As Stanford faculty members and students looking to live off campus can attest, land in Palo Alto is a precious commodity. With an average home price of $1.4 million and a downtown vacancy rate of just 2 percent, Palo Alto drives away many prospective residents and entrepreneurs. The benefits of living or starting a business in Palo Alto, such as proximity to a highly educated workforce, good schools, Stanford, numerous leading firms, good weather and access to San Francisco, are often cited as reasons for Palo Alto’s high prices. However, this is only half the story. Commercial and residential space in Palo Alto and at Stanford are severely limited by zoning and density regulations, which keep developers from providing valuable housing and office space. Stanford and Palo Alto need to work harder to ensure that their unique economic engine does not become a casualty of artificially inflated real estate prices.

Restrictions on density take many forms. In downtown Palo Alto, building height is limited to 50 feet, and developers must provide parking for workers or tenants. The goal of density restrictions is twofold: to help keep traffic manageable, and to maintain a small-town feel. Unfortunately, the costs of such policies are often underemphasized in public discourse. More businesses and residents would mean a larger tax base for the city, which would allow the government to reduce taxes or expand services. With Palo Alto’s budget deficit projected to be $30 million in 2011, the city cannot afford to keep turning away would-be residents and business owners.

Taxpayers and the city government would not be the only beneficiaries of greater density in Palo Alto. High local housing prices force Stanford to house over 90 percent of undergraduates and expend vast resources on providing below-market price housing for faculty members and graduate students. In spite of these efforts, many faculty members (and most of the universities lower-skilled labor force) must make long commutes from cheaper areas. Allowing more downtown density would help alleviate this problem.

Stanford and Palo Alto both derive large benefits from the presence of high-tech, high-wage firms in the area. These firms face the same problem that Stanford does when it comes to housing workers, but unlike Stanford, they usually do not have the resources to subsidize housing for employees. This creates a powerful incentive for firms to leave the area, which is a bad outcome for everyone involved.

The challenge facing Palo Alto and Stanford is how to provide more space for businesses, workers and university functions in a responsible way. The first step should be to loosen restrictions on building height and density in the downtown area, especially near the Palo Alto Transit Center where car use can be mitigated. A higher concentration of retail and grocery stores in the area would make downtown more pedestrian friendly, ensuring that roads remain passable. More public transportation ridership would also allow government agencies to lower subsidies for buses and Caltrain.

In addition to providing more aggregate housing and office space, downtown development will also ease demand for new construction in other sensitive areas. For example, Stanford’s driving range, which is heavily used by golfers both within and beyond the Stanford community, will eventually need to be moved to comply with current zoning regulations and make room for new housing. The driving range would likely be moved to the current location of Stanford’s Community Farm, a valuable area used both to connect students to their food system and teach them about agriculture and soil science.

Stanford and Palo Alto have recently made several steps towards increasing economic activity in the downtown area. Stanford’s proposed $3 billion expansion of the Stanford Hospital will include Caltrain Go Passes for all current and future employees. Palo Alto will also likely see the construction of a new five-story building with office and residential space near the transit center. The new building would provide public art, a garden and electrical vehicle charging stations in return for permission to exceed Palo Alto’s 50-foot height limit. Hopefully these new developments are the start of a trend that will reverse the exclusive atmosphere of Palo Alto and allow both the town and the university to grow. Stanford should continue, as it did during the debate over the expansion of the Stanford Hospital, to push for the conscientious expansion of worthwhile projects.