DATE:
November 4, 2025
CATEGORY:
New Business
DEPT.:
Housing Department
TITLE: Recommended Amendments to the
Below Market Rate Housing Program –
Housing Element Program 1.9
RECOMMENDATION
Approve the recommended amendments for the City’s Below Market Rate Housing Program and direct staff to bring back Ordinance amendments for Council consideration.
EXECUTIVE SUMMARY
On December 12, 2023, Council held a Study Session to review the efficacy of the City’s Below Market Rate Housing Program (“BMR Program” or “BMR Ordinance” will be used interchangeably for the remainder of this memo ), meeting the City’s State -certified 2023-31 Housing Element Program 1.9 requirement to complete the first of two reviews by December 31, 2023.
The review included five criteria in the Housing Element, and concluded that the BMR Program is effective in increasing the supply and diversity of affordable housing. Council approved staff’s recommendations to further study specific amendments based on the Housing Element criteria that would enhance the BMR Program’s efficacy, and to bring back recommended amendments for additional discussion prior to preparing the Ordinance amendments for Council approval.
The purpose of this Council item is to have additional discussion regarding the recommended amendments per the December 2023 Study Session, as well as to consider additional amendments that staff have identified after the Study Ses sion. Collectively, the recommended amendments include:
• Adopt requirements for increasing the physical accessibility of BMR units.
• Add acquisition/preservation of existing housing units as a new alternative means of compliance, in addition to the existing land dedication and off-site development options for a total of three options; remove in-lieu fees and the catch-all option from the list of options.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
• Incorporate general requirements for alternative means of compliance, as well as additional specific criteria for each alternative compliance option, including requirements associated with State Affirmatively Further Fair Housing (AFFH) requirements.
• Amend the in-lieu fee rates and us e the California Construction Cost Index (CCCI) instead of the Consumer Price Index (CPI) for annual escalations.
• Implement remaining clean-up items (except for the Homeowner Association (HOA)-related clean-up item).
• New recommended amendments (identified after the December 12, 2023 Study Session):
‒ Remove the HOA Reserve Fund requirement.
‒ Administratively update the BMR Program Guidelines.
‒ Incorporate a graduated fee reduction for small projects with one (1) to six (6) units.
‒ Evaluate moving the BMR Ordinance from Chapter 36 (Zoning Code) to Chapter 46 (Housing-related Ordinances).
Based on Council direction, BMR Ordinance amendments will be brought forward for Council consideration late Q1 2026/early Q2 2026.
BACKGROUND
The City’s Below Market Rate Housing Program was adopted in 1999 and underwent its first major update in August 2019. The BMR Program’s objective standard requires developers of market-rate housing to integrate affordable housing units within the same building as the market-rate units. Table 1 summarizes the key features of the BMR Program:
Table 1: Summary of Current BMR Program
Requirement Criteria
Objective
Standard
On-site BMR units integrated with market units.
Applicability Any development that 1) create s one or more dwelling units, 2) convert s nonresidential uses to residential uses, or 3) convert s residential units from rental units to ownership units.
Project Size • Projects with 7 or more units:
− 15% BMR: rental or ownership (non-rowhouse/townhouse) projects. − 25% BMR: for rowhouse/townhouse projects.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Requirement Criteria
• Projects with less than 7 units: fractional in-lieu fees for partial units.
Affordability
Levels
• Rental:
‒ 15% BMR units at AMI greater than 50% up to 80% of Area Median Income (AMI), with 65% AMI weighted average.
• Ownership:
‒ 15% BMR units at AMI greater than 80% up to 120% AMI, with 100% AMI weighted average (non-rowhouse/non-townhome projects). ‒ Additional 10% requirement for rowhouse/townhouse projects at AMI greater than 120% up to 150% AMI, with 135% AMI weighted average.
Development
Standards
• BMR units comparable to market-rate units in size, location, and design.
Duration • Affordable in perpetuity.
Alternative
Compliance1
• Applicant may request alternative means of compliance. • Council has discretionary approval.
• Alternative compliance must be of greater value than onsite BMR units. • In-lieu fees, land dedication, off -site development of units, and catch-all option.
Allowed Rent
Increase
• Maximum 3% annual increase.
Summary of December 2023 Review
The City’s State-certified 2023-21 Housing Element Program 1.9 requires periodic review of the BMR Program. The deadline to complete the first review was December 31, 2023.
On December 12, 2023, City Council held a Study Session to complete the first review by the required deadline. Staff and the City’s consultant Economic and Planning Systems (EPS) evaluated the five criteria outlined in the Housing Element , and benchmark ed seven comparison cities , including Cupertino, Palo Alto, San Jose, Santa Clara, Sunnyvale, Redwood City, and San Mateo.
Overall, the review concluded that the BMR program as updated in 2019 has been effective in facilitating a greater number and diversity of BMR unit based on new market-rate projects in the City’s pipeline. Therefore, staff focused the recommended amendments on a narrower subset of items within the five Housing Element criteria primarily related to: options to enhance the physical accessibility of BMR units; additional requirements for alternative means of compliance,
1 To date, the BMR Program has used the term “alternative mitigation.” Going forward, staff recommends using the term “alternative means of compliance,” which aligns with the term in Assembly Bill (AB) 1505 that reaffirms the authority of jurisdictions to implement BMR programs.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
using a fair housing framework to achieve equitable development goals; and clean-up items. The following is a summary of the discussion.
Housing Element Evaluation Criterion 1: Continue BMR program, as revised in 2019, to include more opportunities for inclusionary units as opposed to fees.
Discussion Summary:
• Staff provided data indicating that the market-rate residential pipeline in the City is estimated to result in significantly more BMR units under the current version of the BMR Program than under the prior version of the program, which was modified in 2019.
• Council supported the continuation of the BMR Program as revised in 2019.
Housing Element Evaluation Criterion 2: Review BMR program to evaluate program efficacy and identify potential modifications to improve efficacy based on City goals, including furthering affordable housing production across unit types, special needs (including accessible units), and affordability levels.
