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COAH Proposal Would Overhaul Affordable Housing Policy, Abandon Past Approaches to "Fair Share" Determinations by Linking Municipal Obligations to Actual Growth



March 8, 2004

Since its creation in the 1985 Fair Housing Act, the Council on Affordable Housing (“COAH”) has been charged with determining the scope of each municipality’s constitutional obligation to provide for affordable housing. As articulated by the Supreme Court in Southern Burlington County NAACP v. Mount Laurel Township, 67 N.J. 151 (1975) (“Mount Laurel I”), and Southern Burlington County NAACP v. Mount Laurel Township, 92 N.J. 158 (1983) (“Mount Laurel II”), that obligation consists of providing a “realistic opportunity” for the development of affordable housing. The Fair Housing Act codifies that obligation, and directs COAH to translate the Supreme Court’s vague standard into more definite criteria. The COAH process results in a determination of each municipality’s “fair share” — just how many affordable units each municipality must provide. In new substantive regulations, officially released for public comment on October 6, 2003, see 35 N.J.R. 4636(a) (Oct. 6, 2003), COAH has proposed a sweeping change in the way a municipality’s fair share is determined. In essence, each municipality, rather than COAH, will in large part be responsible for deciding how many units of affordable housing it must provide in the future. (COAH is also proposing changes to its procedural rules. See 35 N.J.R. 4700(a) (Oct. 6. 2003).) With the comment period now having closed, COAH’s next step is to promulgate the new rules in final form.

COAH’s proposed “third round methodology” for addressing municipalities’ Mount Laurel obligations would cover the period from 1999 to 2014. The first round rules covered the period from 1987 through 1993, and the second round rules, which will remain in effect until the new rules are adopted in final form, covered the period from 1994 through 1999. Fair share calculations from previous rounds will remain in effect even after the new rules are adopted.

Under the first and second round rules, COAH used estimates of statewide and regional obligations and a formula that considered such factors as available land and real estate prices to generate each municipality’s fair share, in the form of a specific number of units that had to be provided. This “top-down” approach often drew the ire of local planning and zoning officials, who lost some of their power to determine the pace and direction of development as a result of COAH’s requirements. The availability of the “builder’s remedy,” reaffirmed just last year by the Supreme Court in Toll Brothers, Inc. v. Township of West Windsor, 173 N.J. 502 (2002), exacerbated this problem for municipal officials. As explained in a recent E-InSites article, the builder’s remedy allows a developer to exceed local density limits if it can show that the municipality has fallen short of its Mount Laurel obligations and the proposed development sets aside at least fifteen percent of the units for affordable housing.

The new third round rules take a radically different, “bottom-up” approach to fair share determinations. Designed to be at once “more flexible and less negotiable,” the proposed rules allow the municipalities themselves to determine, in large part, their own affordable housing obligations. A municipality’s affordable housing obligation will consist of a “rehabilitation share” (the number of substandard units that the municipality must rehabilitate, as identified by COAH) and a “growth share,” which is determined by the municipality’s own development decisions. The growth share will be based on actual residential and nonresidential development in the municipality. Thus, through its decisions about how much new development to allow, a municipality will determine its own growth share. See 35 N.J.R. at 4641 (proposed N.J.A.C. 5:94-2.1).

A municipality’s growth share will be the sum of two figures, one based on residential growth, the other based on nonresidential growth. For new residential development, the calculation is straightforward: the municipality will have to provide one unit of affordable housing for every ten new units of residential development. Id. (proposed N.J.A.C. 5:94-2.1(d)).

For new nonresidential development, the calculation is more complicated. For each nonresidential development project, the new square footage is multiplied by a factor (listed in Appendix E to the proposed rules) to yield an assumed number of new jobs added by that project. This multiplier (representing new jobs per thousand square feet) ranges from 0.5 for storage uses, to 1 for retail stores, 2 for factories, and 3 for office buildings and restaurants. (Some uses, such as churches, are excluded.) For every 30 new jobs added by new nonresidential development — as calculated from the square footages — the municipality will have to provide one unit of affordable housing. Id.; id. at 4699 (Appendix E).

