Below Market Rate (BMR)

Below Market Rate units (BMRs) are financed and built by market-rate developers; this requirement is often referred to as inclusionary zoning. Typically, a certain percentage of the total units in a development are built to rent at below-market-rate rents. These are dispersed throughout the market-rate development, either in exchange for certain concessions from the city such as higher density, or because of a requirement to build these units due to local inclusionary zoning ordinances.

Mountain View and Los Altos have inclusionary zoning requirements, which differ in terms of the percentage of units required and income levels targeted. Mountain View recently modified their BMR rental requirements so that 15% of the units in a rental development must be affordable at an average of 65% AMI. BMR rental units could be targeted as high as 120% AMI, but if some units are at higher rents, these would be balanced by having some at lower rents. Similarly, 15% of the units in ownership developments must be affordable at an average of 100% AMI, with some units as high as 150% AMI levels. In rowhouses and townhomes, the inclusionary requirement was increased to 25%, based upon an economic study that the City had done which showed that requiring this high a percentage was feasible. The in-lieu fees in the past were 3% of the sales price, which is far lower than the cost would be to the developer to build the units. Under the new ordinance, passed in June 2019, alternative mitigation (including in-lieu fees) is to be more onerous than building the units on-site. There are many exemptions to the new ordinance, with the recent June modifications generally not going into effect until 2020.

Los Altos modified their ordinance in 2018 to require 15% of condos to be affordable with the majority at moderate-income levels, with the rest at lower incomes. In rental developments in Los Altos, the developer can provide 15% very-low income units or 20% low income units. In 2009 a California appellate court ruled in the Palmer decision that cities could no longer require BMR or inclusionary units for rental housing (with certain narrow exceptions such as when the developer is using the State Density Bonus Law), as this violates the Costa-Hawkins law passed in 1995, but this decision was overturned by AB 1505, the “Palmer fix”, and as a result, both Mountain View and Los Altos modified their BMR programs. In Mountain View BMR units are exempt from the rent control part of CSFRA, but not exempt from the just cause requirements.