Article

COAH Adopts “Third Round” Rules; Proposes More Amendments
What Does it All Mean?
by Thomas F. Carroll, III, Esq., Stephen M. Eisdorfer, Esq.

On May 6, 2008, the New Jersey Council on Affordable Housing (COAH) made yet another stab at adopting “third round” regulations. In essence, COAH adopted the rules it had proposed in December, 2007 while simultaneously proposing a 74-page set of comprehensive amendments to those adopted rules. Members of the public may submit comments on the newly proposed amendments by August 15, 2008, and COAH could adopt those amendments in September 2008. COAH has also indicated that it may propose yet further amendments at that time.

The proposed amendments create significant new opportunities for builders who wish to construct inclusionary developments. They also significantly alter the burdens the municipalities can place on builders generally.

This article will discuss the complicated question of what rules apply when, the impact of the rule adoption and proposed amendments on “pass-through” ordinances (i.e., “growth share” ordinances), and the opportunities created by the rules and proposed amendments for builders who seek to construct inclusionary developments.

Which Rules Are Now in Effect?

However, COAH states that it does not anticipate that those adopted third round rules will actually govern municipal housing obligations, what constitutes municipal compliance with those obligations, or even COAH’s own administrative processes. Instead, COAH invites municipal officials to more or less assume that the rule amendments proposed on May 6 will be adopted, and to comply with those proposed amendments as if they were already in effect. For example, municipalities are now being advised to submit new third round fair share housing plans to COAH by December 31, 2008 - the deadline under the proposed rule amendments – rather than the earlier dates required by the adopted rules that are actually legally binding.

One peculiar consequence of this regulatory hash is that municipalities that were under COAH’s jurisdiction in Atlantic, Bergen, Burlington, Essex, Mercer, Passaic and Union Counties could be automatically ejected from the agency’s jurisdiction on October 1, 2008. They would then cease to be immune from exclusionary zoning litigation.

There is, of course, no assurance that the newly proposed rule amendments will be adopted. COAH will receive comments on that rule proposal and COAH must formally decide later this year whether to actually adopt the rule amendments. Nonetheless, since COAH’s expressed intention is to adopt the proposed amendments, it is most prudent for builders to assume at this time that the proposed rule amendments will guide the process, with the caveat that the rule amendments may not be adopted at all (leaving the May 6 adopted rules as the governing law), or that they may be adopted only in some modified form, or that they may be accompanied by yet further proposed amendments. Whew!

Prior to discussing the opportunities created for builders by the new rules, we will discuss the impact of the rule adoption on pass-through ordinances throughout the state.

Stay as to Pass-Through Ordinances Now Lifted

In its January 25, 2007 opinion, the Appellate Division invalidated the COAH regulations allowing towns to adopt uncompensated pass-through ordinances, that is, ordinances that impose affordable housing obligations on builders without providing increased development density or other compensating benefits. Shortly thereafter, the Appellate Division entered an order staying all legal challenges to municipal pass-through ordinances adopted prior to January 25, 2007, pending COAH’s adoption of new rules. COAH has now adopted those new rules, and the stay is automatically terminated upon publication of the adopted rules in June. Those ordinances are not automatically voided, but the courts will be open to legal challenges on the same grounds relied upon by the Appellate Division in invalidating COAH’s enabling pass-through regulations.

Pass-through ordinances adopted after January 25, 2007 were never subject to the stay, and litigation challenges to those ordinances could have been brought at any time. As to the ordinances to which the stay had applied - those adopted before January 25, 2007 – most such ordinances provided that builders must provide one lower income unit for every 8 market rate homes. Such ordinances, and/or planning board demands that builders comply with such ordinances, are now subject to challenge. In the absence of municipal agreement to voluntarily repeal such ordinances, or agreement not to enforce them against builders, litigation challenging such uncompensated demands (for lower income units or the payment of money in lieu of providing those units) may now be filed.

What Kind of Inclusionary Ordinances Are Now Permitted?

The answer to this question is somewhat complicated. The rules adopted by COAH on May 6 say one thing, and the newly proposed amendments say something quite different. At the risk of over-simplification of some very complex rules, the following may be said.

The rules actually adopted on May 6 provide that municipalities can adopt inclusionary ordinances requiring lower income units within the development if the ordinances allow for one “extra” market unit for every lower income units required. This regulation presents the appearance of a density bonus, but not the reality. To the contrary, it allows the builder to construct exactly the same number of market-priced units originally allowed on the site as a matter of right, while requiring builders also to provide lower income units.

Those commenting on that COAH rule, including the NJBA, pointed out that the rule did not provide for true density bonuses and incentives, as the Appellate Division had required when it invalidated uncompensated pass-through ordinances in its January 25, 2007 opinion. In apparent response to those comments, COAH drafted the rule amendments that were introduced on May 6 changing the standards applicable to permissible inclusionary ordinances. The proposed rule amendments would require either presumptive minimum densities and/or true density bonuses, depending upon the State Development and Redevelopment Plan (“State Plan”) planning area designation and other factors.

