provide feedback to staff. The timing of this meeting coincided with the state-certification of the 2023-2031 Housing Element by HCD on May 5, 2025.
The study session and staff report covered an overview of the Town’s current RHNA performance, the Town’s strategy and approach for meeting the RHNA by each income category, and provided four strategies to consider for adoption of an inclusionary program. The City Council directed the Planning Commission and staff to move forward with an IHO that would apply to the RM-10 and RM-20/40 sites in the Town.
Since the June study session two state senate bills (SB) have influenced the crafting of the IHO:
• SB 79 was adopted in the fall of 2025 and will become effective July 1, 2026. This bill applies to seven properties within the Town that are located within ¼-mile of the Menlo Park Caltrain station. Under this legislation, the Town must allow densities up to 120 dwelling units per acre at those sites. The City Council held a study session on this legislation on December 3, 2025, and directed staff to bring forward development standards that would address the potential for this scale of development. As drafted, the IHO would extend to any multifamily development and therefore, apply to SB 79 projects.
• SB 1123 was adopted in 2024 and updated the Starter Home Revitalization Act to allow for the streamline approval of small-lot subdivisions up to 10 lots/units on properties zoned for single-family uses. This law is similar to SB 9, but allows for a greater number of lots and units. The law requires that any development using this provision is subject to any local inclusionary housing ordinance adopted by a local agency. Therefore, the IHO is drafted to capture these projects and ensure they contribute to the Town’s housing goals.
The Planning Commission considered the draft IHO prepared by staff at its meeting on December 10, 2025. A link to the staff report is provided at Attachment 2. The Commission voted unanimously to recommend the draft IHO with a modification to exempt properties within the RM-10 zoning overlay. Although the Planning Commission previously received direction from the Council to include the RM-10 properties, the Commission found that the information relating to SB 79 and SB 1123 could present alternative development options that achieve the goals of the RM-10 program. Additionally, some Commissioners maintain concerns that the inclusionary requirement will encourage developers to use the state’s density bonus program to circumvent the Town’s adopted RM-10 standards.
December 10, 2025, Planning Commission Staff Report
Inclusionary Housing Ordinance
This report summarizes the framework of the draft IHO. Staff continues to recommend that the RM-10 program is included in the IHO and provides further analysis of that recommendation.
Since the Planning Commission review, staff recommends the additional clarifications:
- Added a definition for extremely low-income units.
- Added language to indicate the frequency by which the Town will review the in-lieu fee amounts
- Provided a minimum lot size for land dedication alternatives. - Provided greater procedural clarity in the ‘Enforcement and ‘Appeal’ sections based on additional feedback from the City Attorney’s office.
ANALYSIS
The proposed IHO (Attachment 3) is generally guided by the City Council’s direction at the June 23, 2025 study session. The study sessions noted above focused on the type of projects subject to the IHO and the percentage of units that would be subject to specific income categories. However, the construction of the ordinance for implementation purposes extends deeper into how affordable units are constructed, integrated into a development and preserved in perpetuity. The analysis section of this report is intended to explain the ordinance framework.
Purpose
This section helps clarify the overarching goals of the IHO and is useful when interpreting areas of the ordinance during its implementation that are not clear.
Definitions
The draft IHO includes over 20 definitions that are specific to its implementation. Because of this specificity, the definitions are included within the IHO and are not added to the Zoning Code’s general list of definitions in Chapter 17.60. Since the Planning Commission’s review at their December 10, 2025, meeting, staff has added a definition to include the “extremely low income”.
This addition ensures that all income levels are defined in the ordinance and provides greater alignment with state and federal law.
Staff recommends that when reading through the draft IHO for the first time, skipping this section and returning to it as terms appear in the ordinance. A list of the defined terms is provided here to assist with any cross-references:
A. Affordable Housing Agreement
B. Affordable Housing Cost
C. Affordable Housing Fund
D. Affordable Housing Plan
E. Affordable Rent
F. Affordable Unit
G. Applicant or Developer
H. Area Median Income or AMI
I. Building Permit
J. City Manager
K. Common Ownership or Control
L. Decision-making Body
M. Density Bonus Units
N. Extremely Low Income
O. First Approval
P. In-Lieu Fee
Q. Lower (or Low) Income Households
R. Market Rate Unit
S. Moderate Income Households
T. Planning Permit
U. Residential Project
V. Very Low Income Households
Exemptions
This section identifies any types of projects that are not subject to the IHO. Council’s direction at the June study session was to apply the draft IHO to the multifamily development anticipated on the RM-10 and RM-20/40 properties. Therefore, typical single-family developments are exempt.
