EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: September 5, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Alvin Jen, Associate Planner
Elena Lee, Planning Manager
Amy Chen, Community & Economic Development Director
SUBJECT: City’s Response to the San Mateo County Grand Jury’s 2022-2023 Final Report, “Accessory Dwelling Units: Affordable Housing’s Panacea or Prevarication?” Recommendation
Adopt a Resolution (Attachment 1):
1. Accepting the staff report on the San Mateo County Civil Grand Jury report titled “Accessory Dwelling Units: Affordable Housing’s Panacea or Prevarication?”, and
2. Authorizing the City Manager to submit, on behalf of the City, a response letter to the San Mateo County Civil Grand Jury’s report.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
• Promote Housing, Economic and Workforce Development
Background
A city’s responsibility related to Grand Jury reports is governed by California Penal Code Section 933 et seq. In relevant part, a legislative body’s response is due within 90 days from release of the report. Failure to timely respond may lead to further investigation on the subject matter of the report.
On June 12, 2023, the 2022-2023 San Mateo County Civil Grand Jury issued a report titled “Accessory Dwelling Units: Affordable Housing’s Panacea or Prevarication?” (Report). The City is required to submit comments on the findings and recommendations pertaining to the topic within 90 days. The City’s response to the report is due no later than September 11, 2023. The report is provided as Attachment 2 for reference.
In the Report, the Grand Jury stated that some San Mateo County jurisdictions are relying on the construction of Accessory Dwelling Units (ADUs) to avoid the construction of multi-family and low-income housing over the next eight years, which also coincides with the 2023-2031 6th Cycle for the Housing Element. In 1969, the State Legislature passed the Housing Element Law, which states that every eight years, all jurisdictions in California must plan for housing needs for all residents regardless of income. Additionally, the State has also passed multiple legislations since 2017 to encourage ADU construction and to reduce barriers, including limiting municipal permitting requirements. ADUs, which are considered naturally affordable housing, naturally became a tool for many local jurisdictions to meet its Regional Housing Needs Allocation (RHNA) numbers and provide the required affordable units instead of other types of affordable housing.
The Grand Jury Report identifies several issues with the reliance of ADUs to meet affordable housing needs. One issue is a lack of regulatory limitations on a city’s over-reliance on using ADUs to meet these needs. While ADUs have increased housing inventory, the State, for example, has not provided any guidelines to ensure that low-income households would benefit from this type of housing. Another issue is that ADUs are not necessarily rented to the “open market”. The Report states that oftentimes ADUs are rented or provided to family members or friends, which may not increase the availability of affordable housing units to residents in need in each respective jurisdiction. The last issue that is discussed in the Report is related to affordable housing production. If cities are allowed to count ADUs without deed restrictions toward their RHNA as affordable housing, fewer deed-restricted low-, very low-, and moderateincome apartments and homes would be produced.1
The County of San Mateo and each jurisdiction are required to respond on how to address each finding and how to address affordability monitoring and compliance related to ADUs. City staff is in process of updating the Municipal Code to bring it into compliance with recent state legislative updates related to ADUs and also as a follow up to City Council direction from the December 6, 2022 ADU Council meeting. Staff anticipates bringing a code update for Council consideration in late 2023.
Analysis
The Grand Jury made seven findings and six recommendations in its Report. The findings, recommendations, and the proposed City responses are provided below:
Response to Findings in the Grand Jury Report
Finding #1 Due to the recent changes in California ADU-related laws, local governments cannot condition ADU permits in San Mateo
County on complying with affordability monitoring and
verification.
Response: The City of East Palo Alto agrees with this finding.
Finding #2 San Mateo County and most of its municipalities rely on ADUs 1 San Mateo Grand Jury, “Accessory Dwelling Units: Affordable Housing’s Panacea or Prevarication?”, accessed August 2, 2023, https://www.sanmateocourt.org/documents/grand_jury/2022/2022adu.pdf. to meet their affordable housing commitments in their RHNA-6 plans.
Response: The City of East Palo Alto partially agrees with this finding. At the outset, the City of East Palo Alto notes its response should not be construed as a criticism about the over-reliance of other cities in the County on Accessory Dwelling Units (ADUs) to meet their Regional Housing Needs Allocation (RHNA).
Furthermore, reliance within the County on this strategy may vary considerably. For East Palo Alto’s part, the use of ADUs in this way is not substantial and certainly does not rise to the level of prevarication, especially given the City’s pro-housing and housing affordability track record, in addition to its commitment to do its part in helping solve the region’s affordability crisis for its own residents and that of the County.
While the City of East Palo Alto counts ADUs toward meeting its RHNA numbers, this approach is permitted by law, modestly used, and is simply one among many strategies. Specifically, the City has a total extremely low-, very low-, low-, and moderate-income RHNA of 419 units, and planned ADUs
make up only 25 percent of these.
Additionally, the City of East Palo Alto has or plans to develop the following programs to boost the region’s affordable housing:
• Revising our zoning codes to allow for increased
density, which allows for housing that is naturally more affordable.
• Use of housing trust funds to build or finance more
affordable housing.
• Streamlined permitting processes for affordable
housing.