Discussion Summary:
• As part of Criterion 1, staff noted that the current BMR Program is furthering affordable housing production across unit types in terms of both unit sizes and affordability levels.
• However, the BMR Program has not specifically addressed the special needs populations .
Unlike 100% affordable housing projects that often provide case management and services for special needs populations, market-rate projects with BMR units do not typically provide this service and property management lacks this expertise.
• Therefore, staff recommended that increasing the physical accessibility of BMR units be the focus of Housing Element Criterion 2. Council supported this recommendation.
Housing Element Evaluation Criterion 3: Whether the BMR program facilitates mobility and access to opportunity and if any improvements could be made to increase mobility and access to opportunity.
Discussion Summary:
• “Mobility” and “access to opportunity” are terms related to State Affirmatively Furthering Fair Housing (AFFH) requirements.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
• AFFH refers to the ability of lower -income individuals and households to have choices regarding where they live, particularly in geographic areas known as “Highest Resource Areas” that are located near services, amenities, and infrastructure such as transit, health care, grocery stores, schools, parks, employment, and other resources, i.e., areas with access to opportunity.
• The BMR Program facilitates mobility and access to opportunity through the objective standard of integrating BMR units on-site with market-rate units, the requirement that BMR unit sizes are proportionate to the market-rate unit sizes, and the requirement that the BMR units be equitably distributed throughout the market-rate project.
• Council supported staff’s recommendations to focus Criterion 2 on enhanc ing mobility and access to opportunity related specifically to alternative compliance options, as follows:
‒ Add general language that all alternative compliance proposals must demonstrate facilitating mobility and access to opportunity to meet AFFH requirements.
‒ Add specific AFFH requirements to each alternative compliance option. For example, the land dedication option should include criteria to be in close proximity to the market-rate development and/or be located in a High Resource Area.
‒ Evaluate incentives for affordable housing in areas designated in the Housing Element such as in Program 2.6 related to AFFH , which requires the City to adopt incentives and zoning to facilitate property owners south of the El Camino Real Precise Plan to support affordable housing, such as dedicate land or build affordable housing.
Housing Element Evaluation Criterion 4: Potential policy changes based on best practices, new laws, or unanticipated program outcomes.
Discussion Summary:
• As with Criterion 3, t he discussion during the December 2023 Study Session regarding Criterion 4 focused on modifications to alternative compliance options.
• Council supported the following staff recommendations:
‒ Clarify that the value of the alternative compliance should be no less than providing units on-site. (Currently, the BMR Program requires that the alternative compliance option be of greater value than the on-site BMR units.)
‒ Use the BMR in-lieu fee to calculate the equivalency value.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
• Council provided the following additional direction:
‒ Alternative compliance options should be allowed for both rental and ownership projects. (Cities are legally required to provide alternative means of compliance for rental projects but have the discretion to allow them for ownership projects.)
‒ Keep land dedication and off-site development as alternative compliance options, and add acquisition/preservation as a third option. (State law requires that cities provide at least two alternative compliance options.)
‒ Remove in-lieu fees and the catch-all option for an applicant to propose other options not specifically listed. (The current BMR Program includes a catch- all provision that allows applicants to propose other options not specifically listed in the BMR Program.
The catch-all option allows innovative approaches but are complicated and time - intensive for staff to analyze because each one is unique.)
‒ Evaluate options other than the Consumer Price Index (CPI) as the escalator for annual in-lieu fee adjus tments. (The CPI may not reflect the true cost of developing and delivering a BMR unit.)
Housing Element Evaluation Criterion 5: Potential Cleanup in Guidelines/Policies/Procedures.
Discussion Summary:
• Council supported six cleanup items recommended by staff:
a. Requirements based on income levels designated to units:
Clarify that the calculations of rent and sales prices are based on the income levels associated with the BMR units and not the actual incomes of the households.
b. AMI level and associated income ranges:
The definitions for the income categories will be modified as follows:
o Very Low-Income is 50% AMI or less (no change)
o Low-Income is greater than 50% AMI up to 80% AMI
o Moderate-Income is greater than 80% up to 120%
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
c. Allowable annual rent increases for in-place tenants:
Set a 3% annual rent cap for in-place tenants.
d. Clarify that ownership projects can have a weighted average AMI equal to or less than 100% AMI.
Ownership projects can have a weighted average equal to or less than 100% AMI as long as the project includes an HOA reserve for BMR units designated as 80% AMI or less. (Currently, the BMR Program requires ownership projects to have a weighted average AMI equal to exactly 100% AMI. However, it is difficult for projects to meet 100% AMI exactly, especially for density bonus projects, which requires lower AMI levels.)
e. Update the administering department
References to Community Development and Director will be updated to reflect the Housing Department and Director. (The Housing Department is now the administering department for the BMR Program.)
f. Administrator of HOA reserve
The BMR Program will be updated to clarify that the applicant pays the HOA reserve to an administrator and not to the City. (The City is not and does not seek to be an HOA administrator.)
Other Input
Discussion Summary:
• Besides the five Housing Element criteria, staff asked Council if it had any additional input.
• Council asked staff to establish a rationale for BMR Program applicability to various sized projects, specifically for one- to six-unit projects, which are subject to payment of fractional in-lieu fees.
Two-Phase Ordinance Modification Process
Council asked staff to further evaluate the discussion items presented on December 12, 2023, and bring back options for additional discussion prior to preparing the Ordinance amendments for Council approval, which is the purpose of this Council item. However, items a through c in Criterion 5 were ready to be updated sooner.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Therefore, on February 25, 2025, staff introduced the first set of BMR Ordinance amendments focused on Criterion 5 clean-up items a through c , plus one additional item clarifying the definition of “residential development .” These amendments were necessary to advance the Housing Element requirements as expeditiously as possible by implementing the amendments that were ready. Additionally, t he amendments have enhance d project review and provide d developers greater clarity regarding key BMR requirements.