This approach extends to Urban Lot Splits, which are more commonly referred to as SB 9 lot splits and generate only two units per lot. The draft IHO refers to SB 9 lot splits under their legislative name “Urban Lot Splits” because there is a new bill titled SB 9 every year. For example, in 2025 the subject of SB 9 related to Accessory Dwelling Units. State law currently restricts urban lot splits to a maximum of 4 units.
As previously indicated, at the Planning Commission meeting on December 10, 2025, the Commission voted unanimously to recommend adoption of the IHO and to modify the applicability of the ordinance to exempt RM-10 properties. Staff is recommending that the Council include the RM-10 sites in the IHO because it aligns with the housing element goals certified by HCD. Additionally, staff cautions that the recent state laws that may or may not result in housing that would meet the Town's RHNA obligations further generate new implementation challenges and are not perfect “alternatives” to the RM-10 program for the following reasons:
SB 79:
The RM-10 zoning overlay was adopted by the Council to address the state’s requirement that the Town broaden its zoning and allow housing beyond just single-family housing.
This is expressed in the certified housing element: “the RM-10 overlay is used by the Town to provide a greater variety of housing types, in order to affirmatively further fair housing.” Although SB 79 enables alternatives to single-family housing, it is not a local zoning requirement. Additionally, the clustering of sites under SB 79 was specifically discouraged by the state when reviewing the Town’s proposed sites for multifamily zoning. Feedback from the state during the housing element certification process was that the Town needed to provide multifamily housing options dispersed throughout the jurisdiction. Therefore, it is unlikely that HCD will support the rescinding of RM-10 because of the Town's anticipated reliance on the production of housing through SB 79.
For the purpose of meeting the Town’s RHNA requirement, development of SB 79 properties could generate housing for lower income categories. However, there is no certainty that this development will occur or yield a meaningful contribution of units with just one or two projects. Additionally, SB 79 projects are only required to provide a minimum density of 30 dwelling units per acre.
SB 1123:
Development permitted under SB 1123 facilitates up to 10 single-family dwellings on independent lots with side and rear setbacks of four feet, and heights no less than what is already allowed by the existing zoning designation (30 feet in R-1A). Although this allows for the production of the same number of units as the RM-10 program, the typology is single-family and not multifamily. Additionally, the units are not subject to the RM-10 development standards, would effectively reduce the ability for multifamily development in Town, and could generate the need to zone additional RM-10 sites if the Town does not find the RM-10 goals are met during its mid-cycle check-in.
January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
Staff has met with potential developers of RM-10 properties who have indicated a preference to pursue the sites as SB 1123 projects. They have indicated that a major advantage to the SB 1123 program is the ability to provide four-foot side and rear setbacks, where the RM-10 standards would require up to 40-foot side yards and 50-foot rear yards.
If the Town applies the IHO to the RM-10 sites, then the applicant could use the state’s density bonus program to relax the setbacks and maintain a ministerial level of review. An added incentive for using the RM-10 program is that the Town does not currently allow for the development of ADUs on SB 1123 sites.
Staff’s recommendation is to include the RM-10 program in the IHO and if necessary, consider changes when the Town reviews its overall performance more comprehensively during the midcycle check-in. The Council should also consider that if they choose to remove the RM-10 program now and add it at a later date, the economic analysis will likely need to be updated to current values.
Basic Affordable Housing Requirements
This section identifies the types of projects that are subject to the IHO and the general requirements. The following are key components:
- Number of housing units. The project must include at least five dwelling units to be subject to the IHO. Five units is a common threshold for applicability, it also aligns with the eligibility requirements for the Town’s RM-10 multifamily housing zoning overlay. Five units is the lowest that staff recommends setting the applicability requirement because urban lot splits can generate up to four units. Ten units is another common threshold; however, staff does not recommend this number as it would then not likely capture projects in the RM-10 multifamily overlay district.
- Distinction by Overlay District. The draft IHO is structured to distinguish the terms of the affordability requirement by overlay district – within the RM-10, within the RM-20/40 (i.e. located on the school sites), or multifamily development outside of the RM districts. The current draft applies the same percentage requirements to all three scenarios, but distinguishes the different locations by the level of affordability. This affordability distinction is discussed further below.
- Conversions. This language is not readily applicable to Atherton’s current development stock as the majority of the Town is developed with single-family dwellings. However, as the Town experiences the development of multifamily housing, especially in the context of new state laws, this language captures a broader range of projects. - Percentage of Inclusionary Units. The draft IHO requires that 20 percent of dwelling units in a project are provided at specific affordability. Twenty percent is the requirement that was included in the 2023-2031 Housing Element and analyzed by BAE. It reflects the upper limit of staff’s recommendation for a percentage and is consistent with the amount that has been discussed at prior study sessions.
