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  • September 24, 2009

    New Court Decision and Emerging State Policies Change Legal Ground Rules For Affordable Housing Developments

    by Stephen Eisdorfer, Esq. and Henry T. Chou, Esq.

    A recent decision by the Appellate Division of New Jersey’s Superior Court holds that affordable housing developments constitute an “inherently beneficial use” entitled to a use variance even where it has been previously found that a municipality has met it affordable housing obligations. This article summarizes that groundbreaking decision.

    In addition, emerging State policies may significantly change the legal ground rules for development of affordable housing in New Jersey within the lands under the jurisdiction of our “regional planning entities”, i.e., the Highlands, the Pinelands and the Meadowlands. This article also provides an update on where things stand within those regional planning areas.

    Affordable Housing as an "Inherently Beneficial Use"

    On August 24, 2009, the Appellate Division issued a decision, in the case of Homes of Hope v. Eastampton Land Use Planning Board, that makes it harder for municipal land use boards to deny use variance applications by developers seeking to build affordable housing. At issue in the lawsuit was whether a 100% affordable housing project proposed by a non-profit developer should have been considered an “inherently beneficial use” by the Eastampton Land Use Board when evaluating the developer’s use variance application, even though Eastampton had ostensibly met its affordable housing obligation.

    To obtain a use variance, i.e., approval for a use not specifically permitted under the zoning ordinance, an applicant needs to demonstrate that its proposed project meets both the "positive" and "negative" criteria required by the Municipal Land Use Law. To satisfy the positive criteria, an applicant must show that its proposed use is “inherently beneficial,” or that the site in question is peculiarly suited for the proposed use. Satisfaction of the negative criteria requires the applicant to demonstrate that the proposed use will not pose a substantial detriment to the public good and will not substantially impair the intent and purpose of the master plan and zoning ordinance.

    An affordable housing development included in an affordable housing plan approved by the New Jersey Council on Affordable Housing (COAH) would clearly be considered an "inherently beneficial use" in the same vein as hospitals and schools, with such status presumptively satisfying the positive criteria without the need to show that the site is specially suited for affordable housing. The Appellate Division's decision in Homes of Hope extends the "inherently beneficial use" status to affordable housing developments that are not part of a town's COAH compliance plan, i.e., proposed affordable housing that is in excess of the required number of affordable housing units assigned to a town by COAH. The Appellate Division based its holding on the rationale that additional affordable housing is no less beneficial to society simply because a town has already satisfied the minimum numerical requirement imposed by COAH.

    Scope of Decision Not Yet Clear

    It is unclear whether the court’s holding applies the “inherently beneficial use” status only to 100% affordable housing projects (developments that consist entirely of affordable units), or whether it also applies to “inclusionary developments” (developments that contain both market-rate units and affordable units). If the holding applies to inclusionary developments, it could motivate private developers to seek use variances for inclusionary developments on a more widespread basis, and lead to the creation of more affordable housing in the State.

    The Appellate Division has remanded the matter back to the Eastampton Land Use Board for further consideration of the use variance application based on the “inherently beneficial use” status of the proposed affordable housing. It seems certain that the Board will petition the Supreme Court for certification of the Appellate Division’s decision.

    Legislative Battle to Follow?

    In the meantime, municipal officials across the State are convinced that the Appellate Division’s ruling – if left untouched or upheld by the Supreme Court – will make it easier for developers to obtain use variances to build affordable housing, which they fear will generate children and overburden existing schools. We therefore anticipate that the Homes of Hope case, along with numerous other factors, will cause the Legislature to revisit the issues raised by the need for affordable housing. Whether such legislative discussion occurs during the upcoming “lame duck” session, or after the November election, remains to be seen.

    Emerging State Policies for the Highlands, Pinelands and Meadowlands

    In July 2008, the Legislature adopted legislation (Chapter 46 of the laws of 2008, also known as “A-500”) requiring regional entities such as the New Jersey Meadowlands Commission, the Pinelands Commission, and the Highlands Council to “identify and coordinate” affordable housing opportunities within their respective regions. In particular, they may utilize “methods to regionally provide housing in line with regional concerns,” such as transit needs or opportunities or environmental concerns. These methods can have the effect of reallocating housing obligations from one municipality to another, provided that they do not reduce any municipality’s obligation by more than 50 percent. Regional entities must act in accordance with policies to be established by COAH.