• Strengthening inclusionary zoning requirements that
require a certain percentage of new units to be rented
affordably.
• Commercial impact fees used to build or finance
affordable housing projects.
• Incentives and zoning changes to encourage the
production of ADUs.
Finding #3 Atherton, Hillsborough, Portola Valley, and Woodside rely on ADUs to meet as much as 80 percent of their affordable
housing commitments in their RHNA-6 plans.
Response: The City of East Palo Alto lacks information to agree or disagree with this finding and on that basis disagrees with it.
The City of East Palo Alto is not named in this finding and as such has no comment but because California Penal Code
Section 933 does not provide for such nuance, the City of East Palo Alto must respond with disagreement.
Finding #4 California Department of Housing and Community Development (HCD) has instructed San Mateo County
jurisdictions to monitor and verify future ADU production and affordability every two years but has yet to specify how to verify whether very low-, low, or moderate-income households are occupying the ADUs as planned.
Response: The City of East Palo Alto partially agrees with this finding.
HCD has indeed asked jurisdictions to verify future ADU production and affordability every two years; however, HCD is only asking for verification at the initial time of occupancy. The City of East Palo Alto is planning to support a regional ADU monitoring effort through Association of Bay Area
Governments (ABAG) or 21 Elements, a long-standing
collaboration among the 21 jurisdictions of San Mateo County.
The City of East Palo Alto may also explore other means of monitoring and verification, subject to staffing levels and costs.
Finding #5 Other than Brisbane and Redwood City, San Mateo County, and its jurisdictions have yet to articulate how they will monitor and verify ADU production or affordability.
Response: The City of East Palo Alto partially agrees with this finding. San Mateo County jurisdictions met on June 20, 2023, to discuss potential strategies for monitoring ADU affordability levels. The City of East Palo Alto is planning to support a regional ADU monitoring effort through ABAG or 21 Elements. The City of East Palo Alto also has already committed to exploring a local program for frequent monitoring of ADU construction and affordability. Additionally, the City of East Palo Alto has ADU policies and programs in the 2023-2031 6th Cycle Housing Element that commit to reporting on ADU production as part of our annual Housing Element progress reports. This report will provide the number of building permits permitted for ADUs.
The City of East Palo Alto, however, does not have any
policies or programs to track ADU affordability.
Finding #6 Without effective ADU monitoring and verification, it will be impossible to evaluate whether the jurisdictions are meeting their RHNA-6 obligations for very low-, low-, and moderateincome housing units.
Response: The City of East Palo Alto generally agrees with this finding.
The key purpose of the Report is that HCD’s 30-30-30-10 formula, used by most jurisdictions in the County, does not mirror a jurisdiction’s actual allocation to categories from very low-, low-, and moderate-income levels. As stated above, the City of East Palo Alto is planning to support a regional approach to monitoring ADU affordability in addition to making local changes within the City.
Finding #7 ADU affordability and occupancy could be monitored by agencies such as HIP Housing which has proven systems and processes to verify occupancy of deed-restricted rental properties in San Mateo County.
Response: The City of East Palo Alto agrees with this finding. HIP Housing is one potential partner agency. The City is committed to addressing this issue with the resources it requires, which will depend on the magnitude of the problem within its
jurisdictional bounds.
Response to Recommendations in the Grand Jury Report
Recommendation #1 San Mateo County and each city should immediately stop using ADUs to meet their State-mandated very low-, low-, and moderate-income housing targets in their Housing
Element submissions until they have also proposed an
effective monitoring system that verifies how newly
developed ADUs will be used.
Response: The recommendation will not be implemented because it may not be necessary or reasonable. While the City of East Palo Alto shares the Civil Grand Jury’s goal to increase ADU affordability monitoring, this recommendation is not a one-size fits all approach. While the Report’s data does merit studying the issues raised therein further, it does not contain data specific to the City of East Palo Alto indicating that the City’s use of ADUs in fact exacerbates patterns of segregation and exclusion within our community. For
example, the Report notes that exacerbation of those
issues could happen if “minorities are underrepresented among homeowners”. As a primarily minority community, it would seem prudent to explore this level of
underrepresentation first and then calibrate a response accordingly.
At this late stage, it may not be prudent or feasible to revise our Housing Element to eliminate the use of ADUs to meet affordable housing goals. The City of East Palo Alto’s
Housing Element was developed through a rigorous
process of multiple years of public input and revisions.
Furthermore, the City is close to obtaining a compliance letter from HCD. As such, it is simply neither wise nor feasible for us to make a major change to our housing
policy this late in the process. Nevertheless, the City of East Palo Alto is committed to following the State’s Housing Law and supporting the development of an effective
regional ADU monitoring program which will be operated by 21 Elements or ABAG. As noted earlier, the City of East Palo Alto has already committed to exploring a local
program for frequent monitoring of ADU construction.
Finally, the City is also supporting the development of a new ADU non-profit that will have programs to incentivize the production of affordable ADUs in San Mateo County.
The City will aim to have this monitoring program in place for future Housing Element cycles.