Tonight’s item is for Council to review re commended amendments for the remaining items discussed in December 2023, and are discussed in detail in the Analysis section below. Based on Council’s direction, remaining BMR ordinance amendments will be brought forward fo r Council consideration in Q1 2026 to complete the two-phase modification process.
Stakeholder Outreach
After the December 2023 Study Session, staff implemented the following outreach efforts to inform developers (primarily market-rate), service providers, and BMR homeowners of the BMR review process and receive input, with particular emphasis on physical design given its potential impact on development costs:
• May 2024: Service provider roundtable discussion regarding physical design.
• August 2024: Two Housing Department developer roundtable meetings.
• September 2024: Survey to developers regarding physical design.
• November 2025: Update at Community Development Department Roundtable.
• April 2025 – May 2025: Additional phone outreach to developers regarding physical design.
• May 2025: Second update at Community Development Department Roundtable.
• May 2025: August 2025: Outreach to developers to review construction costs.
• October 2025: Survey and outreach to BMR homeowners regarding HOA fees.
• Informal conversations with developers through discussions regarding their specific projects.
ANALYSIS
The Analysis section discusses in detail the remaining items from the Council direction provided in December 2023 , including physical accessibility of BMR units (Criterion 2) , additional alternative mitigation requirements including AFFH (Criterion 3 and 4), and remaining cleanup Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
items (Criterion 5). After the December 2023 Study Session , staff and the City’s consultant conducted due diligence, reviewed comparable jurisdictions, and evaluated options .
Additionally, staff have identified additional amendments for Council consideration, which will be discussed below.
Updated Pipeline Data
As noted in the Background section under Housing Element Criterion 1 and 2, the BMR program as updated in 2019 has been more effective in facilitating a greater number and diversity of BMR units than the prior version. Since it has been two years since the December 2023 Study Session, more current pipeline data is provided here to demonstrate that the 2019 BMR Program continues to meet the objective standard of facilitating inclusionary units rather than fees.
Table 2. Increase in BMR Units in Pipeline – 2023 to 2025* December 2023 November 2025 % Increase
BMR Rental Units 169 268 60%
BMR Ownership Units 46 72 57%
Total Pipeline 215 340 58%
*Does not include projects the have pursed or are pursuing alternative compliance or Builder’s Remedy . Numbers reflected in this table may differ from those presented in 2023 as some projects shifted from on-site BMR units to an alternative compliance.
Additionally, since December 2023, 30 new BMR rental units have been constructed, bringing the total number of BMR units in the City from 186 to 216.
Recommended Amendment: Housing Element Criterion 2 - Physical Accessibility of BMR Units
As discussed, Council supported s taff’s recommendation to focus Criterion 2 on options to increase the physical accessibility of BMR units. After the December 2023 Study Session, staff and the City’s consultant conducted extensive due diligence, 2 and found the following:
• In California, approximately 13% to 18% of low-income households have a physical impairment, such as hearing, visual, or ambulatory.3
2 Due diligence included: 1) Stakeholder meetings and one-on-one interviews, including with public service providers (such as those receiving Community Development Block Grant (CDBG) funding from the City, including Silicon Valley Independent Living Center and Rebuilding Together Peninsula) and market -rate and affordable developers; 2) Internal review with the Community Development Department and the Building Division to review building code requirements, universal design options, information from the State Housing and Community Development Department, etc.; 3) Online survey (who, when, how many respondents); 4) Roundtable ; 5) Research on rate and types of disabilities experienced by low-income households; and 6) Administrative impact in City staff.
3 HCD People with Disabilities People with Disabilities | California Department of Housing and Community Development (September 26, 2025)
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
• Current State building code s – which includes relevant federal requirements – already mandate comprehensive requirements to address physical accessibility for new residential projects including multi-family projects, such as sinks that are mounted no higher than 34 inches or doors that can swing a minimum of 90 degrees, in a subset of units within a project designated as “accessible.”
• Additional accessibility features beyond State and federal requirements can vary greatly in scope and cost, there is no ‘one-size fits all’ approach . Staff received developer input that the desire for a dditional accessibility features would likely need to be optional and paired with incentives to encourage developer participation. While some developers opt to incorporate additional features upfront on a voluntary basis , other developers may opt to construct the units in a manner that would allow them to be adapted and have features installed after the units are occupied, i.e., an “adaptable” unit.
• Some smart-home features such as smart lights or plugs are low-cost features that can be installed by the household, which can be particularly impactful for seniors and persons with disabilities.
• There are administrative challenges of implementing additional City requirements for accessibility features beyond State or federal requirements. For example, Assembly Bill (AB) 130 prohibits local amendments to residential building standards that exceed state minimums until 2031. Additionally, implementing BMR-specific code changes to require more accessibility features may increase development costs and be more complex to administer, placing additional burden on staff’s already limited capacity during the building permit and plan-check review processes.
In sum, State and federal accessibility requirements are already comprehensive, adding local requirements may be challenging or infeasible at this time, and approximately 13% to 18% of low-income households have a disability. As such, to the extent that a developer designates units within a project as “accessible” or “adaptable,” staff recommends amending the BMR Ordinance to require that 15% of the total BMR units in a project or one (1) BMR unit, whichever is greater, be part of the designated units. This streamlined approach would ensure that at least one accessible or adaptable BMR unit is available in a project, would not increase development costs, and would be administratively easier to incorporate into the City’s review process than creating additional requirements beyond what is already required in State/federal codes and laws.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Recommended Amendment: Housing Element Criterion 3 and 4 – Additional Requirements for Alternative Means of Compliance
As discussed in the Background section, Housing Element C riterion 3 and 4 focus on BMR Ordinance amendments related to additional requirements – including AFFH criteria – that an applicant/developer (terms to be used interchangeably) must meet if an alternative means of compliance is proposed. These changes will allow the BMR Program to better align with State requirements, provide greater clarity for applicants /developers, and require applicants to provide City staff comprehensive, necessary information to sufficiently review a development application in compliance with the BMR Program and State streamlined review requirements.