    In addition, the legislation provides that any new housing development in these regions must set aside 20 percent of the units for low and moderate income households, unless such a setaside is determined not to be economically feasible.

    This past summer, COAH proposed for public comment a set of policies implementing this new requirement. COAH has not proposed to spell out the obligation of regional entities to “identify and coordinate” affordable housing opportunities, nor has it proposed to identify specific methods to regionally provide housing or to establish criteria for regional entities to reallocate housing obligations among municipalities within the region. Rather, COAH has proposed to authorize individual municipalities to enter into contracts in which one municipality would pay another municipality within the region to satisfy up to 50 percent of the sending municipality’s housing obligation.

    A New Form of “RCAs”?

    COAH has proposed a minimum payment schedule, ranging from $67,000 per unit to $80,000 per unit, depending upon the region and State Development and Redevelopment Plan (State Plan) planning area to which the housing units will be transferred. The agreements would have to be consistent with any regional plans adopted by the regional entity. They would have to be approved by the regional entity, the New Jersey Housing and Mortgage Finance Agency, and COAH. Although entitled the “Regional Affordable Housing Development Planning Program” and given a new acronym (“RAHDPP”), the program would be essentially the same as the regional contribution agreements (RCAs), which were permitted prior to 2008, but were prohibited by the 2008 legislation. Indeed, previously approved RCAs may be included in municipal housing plans as RAHDPPs, provided that they meet COAH’s new guidelines.

    An important limitation for RAHDPPs is that they cannot be utilized to transfer affordable housing units to municipalities that receive urban aid or whose school districts are classified as Abbott special needs districts. This restriction would eliminate many of the municipalities that were “receiving municipalities” under pre-2008 RCAs.

    In addition to this proposed general policy that would affect the Highlands, Meadowlands, Pinelands, and Fort Monmouth, some of these regional entities have taken steps to implement the 2008 legislation.

    Meadowlands Commission Takes Some Action

    The Meadowlands Commission is under a separate court mandate arising out of litigation brought by the New Jersey Builders Association to plan on a regionwide basis for affordable housing. In the Matter of the Adoption of N.J.A.C. 19:3. That decision held generally that regional entities which exercise the power to regulate land use must affirmatively utilize those powers to create sufficient realistic housing opportunities for low and moderate income individual families to satisfy the unmet housing need within their regional jurisdiction.

    The Meadowlands Commission has entered into a memorandum of understanding with COAH. This agreement provides for cooperation between the two agencies. It reaffirms that municipalities in the Meadowlands are responsible for satisfying their own housing obligations under COAH regulations. The Meadowlands Commission merely pledges that it will expedite and facilitate their efforts to provide affordable housing.

    More substantively, the Meadowlands Commission has adopted a set of interim policies concerning affordable housing. In areas currently zoned for residential development in the Meadowlands regional plan, the interim policy requires that 20 percent of new residential units be set aside for low and moderate income households. It provides 33 percent density bonuses to offset the costs of providing affordable housing on these properties.

    In certain limited areas not currently zoned for residential development, a property owner or developer who seeks a zoning certificate, a zoning amendment, or approval of a redevelopment plan must apply for a determination of housing suitability. If the property is deemed suitable for housing, the Meadowlands Commission will not permit non-residential development pending adoption of new zoning regulations by the Commission.

    Highlands Council Reduces Municipal Housing Obligations

    In October 2008, the Highlands Council entered into a memorandum of understanding extending the deadline for Highlands municipalities to file housing plans with COAH from December 2008 to December 2009, and providing for the two agencies to cooperate in determining municipal housing obligations in light of the adoption of the Highlands Regional Master Plan. COAH has now extended this deadline again (to June 2010) for the 51 municipalities that have filed notices both with the Highlands Council, indicating their intent to conform to the Highlands Regional Master Plan, and with COAH, indicating their intent to petition COAH for approval of housing plans.

