Palo Alto’s initiative to help residents purchase affordable homes is significantly impeded by a scarcity of available properties and a range of hidden fees, making these residences unattainable for many prospective buyers. This finding comes from a new report issued by the City Auditor’s Office.
The Below Market Rate Housing Purchase Program, which accounts for approximately 10% of the city’s existing affordable homes, was the central focus of the audit. Conducted by Kate Murdock with the consulting firm Baker Tilly, acting as the city auditor, the report examined the program’s effectiveness.
Under the program, the director of the Planning and Development Department sets the initial sale price for these homes. From there, the nonprofit organization Alta Housing manages the buyer solicitation process using a waitlist, prioritizing individuals who either live or work in Palo Alto.
The audit identified 247 active below market rate ownership homes within Palo Alto. However, the construction of these homes has been inconsistent, with a significant majority built prior to the year 2000.
Notably, no new below market rate ownership homes were constructed in the 2010s. City Attorney Chris Jensen informed the council Policy and Services Committee on October 13, during its discussion of the audit findings, that this pause was partly due to legal challenges against inclusionary housing requirements. Councilmember Keith Reckdahl remarked that “The big zero there jumped out at me.” Committee Chair Julie Lythcott-Haims connected this period to the 2013 voter overturn of the Maybell Avenue development, suggesting it reflected “an era when the city mindset, mentality and value system seemed to be swaying toward less development.”
Production of below market rate ownership housing resumed this decade, with 15 more homes constructed as of 2025.
One of the audit’s primary conclusions was the insufficient transparency surrounding Homeowners Association (HOA) fees. These costs can impose a substantial financial burden on low-income residents who acquire an affordable unit. Michelle Kraus, who chairs the Human Resources Commission, suggested during the public comment period that the city explore subsidies or other policy measures to mitigate these HOA expenses. Kraus noted that “It is becoming an issue of retention” and added, “It has been 20 years since subsidies have been offered, and we’re in a tremendously difficult financial time right now.”
Murdock’s report emphasized that while the below market rate housing program itself does not create new housing, city policy holds the potential to enhance the retention and long-term affordability of the homes that fall under its purview.