The following general requirements will be made to apply to the alternative means of compliance section of the BMR Ordinance:
• Add acquisition/preservation of existing housing units – including those covered under the CSFRA – to the list of options.
• Remove in-lieu fees and the catch-all option from the list of alternative compliance options.
• Clarify that alternative means of compliance apply to both rental and ownership projects.
• Clarify that the value of an applicant’s alternative compliance proposal be no less than the value of providing the units on- site, whereas the c urrent BMR Program requires alternative compliance options to deliver greater value than on -site units. Although in-lieu fees will no longer be an option for applicants, the fees will still remain as part of the BMR program and updated annually to be used as the method by which to calculate the value that an alternative compliance proposal needs to meet via land dedication, off-site development, or acquisition/preservation.4
• An applicant’s proposal must demonstrate how the proposed alternative compliance facilitates mobility and access to opportunity to meet AFFH requirements.
• An applicant must contribute financial resources to facilitate the proposed alternative compliance proposal, especially if any proposal includes a partnership with another party, such as an affordable housing developer, community land trust, etc., in order to develop the affordable housing in compliance with the BMR requirements . An applicant’s contribution shall include the full value of the land in perpetuity, as well as other resources if needed, such
4 The in-lieu fee represents the subsidy needed to produce a BMR unit. The fee amount is the difference between the cost to develop a BMR unit and the economic value of the BMR unit to a developer. This approach sets the in- lieu fee at a level where the cost of the fees is economically equivalent for a developer to build the BMR unit, which increases the likelihood of achieving the BMR Program’s objective standard of producing units instead of receiv ing fees.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
as providing their own funding in addition to the land, securing new sources such as through partnerships with foundations, tech funding, etc., or other methods. This aligns with the fact that an applicant would have had the responsibility to finance the construction of on- site BMR units.
• If an applicant proposes a partnership with another entity such as an affordable housing developer, t he proposal shall also affirm that : the partner will not provide any monetary compensation to the applicant, such as a ground lease payment or other payment, for costs that the applicant should bear; that the partner will only bear their portion of costs related to the affordable u nits; and that the applicant shall not shift any of its own financial responsibility or development costs related to the market-rate project onto their partner.
• Developers must submit a complete Below Market Rate Compliance Plan (Compliance Plan) as part of their formal development application . This includes a detailed description of the proposed alternative means of compliance , provision of required documentation and attachments, sufficient economic contribution by the developer to successfully deliver the BMR project, comprehensive proforma/financing plan and feasibility analysis and demonstration that the alternative compliance achieves an equivalent value that would have been provided with on-site BMR units. A complete Compliance Plan with quality information provided at the beginning of the formal application process is necessary to ensure that the City has the information and time to review the Project, especially given State r equirements for streamlined review of development applications.
Note that during the December 2023 Study Session, Council approved staff’s recommendation to include a fee that an applicant must pay if they wi sh to propose an alternative compliance option instead of building on -site BMR units integrated with market- rate units. Based on experience with recent projects, alternative compliance proposals are complicated to evaluate and require significantly more staff time than evaluating a project that includes on -site BMR units. Therefore, the master fee schedule was updated for FY 2025-26 to include a cost-recovery fee ($32,000) that an applicant must pay if they propose an alternative compliance instead of building the on-site BMR units. The cost-recovery fee will be escalated annually by CPI.
Specific Requirements for Land Dedication
In addition to general alternative compliance requirements, staff recommends additional requirements for the land dedication option specifically , consistent with Council direction from the December 2023 Study Session.
Table 3 provides a summary of existing criteria for a land dedication proposal that applicants need to meet, and staff recommendations for new/updated criteria identified in bold text.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Table 3: Existing and Recommended New Criteria for Land Dedication Proposals Standard Requirement Rationale
Parcel Size and
Capacity
(Existing - no
changes)
‒ Applicant must demonstrate that the
site can reasonably accommodate the
required number and mix of units
under the base density allowed;
minimum parcel size of 0.75 acres.
‒ Ensures that the site can
deliver the equivalent
number of units as the
on-site unit requirement.
Location (new) ‒ Meet one of the following:
o Within ½ mile of the primary
project
o South of El Camino Real
o In El Camino Precise Plan
o In HCD-designated “Highest
Resource Area”
‒ Advances AFFH goals.
Environmental
Conditions
(Existing – no
changes)
‒ Applicant to submit environmental
conditions reports including, but not
limited to, Phase I and Phase II
‒ Must perform any necessary
remediation prior to conveyance
‒ Ensures site is free from
contamination and risk.
Places the financial
responsibility onto
developer rather than the
City.
Special
Conditions
(Existing – no
changes)
‒ Applicant must submit a
comprehensive budget
demonstrating dedicated site is not
subject to any conditions when
compared to the site of the primary
market-rate residential development
that would create higher cost
burdens for affordable housing
development (e.g., poorer soil
conditions).
‒ Ensure the dedicated site
offers comparable
development conditions
to the main project site
and does not impose
disproportionate costs.
Site
Infrastructure
(Existing – no
changes)
‒ Applicant shall provide or fund all
infrastructure necessary to serve the
site—including utilities, streets,
sidewalks, and lighting—and be
consistent with Precise Plan
standards (if applicable).
‒ Ensures the parcel is fully
serviceable,
development-ready and
that the cost of site
infrastructure is not
passed on to the City.
Feasibility and
Financing Plan
(new)
‒ Applicant must submit a feasibility
and financing analysis with their
Compliance Plan that:
‒ Facilitates staff review of
project feasibility and
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Standard Requirement Rationale
‒ Demonstrates the value of the
alternative compliance aligns with
the in-lieu fee equivalency.
‒ Includes a City-led appraisal.
‒ Provides a comprehensive pro
forma, including secured or potential
funding/financing.
‒ Identifies any additional developer
contribution, if applicable.
adequacy of developer
contribution(s).
Cost Recovery
(new)
‒ Applicant shall provide a financial
contribution ($950,000) to offset the
City’s estimated cost of soliciting,
selecting, and negotiating with an
affordable housing developer.5
‒ Cost recovery for staff
time and other
administrative costs
associated with a land
dedication project, such
as developer selection
process.