- Fractional Units. The actual percent of units required for a project is rarely a round number.
The draft IHO includes a methodology for addressing fractional units. For example, if the project is required to provide 1.4 units, the 0.4 fractional unit would be “provided” through the payment of a fee. This fee would then be placed in a fund that supports the Town’s January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
other affordable housing programs. If the project is required to provide 1.9 units, the IHO is drafted to give the applicant an option to round up and provide a second unit, or pay an in-lieu fee based on the fractional value.
- Affordability Levels. Program 3.814 of the 2023-2031 Housing Element does not identify target affordability levels for the inclusionary housing program. However, Program
3.811(C) requires that sites within the RM-20 district require 20 percent of units to be affordable to low-income households to address any potential shortfall of affordable units within the Town. For this reason, staff has drafted the RM-20/40 requirements to result in the production of low- and very low-income units. For consistency, the RM-10 program includes the same requirement.
At prior study sessions there has been discussion as to how deeper (lower) affordability levels may incentivize developers to use the application of the state’s density bonus program and, therefore, construct buildings that are more incongruous with the Town’s adopted development standards. For this reason, staff has drafted the IHO to allow for moderate-income units beyond the RM-districts. However, there are risks related to setting the affordability requirements at a higher level, as it does not guarantee the Town will meet its lower income housing targets required by the Regional Housing Needs Allocation (RHNA).
The Town has a RHNA requirement to provide 47 “extremely” low-income units, however, the draft IHO does not address this income category, the lowest income level noted is “very” low-income. As discussed at the June 23, 2025 study session, the 2024 Annual Progress Report indicates that the Town has developed 19 extremely low-income units during the current housing cycle and is on pace to provide the required number of units for its RHNA. This information is based on self-reported rental surveys submitted by developers of Accessory Dwelling Units (ADU). The Town requires permits to be issued for an additional 28 extremely low-income units by 2031 to comply with this requirement.
Not requiring a specific number of “extremely” low-income units to be provided as part of the IHO is consistent with past discussions and the programs outlined in the housing element. However, staff strongly recommends that the Council reconsider this approach should the Town’s ADU program fall short in providing these units when reviewed during the mid-cycle check-in. While this should be considered for all income levels, “extremely” low-income units can be the most challenging units to develop. Additionally, even if the Town’s ADU program satisfies the extremely low-income requirement for this housing cycle, adding this income level to the IHO will likely be necessary in the next housing cycle.
In-lieu Fee
The draft IHO acknowledges the adoption of an in-lieu fee. The Inclusionary Housing In-Lieu Fee Analysis prepared by BAE, Inc. is provided at Attachment 1. The analysis was also introduced and discussed at the January 8, 2025 joint study session. The analysis evaluates three approaches to setting fees, as summarized below. The summary of the analysis and findings are provided in Table
1. Prototype 1 reflects rental multifamily housing within the RM-20/40 districts. Prototypes 2 and 3 reflect rental or ownership housing options within the RM-10 districts. Prototype 4 is not currently applicable as the Council’s direction at the June study session was to exempt single- January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
family housing from the inclusionary housing program. Each fee represents an amount that would be assessed based on the product type (rental vs. ownership) and applied per net residential square foot.
- Nexus Basis: The nexus analysis estimates the amount that the Town would need to charge in in-lieu fees to make the amount of the fee payment commensurate with the revenue needed to address the estimated affordable housing need associated with the construction of new market-rate development. This approach includes a financial feasibility analysis to determine how the fees would impact development feasibility. - Cost of Construction: This approach analyzes setting in-lieu fees to cover the full cost of constructing an affordable unit. This scenario supports off-site construction of affordable units.
- Point of Indifference: This approach approximates the cost of affordable units within a market-rate project. In this scenario the fee is set to incentivize development of on-site construction.
Table 1: BAE Summary of In-Lieu Fee Analysis
Given past emphasis at study sessions from the Council to pursue actual construction of affordable units on-site, staff recommends pursuing the “Point of Indifference” approach to setting in-lieu fees. The Point of Indifference approach is described beginning on page 40 of the BAE study (Attachment 1). The resulting fees are based on modeling provided in Table 18 of the BAE study (page 43 of Attachment 1). The following are some simplified example scenarios of how the fee would be applied to variations of a Prototype 3 project:
• An applicant proposes a 10-unit project on a one-acre lot. The units are for-sale residential units and result in a net residential floor area of 20,000 square-feet. The inclusionary requirement is to provide 2 units. The applicant opts to seek approval from the Council to pay an in-lieu of approximately $4.2 million. This is equal to $212 per net residential square foot.
