Major Los Gatos project promised 270 affordable apartments. Only 50 are happening.

The town of Los Gatos learned a tough lesson when it placed a big bet on the North 40 project to deliver affordable housing.

One of the oldest jurisdictions in Santa Clara County, Los Gatos is made up of 71% single-family homes with a median price of $2.1 million on the current market.

Construction of below-market rate housing often falls short. Under the current housing cycle between 2015 and 2023, as mandated by the state, Los Gatos has to add total 619 units. So far, the town approved 279 units—52% of which are market rate units. That’s a total of 146 market rate units, 81 moderate income units, 49 very low-income units and three low-income units approved during this period.

“We have, at best, a handful of very low-income units in Los Gatos, so this is a tremendous improvement over what we’ve created over the last 20 years,” Vice Mayor Rob Rennie told San José Spotlight.

Los Gatos officials in 2015 promised at least 270 affordable housing units from one of the town’s largest projects — North 40 — to address a housing crisis that has priced many out of the upscale town. But as of this year, the project will only provide 50 below market rate apartments for seniors — falling far short of what the town envisioned and needed for its housing goal.

Slanted for the east side of town, the 44-acre mixed-use housing development, North 40, was decades in the making and touted as a game changer. The property was the last privately-owned orchard grove in the area. Rows of walnut groves still lined a portion of Los Gatos Boulevard and caught the eyes of commuters on Highway 17.

When a developer submitted a plan in 2016 with only a fraction of the housing below market, the town voted it down. The developer, Grosvenor, sued and won. When the town council was mandated to rescind its rejection and approve the plan, the outcome was a bitter pill to swallow.

Santa Clara Superior Court judge Drew Takaichi ruled in favor of the developer saying the proposal already satisfied the total  number of required housing units.

“That was a lesson for Los Gatos,” Mayor Marico Sayoc told San José Spotlight. “You can specify your desires. But ultimately, you could not impose more than what is in policies and regulations.”

The project has moved forward but affordable housing wasn’t in the North 40 blueprints.

A lesson learned

The desirable North 40 area is bounded by Lark Avenue, Los Gatos Boulevard and Highways 85 and 17. It was once home to a walnut orchard that was predominately owned and operated by the Yuki family in Los Gatos.

The property sat empty for decades, but chatter about development began when the owners started working with Grosvenor, one of the world’s largest development firms, to build a village-style mixed-use project in 2008.

The town spent years crafting the North 40 Specific Plan, a land-use document that guided the development to ensure the massive housing project would fit into Los Gatos’ small town character. The plan was adopted in 2015, allowing developers like Grosvenor to bid for the project.

In 2016, Grosvenor proposed a plan to build as many as 320 housing units, including 50 low-income units for seniors, and 66,000 square feet of retail on about 20 acres of the site. SummerHill Homes would tackle the market rate housing, and Eden Housing would build the senior units, according to the proposal.

The proposal was not without opposition and delays. Grosvenor faced fierce backlash from hundreds of residents with the group “Town not City,” who said adding that much new housing would strain the town’s already overcrowded school system and worsen traffic jams. They worried about the “look and feel” of the project.

Before adopting the specific plan for North 40, Los Gatos had planned for 156 very low-income units, 84 low-income and 30 moderate units at the North 40 project in its housing element—a document mandated by the state that details the town’s housing needs and its plan to address those needs.

The Grosvenor’s proposal fell far short of the town’s affordable housing plan, Los Gatos councilmembers said. The council voted 3-2 to reject the plan in 2016, citing opposition from hundreds of residents and the town’s desire to see housing units spread out more.

Grosvenor argued that the proposal to include 50 senior, affordable units already met the town’s inclusionary policy, which requires developers to carve out 20% of new units for below market housing. The other reasons, it said, were subjective issues that were not ground for a rejection. 

The developer sued—and won—with more than 200 affordable units no longer part of the project. Judge Takaichi noted that the town can only reject a development based on specific plan and zoning standards, forcing Los Gatos to reconsider the project. The council then approved the number of units as proposed, effectively ending Los Gatos’ pipe dream of building hundreds of affordable units..

Many changes

The North 40 project under development still has a total of more than 300 housing units but the composition has changed dramatically from what the town envisioned. It includes a mix of 253 market-rate homes, condos and townhouses targeting empty nesters and young professionals, with a starting price at $1.2 million—as well as 50 below market housing for seniors. The project also has more than 66,000 square feet of retail shops.

Sayoc, who sat on the housing element advisory board and the council at the time, said she thought by specifying the level and numbers of affordable units in the specific plan, Los Gatos would get what it asked for.

“But going through the process, especially the process with the court, we understand that it’s strictly based on our current inclusionary policy,” Sayoc said. “That’s a lesson we learned along the way.”

Los Gatos Community Development Director Joel Paulson defended the town’s plans, saying the town is only required to demonstrate to the state that it plans for housing at all income levels. There is no penalty for the town to not enforce the plans.

“Ultimately, (North 40) was developed at different levels, which is very common,” Paulson said, “We can’t require developers to meet the numbers we included in the plan.”

The remaining 20 acres in the North 40 lot still sit empty, town officials said. It is zoned for commercial and 33 more housing units, according to the specific plan. Grosvenor is exploring options to add even more multi-family homes on the acreage, but it needs town council approval, Paulson said. Los Gatos has received no application as of last week.

“The developers have been having several community meetings,” Sayoc said. “They are in listening mode… before they actually designate any plans and (submit) any applications.”

Town councilmembers are still holding out hope for a more diverse housing inventory with more affordable options in Los Gatos.

“I think we have many opportunities looking forward to get real affordable housing,” Los Gatos Councilmember Matthew Hudes told San José Spotlight. “But we have to be really careful about doing it in a way that’s compatible with the character of the town.”