Timing of Land
Dedication
‒ Dedicated site and any required
contribution must be transferred to
the City prior to the issuance of the
first building permit for the entire
residential development.
‒ Ensures the alternative
compliance obligation is
met upfront consistent
with past practice.
Specific Requirements for Off-Site Development
Table 4 provides a summary of existing criteria for an off -site development proposal that applicants need to meet, and staff recommendations for new criteria in alignment with Council direction. Additionally, the new criteria are informed by learnings from recent projects that have included off-site development of BMR units, such as The Sevens and 685 W. Middlefield.
5 Although this is a new requirement, this cost recovery contribution has already been implemented as part of the Fiscal Year 2025-26 Master Fee Schedule update.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Table 4: Existing and Recommended New Criteria for Off-Site Development Proposals Standard Requirement Rationale
Location (updated) Meet at least one of the following:
‒ Adjacent to market-rate project
(same or separate parcel okay)
‒ Within ½ mile of market-rate
project
‒ South of El Camino Real
‒ In El Camino Precise Plan
‒ In HCD-designated “Highest
Resource Area”
‒ Advances AFFH goals.
Suitability (existing -
recommend deleting)
The proposed BMR units must be
deemed suitable by the City based
on
‒ location,
‒ type of project,
‒ number of units/bedrooms,
‒ compliance with BMR
requirements,
‒ adjacent uses,
‒ comparability to market-rate
units, and
‒ other planning criteria.
‒ These requirements
have been folded into
other criteria.
Access to Amenities
(new)
If located within 750 feet of the
primary project parcel boundary,
off-site residents must be granted
access to shared amenities at the
market-rate site.
‒ Meets AFFH goals.
Unit Requirement
(updated)
At least 15% of the market-rate units
in the primary project must be
provided as off-site BMR units with
comparable or improved
proportionality.
‒ Reduced from 20% to
align with on-site
requirement of 15%.
‒ Proportionality
requirement achieves
comparable or
improved off-site
development value
relative to on-site BMR
units.
Affordability Term
(new)
Off-site units must remain
affordable in perpetuity, unless a
‒ Perpetuity aligns with
BMR provisions but
provides flexibility
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Standard Requirement Rationale
shorter term is required by a
funding source.
depending on
requirements of other
funding sources (such as
tax credits).
Feasibility and
Financing Plan (new)
Applicant must submit a feasibility
and financing analysis with their
Compliance Plan that:
‒ Demonstrates the value of the
alternative compliance aligns
with the in-lieu fee equivalency.
‒ Identifies any developer
contribution to make project
feasible (such as full
contribution of land, equity,
securing other
funding/financing).
‒ Provides a comprehensive pro
forma showing secured or
viable financing.
‒ Confirms no City financial
contributions are required.
‒ Review project
feasibility.
‒ Requirement of not
relying on City funding
ensures that the City is
not financially
responsible for
providing the affordable
units that the developer
would otherwise have
been fully responsible
for providing on-site.
Off-site developer
partner (affordable
housing developer)
(new)
If the developer opts to partner
with an affordable housing
developer, the Compliance Plan
must demonstrate:
‒ the developer’s financial
contributions
‒ terms offered to the partner
‒ process for partner selection
and
‒ partnership / agreement
structure (Joint Venture
Agreement, Partnership
Agreement, MOU, etc.).
‒ Allows City to evaluate
adequacy of developer
contribution and
partnership structure in
alignment with
approved project
requirements.
City oversight of
developer partnership
(new)
‒ The City shall review and
approve the financing terms of
the partnership structure to
ensure alignment with program
requirements and equitable
cost distribution.
‒ Ensures alignment with
approved project
requirements.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Standard Requirement Rationale
‒ If developer elects to select a
partner through a Request for
Proposals process, City shall
review and approve the RFP.
Timing of delivery
(updated)
‒ The off-site BMR units shall be
completed and receive the
Certificate of Occupancy no later
than issuance of the Certificate of
Occupancy for the market-rate
units.
‒ Failure to deliver the off-site
units will default the market-
rate project to the on-site 15%
BMR requirement.
‒ Ensures off-site units
are delivered
concurrently with
market rate units.
Specific Requirements for Acquisition/Preservation
The acquisition and preservation of existing housing units , and converting the units into deed- restricted affordable housing, is an allowable alternative compliance option under State law as referenced in AB 1505, which passed in 2017 and reaffirmed the authority of local jurisdictions to implement BMR programs . In December 2023 , Council directed staff to add this option and evaluate how to structure the program.
Staff reviewed acquisition and preservation programs in compar ison jurisdictions (San Jose, Cupertino, Sunnyvale, Palo Alto, and Redwood City ) to identify best practices , options, and feasibility and financing approaches to inform recommendations for Council consideration .
Additionally, staff reviewed the preservation and conversion of 660 Mariposa, which was covered under the CSFRA, into permanent deed- restricted affordable housing to satisfy the BMR requirements of the market- rate development at 1720 Villa Street (now known as The Tillery) .
Table 5 summarizes staff recommendations for this new alternative compliance option (no bold font is used because the entire option and table are new).
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Table 5: New Criteria for Acquisition/Preservation Proposals Standard Requirement Rationale
Eligibility Developers may fulfill BMR
obligations by acquiring existing,
unrestricted residential units off-site,
rehabilitating them to required
standards, and recording long-term
affordability covenants.
‒ Units may be rental or
ownership, consistent with the
tenure type of the market-rate
project.
‒ Per Council direction
from December 2023
Study Session.
‒ Can help address tenant
displacement.
Location Meet one or more of the following:
‒ CSFRA units
‒ Within ½ mile of market-rate
project
‒ South of El Camino Real
‒ In El Camino Precise Plan
‒ In a HCD-designated “Highest
Resource Area.”
‒ Advances AFFH goals and
Housing Element 2.6 to
facilitate affordable
housing in and mobility
to highest resource
neighborhoods.