    In its Regional Master Plan, the Highlands Council projects residential and non-residential growth in the Highlands region dramatically lower than that projected by COAH in 2008. COAH used its town-by-town growth projections to determine municipal housing obligations for the period 1999-2018. The Highlands Council has commenced issuing its own town-by-town maximum growth projections based upon its regionwide growth projections. It refers to these as municipal “buildout” projections.

    COAH has now issued guidelines providing that, in formulating housing plans, Highlands municipalities can choose either of two ways of determining their housing obligations. They can choose the housing obligations established by COAH based upon its 2008 growth projections. Alternatively, they can recalculate their housing obligations based upon the Highland’s municipal “buildout” projections.

    Permitting municipalities this choice will mean that much of the Statewide housing obligation assigned by COAH to the 88 municipalities in the Highlands region will not be included in any of the housing plans prepared by any municipality in the region. COAH has not indicated how that need will be met.

    Pinelands Commission Does Nothing

    The Pinelands Commission is the least advanced in implementing the July 2008 legislation. It has not entered into an agreement with COAH. It has not adopted any regional policies concerning affordable housing.

    Notwithstanding the inaction by the Pinelands Commission, new residential development in the Pinelands region must, per the A-500 legislation, set aside 20 percent of the units for low and moderate income households, unless this can be shown to economically infeasible. In a policy letter issued in October 2008, COAH indicated that it would use the minimum densities established in its own regulations for inclusionary development as the presumptive basis for determining whether affordable housing is economically feasible. For projects in areas in the Pinelands zoned at densities lower than the COAH minimum densities, property owners and builders can seek relief from the affordable housing set-aside.

    Many Legal Issues Remain

    Progress has been slow in implementing the 2008 legislation, and some of the steps that have been taken have actually reduced realistic opportunities for construction of affordable housing. These steps raise many important legal issues, as follows:

    • COAH has not adopted any of its policies as regulations. It is unclear whether it can establish legally binding policies without formally adopting regulations under the Administrative Procedures Act.
    • The broad reduction in housing obligations for Highlands towns without any provision for meeting that portion of the statewide housing need by any other means throws into further doubt the constitutionality of COAH’s methodology for determining municipal housing obligations, not only for Highlands municipalities, but for all municipalities in the state.
    • It is unclear whether the RAHDPPs that COAH proposes to authorize violate the statutory prohibition on RCAs, or other provisions of the 2008 legislation.
    • The continuing failure of the various regional entities to assume responsibility for regionwide planning affirmatively to create sufficient realistic housing opportunities to satisfy the unmet housing obligation assigned within those regions raises questions as to whether they have complied with either their statutory responsibilities under the 2008 legislation, or their constitutional obligations under the principles enunciated by the Appellate Division in In the Matter of the Adoption of N.J.A.C. 19:3 case. The affordable housing landscape in New Jersey remains somewhat unsettled, but the Homes of Hope decision and the continuing evolution of “COAH compliance” standards in towns within the jurisdiction of the regional planning entities have provided additional focus on the issues, and all builders and developers are well-advised to keep abreast of these legal developments.

    Stephen M. Eisdorfer is a partner of Hill Wallack LLP and member of the firm’s Land Use Division. A recent member of the Board of Directors of the New Jersey State Bar Association’s Land Use Section, he concentrates his practice in land use matters, including applications, Mount Laurel litigation and litigation involving the civil rights statutes.

    Henry T. Chou is a partner of Hill Wallack LLP where he is a member of the Land Use Division which encompasses the Land Use Litigation and Land Use Applications Practice Groups. He concentrates his practice in the land development application and permitting process and the litigation of land use matters

    Hill Wallack LLP is one of the largest law firms in Central New Jersey, with offices in Princeton and Atlantic City, New Jersey and Newtown, Pennsylvania. Over the past 30 years, Hill Wallack LLP has earned a reputation for comprehensive problem solving. The firm’s well-known practice groups in Land Use -- Planning, Zoning, Affordable Housing, and Redevelopment -- Environmental Regulation and Litigation, Regulatory and Government Affairs, Workers’ Compensation, Insurance Defense, Real Estate, Community Association Law, Construction and Business Law are complemented by its specialty practices in Gaming Law, Employment, Professional Liability, Government Procurement, and Public Finance.