Specifically, under the proposed amendment, lands located within Planning Area 1 are to be zoned at a presumptive minimum density of 8 units per acre, with a presumptive maximum lower income unit set-aside of 25% As to Planning Area 2 lands, the presumptive minimum density is to be 6 units per acre, with a presumptive maximum set-aside of 25%. For lands within Planning Areas 3, 4 and 5, there is to be a 40% density increase, with a presumptive maximum set-aside of 20%. For lands in sewer service areas in Planning Areas 3, 4 and 5, the presumptive minimum density is 4 units per acre and the presumptive maximum set-aside is 25%. For lands within “urban centers” designated or identified in the State Plan, the presumptive minimum density is 22 units per acre and the presumptive maximum set-aside is 20%. The proposed rule amendments also contain provisions concerning density enhancements to be applied to nonresidential lands, which is basically keyed to “jobs per acre.”

While the presumptive minimum densities are comparable to those required by COAH regulations prior to 2004, the maximum set-asides represent a significant change in policy. Previously COAH and the courts had recognized that a 20% set-aside is the practical maximum and that a municipal ordinance requiring significantly more is really just a device to discourage construction of inclusionary developments. As noted above, COAH now proposes to endorse 25% set-asides in some circumstances.

Under the proposed amendments, towns and builders can, as an alternative to these minimum densities and maximum set-asides, enter into agreements for different standards. The proposed amendments also require municipalities to adjust bulk standards and maximum height standards to accommodate the required higher densities and to permit attached housing, clustering and lot size averaging for that purpose. They also provide for higher presumptive minimum densities and lower set-asides for rental housing.

The adopted regulations provide that municipalities may offer builders the option of paying a “fee in lieu” of constructing affordable housing. The fees are set by COAH on a regional basis and range from $145,000 to $182,000 per affordable unit. Municipalities need not allow payment of in lieu fees but, if they do so, they must leave the builder free to elect whether to construct the affordable units or pay the fee. The adopted regulations reduced the “density bonus” available to builders who elect to pay an in lieu fee. The proposed amendments provide that the builder is entitled to the presumptive minimum density regardless of whether he or she elects to construct the affordable housing units or pay an in lieu fee.

Third Round Municipal Housing Obligations

Both the adopted regulations and the proposed amendments continue to use the vocabulary of “growth share” for determining municipal third round housing obligations: municipal housing obligations are proportional to the amount of growth they permit. In actual operation, both the adopted regulations and the proposed amendments have abandoned this concept. COAH itself has projected housing growth and employment growth in each town. It based the municipal housing obligations on these projections - not on whether any particular development takes place or does not place within the municipality. The municipal housing obligation is the sum of the projected municipal housing growth divided by five plus the projected municipal employment growth divided by 16. While towns can do their own projections, they may calculate housing obligations on the basis of their own projections only if they exceed COAH’s projections.

The proposed amendments do not substantially change the total unmet need for affordable housing which is to be allocated among municipalities. They would change how municipal housing and employment growth is projected. It therefore significant alters the proportion of the need assigned as housing obligations to the various towns within each region. The major change is that COAH has taken into account NJDEP regulations on the designation of Category 1 waters and water quality management planning to determine how much land in each town in available for development. The obligations of some towns under the proposed amendments will significantly rise; others will be significantly fall.

Both the adopted regulations and the proposed amendments permit municipalities to seek to reduce their housing obligations because of lack of vacant land. The extent to which COAH will permit these reductions remains an important and unresolved question.

Bonus Credits

The adopted rules provide a number of problematic bonuses for municipalities against their affordable housing obligations, including bonus credits for housing units that are accessible to the handicapped. The proposed amendments include even more such bonuses, including a two-for-one bonus for affordable housing approved between 2004 and 2007, a one-third unit bonus credit for affordable housing in redevelopment areas, and a one-third unit bonus credit for affordable housing within a one-half mile radius of a public transit stop.

Opportunities for Builders

Both the adopted regulations and the proposed amendments create substantial opportunities for builders who seek to construct affordable housing. Unlike the “growth share” approach in COAH’s now-invalidated 2004 regulations, the adopted regulations and the proposed amendments impose actual housing obligations on municipalities. The proposed amendments provide that if a municipality wishes to meet some portion of their obligation through private development it must do so through rezoning for development at densities of 4, 6, or 8 units per acre and must make corresponding adjustments in its zoning ordinances to make development at those densities feasible.

Municipalities who are now within COAH’s jurisdiction and wish to remain immune to exclusionary zoning litigation must adopt and file housing plans by December 31, 2008. For builders who seek to construct inclusionary developments, the time to begin approaching municipal officials with proposals and concept plans is right now.

When a town files its housing plan with COAH, a 45-day period for objections commences. This is the one and only opportunity for builders to insert themselves into COAH’s mediation and review process and to use that process to induce the town to include their project into its housing plan.

Faced with these new obligations, some municipalities may choose not to remain within, or bring themselves within, COAH’s jurisdiction. Under both the adopted regulations and the proposed amendments, municipalities that are not now within COAH’s jurisdiction are now vulnerable to third round exclusionary zoning lawsuits. Municipalities now under COAH’s jurisdiction will become vulnerable on January 1, 2009, or perhaps earlier in some instances. It can be foreseen that municipalities who choose not to remain within, or bring themselves within, COAH’s jurisdiction will devise a variety of legal strategies to attempt to minimize their vulnerability to suits by builders seeking to enforce the constitutional obligation to provide for affordable housing.