Hidden fees hinder Palo Alto housing program, audit shows

Palo Alto’s effort to assist people in purchasing affordable homes is hindered by a significant supply shortage and a laundry list of hidden fees that place these residences out of reach for many potential buyers, according to a new report from the City Auditor’s Office.

The Below Market Rate Housing Purchase Program covers a small subset of the city’s affordable housing strategy — about 10% of all existing affordable homes — and was the primary subject of the audit report conducted by Kate Murdock with consulting firm Baker Tilly, which acts as the city auditor. As a general rule, new for-sale housing developments coordinate with Palo Alto on an affordability plan, which may include setting aside below market rate homes or paying in-lieu fees that go toward a broader affordable housing fund.

The initial sale price is set by the director of the Planning and Development Department, and from there nonprofit organization Alta Housing solicits buyers based on a waitlist, with preference given to those who live or work in Palo Alto already.

There are 247 active below market rate ownership homes in Palo Alto, the audit found. Construction of these homes has been uneven, however, and the vast majority were built before the turn of the century.

In the 2010s, zero below market rate ownership homes were built, in part due to legal challenges against inclusionary housing requirements, City Attorney Chris Jensen told the council Policy and Services Committee on Oct. 13, which discussed the findings at its regular meeting.

“The big zero there jumped out at me,” Councilmember Keith Reckdahl said.

Committee Chair Julie Lythcott-Haims noted that the 2010s also included the ill-fated Maybell Avenue development that voters overturned in 2013. While that project would not have been for below market rate ownership homes, Lythcott-Haims said it represented “an era when the city mindset, mentality and value system seemed to be swaying toward less development.”

Below market rate ownership production started up again this decade and the city has constructed 15 more of these homes as of 2025.

Murdock noted that while the below market rate housing program does not itself create new housing, city policy can instead improve retention and long-term affordability of the homes that fall under the program.

One of the biggest takeaways from the audit was the lack of transparency around HOA fees, which can burden low-income residents who purchase an affordable unit. Michelle Kraus, who chairs the Human Resources Commission, suggested during the public comment period that the city consider subsidies or other policy measures to offset the HOA costs.

“It is becoming an issue of retention,” Kraus said. “It has been 20 years since subsidies have been offered, and we’re in a tremendously difficult financial time right now.”