A new audit of Palo Alto's affordable homeownership program says the city has a supply problem and a cost problem, and both connect to what gets built. The report from the City Auditor's Office found the Below Market Rate Housing Purchase Program is held back by a significant shortage of homes and a long list of hidden fees, according to a Palo Alto Weekly story published by San José Spotlight.
How the program works
New for-sale housing developments in Palo Alto generally work out an affordability plan with the city, which may include setting aside below market rate, or BMR, homes or paying in-lieu fees into an affordable housing fund, the Weekly reported. The planning director sets the initial sale price, and the nonprofit Alta Housing finds buyers from a waitlist, with preference for people who already live or work in Palo Alto.
The audit was done by Kate Murdock with consulting firm Baker Tilly, which serves as city auditor.
A decade with no new homes
The audit found 247 active BMR ownership homes in Palo Alto, most built before 2000. In the 2010s, zero BMR ownership homes were built, partly because of legal challenges to inclusionary housing requirements, City Attorney Chris Jensen told a council committee Oct. 13.
"The big zero there jumped out at me," Councilmember Keith Reckdahl said.
Production picked up again this decade, with 15 more BMR ownership homes built as of 2025. But the audit warned the stock is aging, and some of the earliest homes built in the 1970s that haven't changed hands may leave the program by 2033. Because nothing was built in the 2010s, "there is no corresponding replacement cohort to offset potential future losses in the near term," the audit said.
Hidden fees
One of the biggest findings involved homeowners association fees. BMR buyers can face high HOA dues, special assessments and maintenance costs that the program doesn't control.
"These (HOA) expenses are not controlled by the (below market rate housing) program, but they may affect a household's ability to remain in the unit or maintain it over the long term," the audit states.
The audit recommended making those costs more visible to buyers, working with Alta Housing to flag significant HOA dues and maintenance pressures, and tracking formal complaints about existing BMR homes, which the city doesn't do now. It also recommended tracking turnover and vacancies, as Mountain View does.
The audit also found the resale formula makes older BMR homes much cheaper than newer ones, so people on the waitlist sometimes "hold out" for older homes, making newer units harder to place, Alta Housing reported.
Next steps
The council's Policy and Services Committee unanimously approved the audit's findings. The full City Council may not discuss policy changes until next year, according to the Weekly.
Why it matters for contractors
For builders of for-sale housing in Palo Alto, the BMR program is part of the deal on every project: set aside below-market homes or pay in-lieu fees. The audit's findings could shape how the city sets those requirements going forward, and contractors should pay attention.
The "big zero" in the 2010s shows how legal fights over inclusionary rules can freeze a whole category of construction for a decade. The current rebound, 15 homes so far this decade, is small but real.
The HOA findings are also a design and construction issue. Ongoing maintenance costs depend partly on how a building is built: roofing, siding, mechanical systems and common-area finishes all drive future assessments. If the city pushes for lower-maintenance BMR units, builders who can deliver durable, low-upkeep assemblies may find their work valued more. The aging 1970s-era BMR stock could also mean rehab and repair work if the city exercises its right of first refusal to buy back homes and keep them affordable.