Rehabilitation and
Physical Accessibility
Assessment and
Standards
Compliance Plan must identify:
‒ Building- and unit-level
assessments of existing
conditions.
‒ Identification of required
rehabilitation, repairs, or
replacements, including seismic
retrofits and accessibility
requirements, based on
applicable State and local
requirements.
‒ Soft-story buildings must be
retrofitted for current seismic
compliance based on the
assessment.
‒ Improvements that make
acquired units comparable to the
quality of on-site BMR units that
would have otherwise been
provided.
‒ Estimated rehabilitation costs.
‒ Ensures housing quality,
habitability, long-term
physical viability, and
comparability with on-
site BMR units.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Standard Requirement Rationale
Affordability ‒ Rental: Average affordability at or
below 65% AMI; max 80% AMI.
‒ Ownership: Average affordability
at or below 100% AMI; max 120%
AMI.
‒ Same affordability levels
as on-site BMR units.
Unit Count /
Bedrooms
‒ Acquired units must meet or
exceed bedroom count of on-site
BMR units that would have
otherwise been provided.
‒ Studios count as 0.5 bedrooms.
‒ Total number of acquired units
cannot exceed 1.5 times the
required number of BMR units.
‒ Acquisition projects
typically involve older
building, usually with
smaller units relative to
new projects.
‒ 1.5 unit cap balances
flexibility for applicant
while achieving bedroom
count equivalency in a
manner that does not
result in City receiving
disproportionate number
of small units relative to
market rate mix.
Term ‒ Off-site units must remain
affordable in perpetuity, unless a
shorter term is required by a
funding source.
‒ Perpetuity aligns with
BMR provisions but
provides flexibility
depending on
requirements of other
funding sources (such as
tax credits).
Off-site developer
partner (affordable
housing developer)
If the developer opts to partner with
an affordable housing developer, the
Compliance Plan must include:
‒ Developer’s financial
contributions
‒ Terms offered to the partner
‒ Process for partner selection and
partnership / agreement
structure (Joint Venture
Agreement, Partnership
Agreement, MOU, etc.).
‒ Allows City to evaluate
adequacy of developer
contribution and
partnership structure in
alignment with approved
project requirements.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Standard Requirement Rationale
City oversight of
developer
partnership
‒ City shall review and approve the
financing terms of the
partnership structure.
‒ If developer elects to select a
partner through a Request for
Proposals process, City shall
review and approve the RFP.
‒ Ensures alignment with
approved project
requirements.
Feasibility and
Financing Plan
Applicant must submit a feasibility
and financing analysis with their
Compliance Plan that:
‒ Demonstrates the value of the
alternative compliance aligns
with the in-lieu fee equivalency.
‒ Identifies any developer
contribution to make project
feasible (such as full contribution
of land, equity, securing other
funding/financing).
‒ Provides a comprehensive pro
forma showing secured or viable
financing.
‒ Confirms no City financial
contributions are required.
‒ The City may, at the applicant’s
expense, retain a consultant to
review the reasonableness plan.
‒ Review project
feasibility.
‒ Requirement of not
relying on City funding
ensures that the City is
not financially
responsible for providing
the affordable units that
the developer would
otherwise have been
fully responsible for
providing on-site.
Relocation Assistance
and First Right to
Return
‒ Developers must provide
relocation assistance and first
right to return consistent with the
City’s Tenant Relocation
Assistance Ordinance (TRAO).
‒ Mitigates existing
tenants from hardship
during rehabilitation,
prevents displacement
and aligns with the City’s
fair housing and tenant-
protection goals.
Timing ‒ Complete all required
rehabilitation work and obtain
Certificates of Occupancy no later
than the market-rate project’s
Certificate of Occupancy.
‒ Ensures timely delivery
of affordable units
concurrent with market-
rate development.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Recommended Amendment: Housing Element Criterion 4 – In Lieu Fee Adjustments
Annual Escalator
Council directed staff to review whether there is a different escalator that should be used to annually adjust the in-lieu fee. Currently, the fee is adjusted using the Consumer Price Index (CPI), which tracks the change in the price of a basket of consumer goods and is unrelated to the cost of construction. Staff and the City’s consultant reviewed other escalators/indices and identified the California Construction Cost Index (CCCI) as the most accurate index to calculate annual adjustments to the in -lieu fee. The CCCI reflects changes in labor and material costs for construction projects, which is better aligned with the purpose and methodology of calculating the in-lieu fees.
6 Therefore, staff recommends utilizing the CCCI escalator moving forward.
In-Lieu Fee Update
As part of the recommendation to use the in- lieu fee as the methodology by which to calculate the value of alternative compliance proposals, staff and City consultant reviewed the in -lieu fee amount itself. The current in-lieu fee schedule using the “equivalency methodology” previously discussed was based on economic and financial conditions in 2019 when the BMR Program was last updated. Since that time, the in-lieu fee amounts have changed, as shown in Table 6 below, due to a combination of COVID-19 impacts, changes in construction costs and financing terms, changes in rents and sales prices, increases in State income level assumptions, and other factors.
Staff recommends including the updated fee amounts in the next Master Fee Schedule update.
Table 6: Current and Recommended BMR In-Lieu Fees for
Calculating Value of Alternative Means of Compliance
6 DGS California Construction Cost Index CCCI indicates that the CCCI increased by 54% from August 2018 to August 2025, while the Consumer Price Index for the San Francisco Area increased only 24% during this same period.
Housing Typology
Current In-Lieu Fees in
City Master Fee Schedule
(2025)
Recommended
Update to
In-Lieu Fee
% Change
Rental Housing $118/net new
habitable sq. ft.
$98/net new
habitable sq. ft.
17% decrease
Ownership - Rowhome/
Townhomes
$153/net new
habitable sq. ft.
$118/net new
habitable sq. ft.
23% decrease
Ownership - All Other
Projects
$67/net new
habitable sq. ft.
$91/net new
habitable sq. ft.