• An applicant proposes a 12-unit project on a 1.2-acre lot. The units are for-sale residential units and result in a net residential floor area of 20,000 square-feet. The inclusionary Prototype
1 Prototype 2 Prototype 3 Prototype 4
Tenure Rental Rental For-Sale For-Sale
In-Lieu Fee Findings
Development
Typology
Multifamily
Apartments
Townhouses Townhouses Single Family +
ADU
Nexus Basis $29 $26 $31 $50
Cost of
Construction
$91 $159 $125 $29
Point of
Indifference
$154 $156 $212 $69
January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
requirement is to provide 2.4 units. The applicant prefers a ministerial process and provides two low-income units and pays an in-lieu fee for the 0.4 fractional unit. The fractional inlieu fee is approximately $706,670; equal to $212 per net residential square foot, times
0.167 (the proportion of the inclusionary requirement not met: .4/2.4). • An applicant proposes an 8-unit project on a 1.2-acre lot. The units are for-sale residential units and result in a net residential floor area of 20,000 square-feet. The inclusionary requirement is to provide 1.6 units. The applicant prefers a ministerial process and provides one low-income unit and pays an in-lieu fee for the 0.6 fractional unit. The fractional inlieu fee is approximately $1.6 million; equal to $212 per net residential square foot, times
0.375 (the proportion of the inclusionary requirement not met: .6/1.6). • An applicant proposes an 8-unit project on a 1.2-acre lot. The units are for-sale residential units and result in a net residential floor area of 20,000 square-feet. The inclusionary requirement is to provide 1.6 units. The applicant prefers a ministerial process and to construct two units. No fee applies.
Since the Planning Commission meeting on December 10, 2025, staff has added language to clarify the review cadence of the fees with the intent of using four- and eight-year timeframes to coincide with the eight-year housing element cycle. Every four years the Town will review fees to determine how much has been collected and identify projects for uses of the fees. Every eight years the Town will update the study supporting the in-lieu fee. This cadence will also help to ensure the fee and its methodology is addressing changes in the housing market.
Provision of Affordable Units
- Standards for Affordable Units. Current best practices for inclusionary housing programs require that the affordable housing units are indistinguishable from and integrated with the market rate units. This serves to integrate the units into the development and broader neighborhood.
- Timing of Construction. Affordable units will be constructed in proportion to the construction of market-rate units, meaning building permits will be issued for market-rate units in a proportional number to affordable units. This provision is especially important if a project loses financing during construction.
- Continued Affordability. The IHO will require ongoing management of the affordable units created from the program. Ensuring the continuity of the unit and its affordability requires an agreement with the Town to be recorded on the property and verification that any owners or tenants meet the income requirements. Typically affordable units are required to maintain their affordability for long-term periods that may vary whether the unit is leased or owned. Over the past 40 years, the length of time IHOs have required for continued affordability has shifted from a standard of 35-years to 55-years, with some jurisdictions considering 99-years. The draft IHO sets this period for 55 years and does not distinguish between rental or ownership units. This approach is recommended given the Town’s exposure to unique market pressures and preference of developers towards ownership models.
Alternative Means of Compliance
January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
As previously noted, the Council has indicated a preference to incentivize the construction of onsite affordable units at the properties zoned for multifamily housing. However, the Town is obligated to provide alternative means of compliance in the IHO. This section provides two alternatives: (1) payment of an in-lieu fee and (2) land dedication that would facilitate future affordable housing projects within the Town limits. A project that proposes an alternative means of compliance would require City Council approval. The Planning Commission could offer recommendations to the Council regarding specific criteria for their consideration of any alternative means.
Since the Planning Commission meeting, staff has added a minimum lot size of 2,400 square feet for projects to be eligible for the land dedication alternative. The minimum lot size acknowledges that the required affordability component being met may not equate to the actual value of a standard lot size in Atherton. For example, if the alternative is meant to satisfy the value of one housing unit, that would likely be less than the value of an existing and vacant one-acre lot.
Additionally, specifically setting the minimum lot size at 2,400 square feet retains the Town’s ability, if preferred, to enable future development of the site as an Urban Infill Lot (SB 9) project.
As stated above, the land dedication would require City Council approval.
