January 1, 1900

Stephen M. Eisdorfer

Affordable housing is still a social problem of vast magnitude in New Jersey, and still an opportunity for astute builders. Recent developments, however, are likely to profoundly change the opportunities and obligations of builders-including builders who have never before been involved with inclusionary development or affordable housing. Among other things, the New Jersey Council on Affordable Housing (COAH) has recently adopted regulations that purport to authorize towns to impose the obligation to meet their constitutional affordable housing obligation on builders, regardless of whether the builders desire to build affordable housing, and without any off-setting benefits to the builders.

The State's Housing Crisis

New Jersey continues to suffer from a housing crisis. The gap between what most families can afford to pay for housing and the price of housing on the market continues to grow. As documented in recent reports prepared by the New Jersey Department of Community Affairs (DCA), this affordability gap particularly affects low, moderate, and middle income families. Recent actions by state and local government threaten to widen this gap. Both state agencies and towns are systematically driving up land prices by reducing the stock of available land. The Department of Environmental Protection (DEP) dramatically reduced the stock of available land by recategorizing numerous rivers and streams as "Category 1" waters, and the DEP has proposed to recategorize many more. The Highlands Act makes more than 800,000 acres unavailable, or nearly so. The State of New Jersey and its municipalities continue to acquire land and development rights utilizing the billion dollar Garden State Preservation Trust Fund authorized by referendum some years ago. Towns continue to downzone vacant land, and the courts continue to uphold those downzonings.

Increased regulatory burdens continue to drive up the costs of obtaining development approvals. In the past year, the DEP put into effect storm- water regulations that establish a new layer of required approvals for many developments, as well as imposing new and more stringent standards. Governor McGreevey and Acting Governor Codey issued executive orders that delay the DEP's processing of applications for permits and postpone implementation of "fast track" legislation, which was to have been a partial antidote to those delays.

The Status of Mt. Laurel Compliance

The one public initiative that should narrow the affordability gap is the constitutional duty of towns to create sufficient realistic housing opportunities affordable to low and moderate income individuals and families to meet towns' fair share of the unmet regional need. The New Jersey Supreme Court recognized this duty in the Mt. Laurel decisions 30 years ago, and permitted builders to enforce the duty and secure court-ordered rezoning of their own properties. The Legislature incorporated this municipal constitutional duty into state legislation, the Fair Housing Act, in 1985, and created a state agency, COAH, to quantify municipal affordable housing obligations and, upon the voluntary request of municipalities, to review and approve municipal housing plans to meet those obligations. The Supreme Court reaffirmed the constitutional doctrine, and the ability to enforce it through builder's remedy lawsuits, just two years ago in Toll Brothers v.West Windsor, a case brought by Hill Wallack.

However, the past year has seen developments involving implementation of Mt. Laurel principles that profoundly affect the obligations and opportunities for builders. The courts continue to rule against municipalities who have failed to satisfy their fair share housing obligations and are not otherwise protected under the Fair Housing Act (e.g., KJ & J Associates v. Eagleswood, a case brought by Hill Wallack), and to grant site-specific relief to builders who successfully bring such litigation. The filing of these suits, however, has been complicated by conflicting rulings by the trial courts on the question of whether builders must try to negotiate with the town prior to filing the litigation.

The courts continue to mechanically affirm the substantive policies of COAH, even those they acknowledge them to be problematic. In the face of a virtual moratorium by COAH on processing petitions for review of housing plans, and five years of delay in determining municipal housing obligations beyond 1999, the courts have become increasingly impatient. They have not been willing to simply seize jurisdiction away from COAH, but they have opened the door to appeals by builders who have been victimized by unjustified delay by COAH in reviewing municipal housing plans and builder objections to those plans, and ordered COAH to proceed more expeditiously.

Similarly, in a case brought by Hill Wallack on behalf of the NJBA, the courts struck down regulations adopted by COAH that granted municipalities essentially automatic immunity from exclusionary zoning litigation during the period of COAH's delay in determining municipal affordable housing obligations beyond 1999, even municipalities that have not even prepared housing plans to meet their housing obligations beyond 1999. While the Supreme Court declined to hear a case seeking a mandatory order compelling COAH to determine municipal affordable housing obligations beyond 1999, it did so in a manner that set a de facto deadline for COAH to adopt new rules.

COAH's New Regulations

While continuing to overwhelmingly favor municipalities at the expense of builders and housing consumers, COAH has been somewhat responsive to these court decisions. In October 2004, COAH adopted so-called "third round" regulations that determine municipal housing obligations for the 10-year-period from 2004 to 2014 (and back to 1999), and set new standards for municipal housing activities to meet those obligations. These regulations became effective in late December 2004, although their real impact will not be felt until the beginning of 2006. They are posted on COAH's website at www.state.nj.us/dca/coah/

Thus, COAH has ended its de facto moratorium on reviewing municipal housing plans (and objections to those plans). It has promulgated ãemergency regulationsä providing that municipalities seeking protection from lawsuits must submit housing plans for review by COAH, and further providing for an opportunity for builders or others to object. COAH even altered the substantive policies that the courts have upheld but questioned, such as the most objectionable features of its regulations governing rental bonus credits and crediting for alternative living arrangements.

Among its many pro-municipal decisions, COAH has issued a number of important rulings favorable to builders. In In re Amended Petition for Substantive Certification filed by Clinton Township, COAH ruled that its regulations bar a municipality from unilaterally petitioning COAH to remove an inclusionary housing development from its previously approved plan over the objections of the developer. In In re Application for Emergent Relief, Union Township, COAH directed that a municipality must oppose efforts to designate a site in an approved housing plan as a State Development and Redevelopment Plan non-growth area.