Recommendation #2 By February 1, 2024, San Mateo County and each city should develop, adopt, and implement a verification system capable of monitoring and verifying how new developed
ADUs are being used.
Response: Part of the recommendation has yet to be implemented but will be in the future. However, part of the recommendation is not warranted. The City of East Palo Alto agrees that it is important to have high quality occupancy data for ADUs. As noted earlier, the City plans to participate in the 21
Elements or ABAG ADU monitoring system, in addition to
exploring its own. The monitoring is projected to launch in January 2025 and will likely survey people about their plans for their ADU at the time permits are issued. The City’s primary concern is the dearth of resources to fund and
implement ADU verification and monitoring activities. The City has long struggled to provide and maintain the level of service the community deserves with its limited resources.
Whatever local monitoring solution the City chooses to
pursue must be sustainable. The City will need to maintain funds and personnel to oversee and implement any such
program. Leaving aside potential homeowner privacy
concerns, the City is mindful of the costs of engaging with thousands of homeowners every year and whether that
poses a practical barrier to having an ongoing verification system that checks the income of every resident of every ADU in the City.
Recommendation #3 By February 1, 2024, San Mateo County and each city should develop and adopt incentives for ADU owners which could be offered in exchange for deed restrictions that would include requirements for ADU tenants to participate in independent monitoring.
Response: This recommendation has yet to be implemented but will be in the future. The City of East Palo Alto agrees with the goal of adopting an affordable ADU program. The City has
already welcomed legislative changes that liberalize the approval process for ADUs and taken liberal interpretations, where appropriate. However, the City of East Palo Alto
would note that this liberalization moves ADU approval
closer to a by-right land use, which leaves less room for cities and counties to exact or incentivize (using land use incentives), for example, affordability restrictions.
Additionally, the City is actively involved in the creation of an ADU nonprofit to serve San Mateo County jurisdictions, which is being coordinated through 21 Elements. 21
Elements has been working on behalf of the City and
researching best practices to encourage the development of ADUs. The draft work plan for the non-profit calls for it to offer programs to incentivize the production of affordable ADUs and support homeowners in constructing ADUs in
exchange for agreeing to rent at affordable levels. The nonprofit is projected to launch in July 2024 and will be financially supported by San Mateo County jurisdictions as well as private philanthropy if possible.
Recommendation #4 By February 1, 2024, San Mateo County and each city should track the intended use of ADUs – rented or nonrented – during the permitted process and offer incentives in exchange for deed restrictions that require ADUs to be used as rentals.
Response: This recommendation has yet to be implemented but will be implemented in the future. As part of the monitoring
program referenced in response to Recommendation #2
(R2), the City of East Palo Alto will track the intended use of ADUs. The City will explore developing an incentive
program that offers incentives in exchange for affordability requirements such as deed restrictions. However, as noted in R3 above, the State legislative changes may provide a greater benefit than the City’s resource challenged ability to offer land use incentives to encourage deed restrictions.
Furthermore, a more effective means may lie elsewhere;
offering a tax incentive to homeowners who rent their ADUs at deep affordability levels. The City would support such a legislative effort at the State level.
Recommendation #5 By April 1, 2024, San Mateo County and each city should develop and adopt a new ADUs affordability distribution formula specific to each jurisdiction to the extent that are used for meeting the very low-, low-, and moderate-income housing requirements in their RHNA Housing Elements.
This recommendation will not be implemented because it is Response: not warranted or is not reasonable. While we agree with the importance of an accurate distribution formula, given the relatively small size of the City of East Palo Alto, a more meaningful distribution formula can be attained by
collecting data on ADUs constructed across all San Mateo County jurisdictions. The City is supporting the creation of an ADU monitoring program through 21 Elements or ABAG,
which will collect data that can be used to revise the
distribution formula based on actual observed income
levels.
The City of East Palo Alto does not believe the current data suggests amending the current formula of 30-30-30-10. The UC Berkeley study upon which the Report’s findings were based, surveyed thousands of homeowners statewide with
repeat mailing. The data was aggregated to reduce the
margin of errors. If the City were to follow this
recommendation, it is not clear we could achieve the same margin of error. It would be likely too large given the likely smaller numbers of households to be surveyed. The City is aware of no data that suggests significant variation from city to city. It is the City of East Palo Alto’s understanding that the 30-30-30-10 formula was crafted to have significant cushion built in to ensure cities did not inadvertently underproduce the amount of housing needed.
Recommendation #6
Response:
San Mateo County and each city should consider working
together to address Recommendations 2 and 3.
This recommendation has been implemented. San Mateo
County jurisdictions have and will continue to work
collaboratively through 21 Elements to develop, adopt, and implement housing policies and programs in the county.
San Mateo County jurisdictions are already working
together to address Recommendations 2 and 3.
The City of East Palo Alto plans to participate in the shared ADU nonprofit and other regional endeavors to address
these issues as appropriate.
Fiscal Impact
There are no fiscal impacts associated with the items discussed in this memorandum.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available on the City’s website.
Environmental
The proposed action does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Resolution
2. 2022-2023 Civil Grand Jury Report: Accessory Dwelling Units: Affordable Housing’s Panacea or Prevarication?