Application and Review Procedures
- Affordable Housing Plan. All residential projects proposing to provide affordable units under the IHO will be required to submit an “affordable housing plan.” This serves to provide the Town with all necessary information regarding the project’s development approach at the outset of the project review.
- Affordable Housing Agreement: This is an agreement between the Town and the applicant governing how the applicant will comply with the IHO. The affordable housing agreement specifies the number, type, location, size, and phasing of all affordable units, provisions for income certification and screening of potential purchasers or renters of units, and resale control mechanisms, including the financing of ongoing administrative and monitoring costs. The Agreement must be completed prior to the project approval.
Affordable Housing Funds
Fees collected through the inclusionary housing program will be placed into a specific fund. The fund will then be reserved for financing affordable housing efforts by the Town, including the administration of the program.
Administrative Relief
This is a technical provision standard in IHOs that provides a course for a developer to seek relief from the program. Any relief is subject to consideration and approval by the City Council.
Enforcement
This section identifies the protocol for enforcing on the requirements of the IHO. This language has been revised since the Planning Commission to remove a provision that deputized the Town Planner. This change is in greater alignment with the Town’s current approach to code enforcement.
January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
Appeals
This section identifies the protocol for appealing the Town Planner’s implementation or interpretation of the IHO requirements. An appeal of the Town Planner’s interpretation would be considered by the Planning Commission, as is consistent with other items of the Town’s zoning code. Staff has revised this language since the Planning Commission review to add clarification that the City Council is the final decision maker in the appeal process.
FINDINGS:
Chapter 17.18 of the AMC sets the process for zoning code amendments whereby the Planning Commission adopts a resolution with recommendations to the City Council. The Council will then approve, conditionally approve, or deny the zoning amendments. To approve the amendments the Council must find that the changes are consistent with the Town’s General Plan goals, policies, and implementation programs, as identified below:
Housing Element Goal 3.730 Facilitate the development of faculty and student housing on school campuses to meet a portion of the moderate and very low-income housing need identified for Atherton.
Housing Element Goal 3.760 Encourage special consideration to the maintenance and expansion of housing opportunities for handicapped and
low- and moderate-income homeless persons.
Housing Element Objective 3.761 B. Support the conservation and development of affordable housing for citizens of modest means.
Housing Element Policy 3.795 B. The Town shall continue to encourage the production and availability of more affordable housing through the development of new accessory dwelling units, and
private and public-school faculty and student housing.
Housing Element Goal 3.770 Meet the needs of seniors, in light of the pending growth of this population in San Mateo County
Housing Element Policy 3.772 B. Support the conservation and development of affordable housing for seniors with lower incomes.
Program 3.814 Adoption of an
Inclusionary Zoning Ordinance
Adopt a new inclusionary ordinance for multifamily
development and a housing fee for all new single-family housing construction and addition. Generate funds to
support an affordable ADU rental program (Program
3.812(B) and other affordable housing opportunities.
CONCLUSION:
Staff recommends that the City Council adopt an inclusionary housing ordinance to align with the stated goals and programs of the Town’s 2023-2031 Housing Element.
FISCAL IMPACT:
January 21, 2026, City Council Staff Report
Inclusionary Housing Ordinance - Introduction
The cost associated with the preparation of the draft Ordinance amendments are included within the annual Planning Department budget. The cost to implement the Ordinance will be paid for by the applicants of related development projects.
ENVIRONMENTAL IMPACT:
The project is Categorically Exemption per Section 15305 of the CEQA Guidelines. Section 15305 relates to Minor Alterations in Land Use Limitations, as the ordinance amendments would not result in any changes to land use or density.
PUBLIC NOTICE:
Public notification was achieved by posting the agenda, with this agenda item being listed, at least 72 hours prior to the meeting in print and electronically. Legal advertisement of this hearing was published in The Almanac newspaper. Notice of this hearing was also mailed to all property owners within the Town. Information about the project is also disseminated via the Town’s electronic News Flash and Atherton Online. There are approximately 1,200 subscribers to the Town’s electronic News Flash publications. Subscribers include residents as well as stakeholders – to include, but be not limited to, media outlets, school districts, Menlo Park Fire District, service provides (water, power, and sewer), and regional elected officials.
FORMAL MOTION:
I move that the City Council introduce and conduct the first reading of an ordinance to add Chapter
17.57 “Inclusionary Housing” to the Atherton Municipal Code based on reasons outlined in the Staff Report.
/s/Brittany Bendix
Brittany Bendix, Town Planner
Attachments:
1. Inclusionary Housing and In-Lieu Fee Analysis
2. Planning Commission Staff Report and Attachments
3. Draft City Council Ordinance