36% increase
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Recommended Amendment: Housing Element Criterion 5 – Remaining Clean-up items
As noted in the Background section, the City completed the first phase of the two -phase BMR Ordinance amendment process by implementing three clean-up items in February 2025. Two of the remaining three clean-up items will be implemented in this second phase, as follows:
• Clarify that ownership projects can have a weighted average equal to or less than 100% AMI.
• Update the administering department from Community Development to Housing.
However, staff recommends that the remaining clean-up item – clarifying that the City is not the administrator of the HOA reserve – be removed from the amendment process. As discussed below, staff recommends that the HOA reserve requirement itself be removed from the BMR Program. If Council agrees with this recommendat ion, there will be no HOA administrator and therefore, no need to clarify the City’s role.
New Recommended Amendments
Since the December 2023 Study Session , staff have identified the following additional amendments for Council consideration:
• Remove the HOA Reserve Fund from the BMR Program.
• Update the BMR Guidelines administratively.
• Establish a rationale for small projects and incorporate a graduated fee reduction for such projects.
• Evaluate moving the BMR Ordinance from Chapter 36 (Zoning Code) to Chapter 46 (Housing- related Ordinances).
Remove the HOA Reserve Fund
When the BMR Program was updated in 2019, staff received stakeholder input that very-low and low-income households have challenges sustaining homeownership due to annual increases in HOA fees. As a result, Council approved staff’s recommendation to add a requirement for developers of ownership housing to provide an “HOA Reserve Fund” if they choose to incorporate very-low and /or low-income BMR units in their project. 7 The HOA Reserve Fund would cover future increases in HOA fees should the household’s income fail to increase at a sufficient rate to cover the higher expense.
7 The BMR Program does not require very low- or low-income ownership units. However, an applicant may choose to include such units to meet other requirements such as those in the State Density Bonus Law, which would trigger the HOA Reserve Fund requirement.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
In 2023, the Governor signed Assembly Bill (AB) 572, which went into effect on January 1, 2024.
The intent of AB 572 is to protect owners of deed -restricted affordable housing units from excessive HOA fee increases , which could make homeownership unsustainable for low- income households. AB 572 restricts an HOA board from imposing an increase in a regular assessment on a deed-restricted ownership unit that exceeds 5% plus the percentage change in CPI, capped at a 10% maximum increase.
The City’s consultant and staff conducted in -depth analysis to determine if AB 572 sufficiently addresses the policy concern that the HOA Reserve Fund is intended to address. While there are many variables and circumstances that can impact the analysis, staff’s conclusion is that AB 572 appears to be generally sufficient in addressing excessive annual increases in HOA fees .
Additionally, staff have received feedback from developers that the HOA Reserve Fund can impact project feasibility, which could limit the supply of new ownership housing.
Therefore, staff recommends removing the HOA Reserve Fund requirement from the BMR Program. This also means that the sixth and final clean -up item discussed above – clarifying that the City is not the administrator of the HOA reserve – is no longer needed.
Administrative Updates to the BMR Program Guidelines
The BMR Program currently stipulates that the BMR Administrative Guidelines (Guidelines) necessary for the implementation of the Ordinance be adopted by resolution (Section
36.40.10(j)). By extension, this requirement would extend to amendments to Guidelines.
Staff recommends removing this resolution requirement and allowing periodic Guideline s updates to occur administratively as long as the updates remain consistent with the intent and purpose of the BMR Ordinance. An administrative process would enable staff to more efficiently incorporate operational adjustments, clean-ups, and clarifications, including those necessitated by changes in State or federal laws. Additionally, allowing staff-level edits would promote greater responsiveness and consistency with other City guidelines. For example, the City’s Density Bonus Guidelines is administratively prepared, adopted, and periodically updated.
Establish a rationale for small projects & incorporate a graduated fee reduction for such projects.
• Rationale for small projects
In December 2023, the City Council establish a rationale for BMR Program applicability to various sized projects, specifically small projects with one (1) to six (6) units, which are subject to payment of fractional in-lieu fees.
As mentione d, AB 1505 was signed into law in 2017. The bill declared that inclusionary housing programs, i.e., such as local BMR Programs, have been a historically effective means Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
of producing affordable housing and reaffirmed th e authority of local jurisdictions to implement BMR programs, particularly related to rental projects.
The City’s BMR Program requires all r esidential developments with one or more units to contribute towards the creation of affordable housing. While the objective standard of the City’s program is the production of BMR on-site units, the BMR Program provides alternative means of compliance, including fractional in-lieu fees for small projects with one to six units.
The rationale for small projects to be covered by the BMR Program is the same rationale as for larger projects : that a residential development of any size can contribute towards increasing the supply of affordable housing. Including projects of any size is the most comprehensive way of meeting this intent. Staff recommends continuing with the BMR Program as stipulated in the Housing Element, including the applicability of the BMR program for small projects, with the following points:
‒ Because the focus of recent State laws and the City’s development plans , such as various Precise Plans, has been to facilitate multi -family construction, single -family homes inherently comprise a small percentage of the total volume of development activity in the City. Since 2022, there have been 32 single family homes constructed that are part of small development projects, which were not deterred by the fractional in-lieu fees.
‒ The BMR Program implements a fractional in-lieu fee methodology for small projects, which is at a significant discount to the standard in-lieu fees (85% discount). This is in recognition that small projects lack economies of scale that larger projects may have and can be more challenging to absorb fees. This discount is also appropriate because small projects are not big enough to generate even a single BMR unit. Therefore, a discounted fee for small projects is not in conflict with the BMR Program’s objective standard to create on-site BMR units.
‒ The 32 single family homes have generated approximately $800,000 in fee revenue for the City. While this is not an extraordinary amount, it still represents a meaningful resource to invest in affordable housing programs, especially given limited external funding and the City’s own funding gap. This funding amount is similar to recent grant programs that the City has applied for and received to support homeownership and other projects.
