The Ever Changing World of New Jersey’s Affordable Housing Obligation

In Southern Burlington County NAACP V. Twp of Mount Laurel, 92 N.J. 158 (1983) the Supreme Court reiterated that every municipality has a constitutional obligation to provide affordable housing to its citizens earning low and moderate incomes. As a result, in 1985 the New Jersey Legislature enacted the Fair Housing Act and the Council on Affordable Housing (“COAH”). For over twenty years, COAH has established fair share obligations, which means the minimum number of affordable units which must be provided for each municipality in an attempt to help satisfy their affordable housing needs. COAH first established these fair share obligations during two rounds of regulations. Round One spanned from 1987 to 1993 followed by Round Two from 1993 to 1999.
However, COAH failed to establish Round Three regulations until December 20, 2004. Instead of simply assigning a definite obligation to each municipality, the Round Three regulations created each municipality’s obligation by calculating its growth share. The growth share methodology calculated a municipality’s affordable housing obligation based on the amount of development which occurred within the municipality.

In turn, the municipality was allowed to place the burden, whether through construction or payments in lieu of construction, on the residential and commercial developers to create the required affordable units as part of their proposed development. Developers were obligated to create one affordable unit for every eight market-rate units created, or one affordable unit for every 8,333 square feet of office space, 25,000 square feet of retail space or 12,500 square feet of factory space constructed within a development application. If the developer could not construct the affordable units, the municipality and developer could agree on a payment in lieu of construction.

Round Three

The Round Three regulations were immediately challenged by parties from both ends of the spectrum, that being developers and affordable housing advocates. And, in January 2007, the Appellate Division held them invalid stating that the rules were contrary to Mount Laurel in that they placed too great of a burden on the developer without providing any benefits (i.e., density bonuses). Also, the Court found that COAH inaccurately applied downward filtering in calculating New Jersey’s affordable housing need. Downward filtering is when adequate housing becomes more affordable to lower income families over time. However, given the sharp increase in New Jersey property values over the last ten years, the Court believed downward filtering should not have been calculated in the manner COAH chose to apply it.

The revised Round Three regulations were enacted on June 2, 2008. These regulations make significant changes to the prior Round Three regulations, with the most important being to the growth-share ratios. COAH has revised the ratios to require one affordable unit for every four residential units constructed and one affordable unit for every 16 jobs created. The number of jobs created is based on the square footage of floor area created for a particular type of non-residential development. The reason for this drastic change in the growth share ratio is COAH’s determination that New Jersey will require 115,666 affordable housing units between 1999 and 2018. Given that the ratio has diminished, and affordable units rarely generate a profit, the result will be a greater financial burden on the developer.

Other major changes are as follows:

The average payment in lieu of constructing an affordable unit has risen to $161,000;
The Regional Contribution Agreement amounts have increased from $35,000 to anywhere between $67,000 and $80,000;
Development fees for new construction of residential property have increased from 1% of equalized assessed value to 1.5% of the equalized assessed value;
Development fees for new construction of non-residential property have increased from 2% of equalized assessed value to 3% of the equalized assessed value.
From the standpoint of the municipality, few believe that these new growth share ratios and other revisions will provide a realistic means to satisfy the need for affordable housing within the state. In actuality, many municipalities have stated that COAH’s calculations are misguided and there is simply not enough vacant land within the state to effectuate these mandates. At the same time, developers argue that these same revisions will make it financially unfeasible to develop within New Jersey and halt development throughout the state.
In the past several months, COAH has received thousands of comments and complaints regarding the legitimacy of these revised Third Round Rules. Furthermore, there is pending legislation which may directly affect the revised rules. As a result, COAH has already proposed amendments to the recently revised rules which may be adopted in October 2008. Many believe that these revised rules are headed for a complete overhaul.

As you can tell by this article, COAH’s affordable housing regulations are in a state of flux. The inability of the state to properly deal with their affordable housing issue has fostered great uncertainty with regard to where development in the state of New Jersey is heading. Wells, Jaworski & Liebman will continue to closely monitor the progression of these rules as they develop. Please feel free to contact our office to discuss any issues or questions which are raised by this article.

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