While much simpler than the first and second round methodologies, COAH’s proposed method for calculating the growth share has its own imperfections. First, to the extent that a given nonresidential project adds more or fewer jobs than the figure based on COAH’s factors for converting square footage to jobs, the accuracy of the municipality’s calculated growth share will suffer. For example, two municipalities that add the same number of square feet in new office buildings are treated the same way in terms of their growth shares, even if actual job growth differs. Second, COAH’s formula ignores new jobs added at existing commercial and industrial establishments. Thus, a municipality experiencing rapid job growth because of new hiring at an existing factory will see no change in its growth share, while a municipality experiencing the same level of job growth because of new construction will see its growth share increase.

According to COAH, the new methodology is more flexible because it allows municipalities to craft affordable housing plans that recognize their “unique needs and circumstances.” COAH also emphasizes the new rules’ consistency with sound land use and long-range municipal planning, with the State’s policies on “smart growth,” and with the State Development and Redevelopment Plan. As a COAH press release stated, “Under the proposed methodology, affordable housing will not drive planning decisions; instead, sound planning decisions will drive the location and type of affordable housing to be provided.”

At the same time, COAH argues that the new rules will make affordable housing obligations less negotiable by linking them to actual growth. Instead of inviting disputes over how many affordable units a municipality could or should provide, the new rules set forth definable benchmarks — actual residential and nonresidential growth — that unambiguously determine a municipality’s growth share. As noted above, however, by relying on assumed rather than actual job growth, and ignoring job growth at existing facilities, the new rules may end up treating similarly situated municipalities differently.

COAH’s high hopes for the new rules are not universally held. Critics have charged that the proposed regulations violate both the Supreme Court’s Mount Laurel doctrine and the Fair Housing Act by giving municipalities, rather than COAH, the power to determine their own affordable housing obligations. They point out that by deciding not to allow any growth at all, a municipality can completely avoid the obligation to provide any new affordable housing. In addition, the critics argue, in the absence of quotas set by COAH, the effectiveness of the builder’s remedy as a tool for effectuating the goals of the Mount Laurel doctrine will be severely diminished.

Whatever their merit, the new third round rules cover only the period from 1999 through 2014, and, as noted above, will not affect obligations from the first and second rounds. A municipality’s total fair share will consist of the sum of the third round share (rehabilitation share plus growth share) plus any unmet portion of its fair shares from the first and second rounds. 35 N.J.R. at 4639 (proposed N.J.A.C. 5:94-1.4, defining 1999-2014 fair share); id. at 4641 (proposed N.J.A.C. 5:94-2.1(c)).

Among the other changes detailed in the October 6 notices, which cover 74 pages in the New Jersey Register, COAH is also proposing a major change in the way a municipality can satisfy part of its affordable housing obligation through a Regional Contribution Agreement, or RCA. Under an RCA, a municipality can satisfy up to fifty percent of its obligation by paying a fee (increased under the new rules from $25,000 to $35,000 per unit, see id. at 4645 (proposed N.J.A.C. 5:94-5.4(a)), which is used by another municipality to provide affordable housing.

RCAs have long been permitted, but until now COAH’s regulations have required a voluntary agreement between the “sending municipality” (which sends some of its obligation along with the fee) and a “receiving municipality” (which receives the fee and agrees to satisfy the obligation) within the same housing region. The new rules eliminate this restriction by authorizing the creation by COAH of a Statewide Affordable Housing Fund and permitting a municipality to transfer part of its obligation to that fund (if COAH decides to create it). See id. at 4644-45 (proposed N.J.A.C. 5:94-5.1). By eliminating the need for sending and receiving municipalities to find willing partners and then negotiate mutually acceptable agreements, COAH hopes that this statewide RCA “bank” will allow municipalities to build affordable housing where they need it more quickly and efficiently. Critics worry that at least some of the “banked” units will never be built, and that the statewide fund will increase the unfairness of the system by making it even easier for rich municipalities to buy their way out of at least part of their Mount Laurel obligation.

The proposed rules were published in the October 6, 2003 issue of the New Jersey Register.