Therefore, staff believes that applying the BMR Program to small projects using the fractional in-lieu fee methodology achieves an appropriate balance of project feasibility while generating meaningful resources to facilitate affordable housing. This is especially so given Council’s direction to remove the standard in -lieu fees as an option for projects with seven or more units.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
• Incorporate a Graduated Fee Reduction for Small Projects
Notwithstanding the above discussion, staff recommends incorporating an additional fee reduction for small projects between one and six units using a graduate d fee reduction methodology.
The purposes of the graduated fee reduction are to:
‒ Incentivize developers of small projects to maximize the development potential of their sites, including small-scale infill development and R1 sites zoned for one single- family unit.
‒ Further Housing Element Goal 2.2 - Pilot ADU & SB9 Financial Incentives Program. A graduated fee reduction could maximize the use of lot splits enabled by State legislation, such as Senate Bill (SB) 9, and achieve incrementally mor e new housing supply than without the graduated reduction.
Table 6 below provides an illustrative example of the graduated fee reduction, comparing the total and per unit fractional fee amount for projects from one to six units with and without the graduated reduction. The dashed column on the right -hand side of the table demonstrates the per-unit savings to a developer, incentivizing more units on an infill/R1 site.
Table 7: Example of Graduated Fee Reduction
Number of
units*
Graduated
Reduction
Without reductions With reductions
Total Fee Fee Per unit Total Fee Fee Per unit
1 0% (full fee) $22,136 $22,136 $22,136 $22,136
2 20% $44,273 $22,136 $35,418 $17,709
3 40% $66,409 $22,136 $39,846 $13,282
4 60% $88,546 $22,136 $35,418 $8,855
5 80% $110,682 $22,136 $22,136 $4,427
6 100% (No fee) $132,818 $22,136 $0.00 $0.00
*Each unit is 2,200 square feet for the purposes of this example.
Staff also recommends structuring the graduated fee exemption for small projects in a manner that does not incentivize a developer to build less than they could have otherwise on a site. For example, if a site allows 7 units to be built, which would require one on-site BMR unit (based on the 15% requirement), the graduated fee reduction would not be allowed if the developer opted to build only 6 units, thereby avoiding producing a BMR unit or paying any fractional fee.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Evaluate moving the BMR Ordinance from Chapter 36 to Chapter 46
The City is reviewing the City Code as part of the Fiscal Year 2025-27 Council Strategic Workplan to clean up the City Code. As part of this process, Chapter 46 is expected to consolidate various housing-related ordinances. Currently, Chapter 46 only contains the Mobile Home Rent Stabilization Ordinance (MHRSO). In December 2025, Council will be considering approving the introduction of amendments to the Tenant Relocation Assistance Ordinance (TRAO), including moving the TRAO from Chapter 36 (Zoning Code) to Chapter 46.
Similarly, staff recommends evaluating moving the BMR Ordinance from Chapter 36 to Chapter 46 to consolidate it with the TRAO and MHRSO and make it easier for developers to find housing- related ordinances in the same chapter . Additionally, the Housing Department administers the BMR Program. Relocating the BMR Ordinance from the zoning code would better reflect its administrative and financial nature, streamline amendment procedures, and align oversight with the Housing Department. Other jurisdictions, such as the City of San Jose , have included their inclusionary housing program within a housing -related chapter in their City Code instead of the Zoning Code.
Staff intends to evaluate whether moving the BMR Ordinance from the Zoning Code will have any impact on the City’s authority to implement the Ordinance. If staff finds that moving the BMR Ordinance from Chapter 36 to Chapter 46 will still enable the City to implement the Ordinance, staff recommends incorporating this change when the Ordinance amendments are brought forward for Council consideration, currently anticipated for end of Q1 2026/early Q2 2026.
FISCAL IMPACT
There is no fiscal impact with providing policy direction to staff for BMR Program updates.
Modifications to the alternative compliance, such as removing fees, may result in less BMR in - lieu fee revenue. Although this could make it more challenging to provide subsidies to fully affordable housing developments, the intent of the program is that affordable units would be delivered through the BMR program itself.
LEVINE ACT
California Government Code Section 84308 (also known as the Levine Act) prohibits city officials from participating in any proceeding involving a “license, permit, or other entitlement for use” if the official has received a campaign contribution exceeding $500 from a party, participant, or agent of a party or participant within the last 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website:
www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
Please see below for information about whether the recommended action for this agenda item is subject to or exempt from the Levine Act.
EXEMPT FROM THE LEVINE ACT
☒ General policy and legislative actions
CONCLUSION
The City’s BMR Program as modified in 2019 has been effective in increasing the supply and diversity of affordable housing in Mountain View. The recommended amendments discussed in this memo will enhance the efficacy of the BMR Program by incorporating new requirements for physical accessibility, alternative means of compliance, remaining clean -up items, and new recommended amendments that were identified after the December 2023 Study Session. At the same time, the recommended amendments will enhance development feasibility by increasing the clarity of the BMR Program and reducing costs in key program areas.
ALTERNATIVES
1. Modify or do not approve the recommended amendments.
2. Provide other direction.
NEXT STEPS
Staff will incorporate the Council’s feedback and bring BMR Ordinance amendments forward as follows:
Table 8: BMR Ordinance Amendment Process
Council/Commission Agenda Section Topic Anticipated date Environmental
Planning Commission
Public Hearing Draft Ordinance Early-Mid Q1 2026
City Council Public Hearing Ordinance introduction
(first reading)
Late Q1 2026
City Council Consent Ordinance adoption
(second reading)
Early Q2 2026
The next BMR Program review will occur in 2028 to meet the second review deadline stipulated in Housing Element Program 1.9.
Recommended Amendments to the Below Market Rate Housing Program – Housing Element Program 1.9 November 4, 2025
PUBLIC NOTICING
Agenda posting, and email notification to City Housing Element interest list and developer distribution list.
Prepared by:
Anna Reynoso
Housing Specialist II
Julie Barnard
Affordable Housing Manager
Wayne Chen
Housing Director
Approved by:
Kimbra McCarthy
City Manager