The most important recent development, however, is COAH's promulgation of "third round" regulations. While the regulations carry forward many of COAH's prior standards and procedures, they make a number of radical changes in policy that will profoundly change the landscape for builders throughout New Jersey. A number of the most significant of these changes are of questionable legality. The NJBA, represented by Hill Wallack, has brought major litigation in the New Jersey courts challenging many of them. A full policy analysis and critique of the new regulations by the NJBA, including a legal critique prepared by Hill Wallack, is available on the NJBA website (www.njba.org).

For example, COAH will no longer determine each town's prospective (future) housing needs. Instead each town will be responsible to see to it that a "share" of any future growth be provided for low and moderate income households-1 unit for every 8 units of new housing, and 1 unit for every 25 jobs created.

As part of its housing element and fair share plan, a town will project its housing and job growth. The projections must be consistent with the regional housing and job growth projections adopted by the New Jersey Office of Smart Growth (OSG) as part of the State Development and Redevelopment Plan, but a municipality may decline to utilize OSG's projections if they are inconsistent with the town's current or planned zoning. The town is to include a plan for meeting the projected need based upon the growth share derived from that projection, as well as its rehabilitation share and its prior round unmet need. COAH will determine whether the plan creates a realistic opportunity to meet that need.

Among other things, this approach will create a powerful incentive for municipalities to downzone residential properties to reduce the number of houses that can be constructed. This type of downzoning would proportionately reduce the "growth share" component of the town's fair share housing obligation. COAH's "growth share" approach is the one approach that the Supreme Court specifically held would be unconstitutional in its Mt. Laurel II decision, issued in 1983.

For the third round, a town's housing obligation will no longer include reallocated regional need. This was a housing obligation assigned to suburban towns to redress the overconcentration of minorities and poor families and individuals in the cities caused by historic practices of exclusionary zoning by suburban towns. The elimination of reallocated need from the third round housing obligation also conflicts with the New Jersey Constitution as applied by the Supreme Court in the Mt. Laurel II decision. As construed by the Supreme Court, the Constitution requires not only that exclusionary zoning be eliminated, but also that the harms created by past exclusionary zoning be redressed.

Although the new COAH regulations require that towns that did not satisfy their fair share affordable housing obligations during the "second round" period of 1987-99 must satisfy those unmet housing obligations in addition to their new "growth share" obligation, COAH has recalculated those unmet needs. For example, it has reduced prior unmet housing obligations arising out of "reallocated regional need" by half. In many towns, COAH's recalculation dramatically reduces those unmet prior housing obligations. It is foreseeable that many towns will seek to change the zoning of properties now zoned for multifamily inclusionary development because they will contend that they no longer "need" the affordable housing that would be built on that property to meet their reduced housing obligation.

Perhaps most important, the new regulations authorize municipal policies that potentially affect all property owners and all builders, not just those who voluntarily seek to construct affordable housing. The regulations authorize towns to increase developer "housing contribution" fees on all residential developments by 100 percent-from 0.5 percent of assessed value to 1 percent.

Growth Share Ordinances

The regulations also permit towns to meet their fair share housing obligations simply by adopting a zoning ordinance requiring that every residential development include one low or moderate income housing unit for every eight market priced units, or make an equivalent cash contribution to a municipal housing trust fund. In those towns, even those builders and property owners who had never sought to take advantage of density bonuses or favorable consideration for scarce public water or sewer capacity available to those constructing affordable housing may now be required to construct or fund such housing. This may be the case even in the smallest projects, and without any offsetting benefit. Every residential builder-willing or not- would be in the business of constructing lower income housing.

The New Jersey courts have never considered or upheld any attempt by a town to impose upon builders or property owners the burden of satisfying a town's fair share housing obligation without providing some genuine offsetting benefit. This is clearly a matter to be addressed by the courts in the months ahead.

COAH has also increased the portion of towns' housing obligations that can be met through construction of senior citizen housing from 25 percent to 50 percent. It is thus entirely feasible for a suburban town to meet its entire housing obligation through transfers to other towns (RCA's), and senior citizen housing, without providing for a single unit of housing within the town for non-senior citizen families. This is obviously problematic from a constitutional point of view.

Finally, the regulations also require a showing that the development is consistent with all policies in the State Development and Redevelopment Plan.

Conclusion

To respond to the opportunities created by the continuing shortage of affordable housing and to cope with the new obligations imposed by the "third round" regulations, builders will need to steer a careful course through the legal perils and pitfalls. Given the new COAH regulations, municipalities may seek to foist off on builders all burdens of satisfying the municipal constitutional obligation. All builders must be aware of the new regulation seemingly allowing municipalities to impose a Mt. Laurel set-aside on all developments regardless of the density. On the other hand, builders must, as always, monitor the Mt. Laurel status of municipalities of interest to fully explore opportunities within those towns. Numerous appeals challenging COAH's new regulations have been filed, and answers to some questions must await the outcome of those appeals. Nevertheless, all builders would be well-advised to immediately familiarize themselves with COAH's new regulations.

Stephen M. Eisdorfer is also a partner within the Land Use Division of Hill Wallack. He concentrates his practice in land use litigation, including Mt. Laurel litigation and litigation involving the civil rights statutes.