Editor’s note: This is an excerpt from an article in the October 2022 edition of the New Jersey Lawyer, The New Jersey Constitution - 75th Anniversary Issue. Members can read the full edition here.
By Hon. Peter A. Buchsbaum
The Courts Re-enter the Fray in 2015: In re N.J.A.C 5:96 and 5:971
The state constitutional requirement that each community in New Jersey plan to meet its fair share of the region’s need for affordable housing came into being with the first Mt. Laurel decision in 1975.2 The second decision, in 19833 put teeth into the Court’s ruling by holding that builders could get to build their projects if they sued and proved that the town’s zoning was exclusionary, which most of them were, due to widespread resistance to the first Mt. Laurel case.
An uproar followed. The Legislature finally acted, approving the Fair Housing Act,4 which set up an administrative agency, the Council on Affordable Housing, to administer the affordable housing obligation. In 1986, the so-called Mt. Laurel III5 ruling deferred to the agency and most cases were remitted to it for the next several decades. For a while, until around 2000, the agency basically did its job and two rounds of affordable housing plans were reviewed and for the most part approved based on allocation formulas it devised.
Unfortunately, the Mount Laurel Doctrine foundered after 2000. The agency set up to enforce it, the Council on Affordable Housing (COAH), essentially ceased to function. For 15 years it failed to adopt a valid set of affordable housing allocations for that period. Its efforts were rejected by the Supreme Court which found that all the formulas it had devised essentially rewarded exclusion by making past growth the key, even where a community has not grown due to restrictive ordinances.6 The Fair Share Housing Center (FSHC), a non-profit law office whose mission was to see Mt. Laurel implemented, petitioned the Court in aid of litigant rights to have the Court resume control over fair shares and enforcement of the affordable housing requirements. The Court gave COAH several deadlines for implementing valid fair share regulations.
In March 2015, the Court heard the FSHC petition for relief in an embarrassing oral argument in which the justices repeatedly asked the state whether any action was in the offing. The Deputy Attorney General, who was called upon to speak even before the appellant FSHC argued, had to admit nothing was being planned—no meetings, no staff consultation, no studies. The Justices had to deal with the reality that the administrative alternative to judicial enforcement it approved in 1986 had ceased to exist.
The March 2015 opinion was both forward looking and conservative. It confirmed that the fair share numbers had to be real. They could not simply be based on projections of local growth that were diluted by past exclusionary practices.7 Thus, the Court insisted upon a return to the kind of fair share formula that had informed the development of housing allocations in the 1994 to 2000 period. Such factors as available vacant land, percentage of the region’s non-residential ratables, comparative wealth, and employment had to be used since they did not reward prior restrictive practices.
Having decided that the Courts had to resume the task of supervising affordable housing, the Court had to lay out a path for doing so. In several respects, its holding in this regard was conservative. It agreed with the municipalities’ argument that they were not responsible for the delay, that it was COAH which had failed to carry out its duty to provide valid local allocations on which plans could be founded. It therefore gave all the towns the opportunity to file declaratory judgment actions which would include immunity from builder remedy lawsuits as they were developing new housing plans in good faith. While the Supreme Court envisioned a fairly short period for stays, the trial courts were very generous in granting extensions, due in part to the time needed to develop the new housing numbers and the complexity of formulating plans to implement those numbers.8
In addition, the Court resumed the use of court-masters to aid the parties to housing litigation in resolving disputes and to advise the trial court as to whether a municipal plan or a developer’s proposal should be treated as realistic. The Court also established a special group of judges to hear the cases, just as it had with Mt. Laurel II in 1983.9 The Court determined that the bulk of COAH substantive regulations in N.J.A.C. 5:93 adopted for the second round of housing plans should be used in specifying how such plans should be devised for the third round, covering the period 2015 to 2025. It thus adopted the statutory 10-year timeframe for plans and implicitly approved regulatory specifications as to densities, requirements for an income mix, rental bonuses, limits on senior citizen housing, length of affordability controls, and the like.10 In general, it held that the second-round methodologies for determining need should generally be used.
Critically, at the same time the Court gave localities a green light in devising innovative strategies to achieve compliance:
First, as we said in In re Adoption of N.J.A.C. 5:96 & 5:97, supra, previous methodologies employed in the First and Second Round Rules should be used to establish present and prospective statewide and regional affordable housing need. 215 N.J. at 620, 74 A.3d 893. The parties should demonstrate to the court computations of housing need and municipal obligations based on those methodologies.
Second, many aspects to the two earlier versions of Third Round Rules were found valid by the appellate courts. In upholding those rules the appellate courts highlighted COAH’s discretion in the rule-making process. Judges may confidently utilize similar discretion when assessing a town’s plan, if persuaded that the techniques proposed by a town will promote for that municipality and region the constitutional goal of creating the realistic opportunity for producing its fair share of the present and prospective need for low- and moderate-income housing.11
Accordingly, while the numbers should be determined objectively, municipal governments had leeway to decide how to achieve them. Objective factors like vacant land, relative wealth, growth in non-residential ratables, and substandard housing, rather than local predilections or history, would determine the local fair share, but critically communities were not given a one-size-fits-all straitjacket for implementation.
The Court also addressed the issue of unmet fair shares from the first and second rounds, i.e., the 1987 to 1999 obligations. Here, its holding was emphatic, not conservative. Because of housing recessions and other factors, including local resistance, some of these earlier plans had never been carried out. The Court responded, “our decision today does not eradicate the prior round obligations; municipalities are expected to fulfill those obligations. As such, prior unfulfilled housing obligations should be the starting point for a determination of a municipality’s fair share responsibility.”12
The Court further ensured that the proceedings to establish municipal compliance would be adequately monitored. While towns could seek a declaratory judgment of compliance which would exempt them from a builder’s remedy, they could do so only on notice to interested parties, including crucially the FSHC. The Court thus gave FSHC not only the right to notice of every municipal declaratory judgment proceeding but the unique right to intervene and be heard in all of them.13 The Court by these means established a four-pronged check on the implementation of housing obligations during judicial review:
1. FSHC input in every case plus any interested parties, including builders who might want their land included in a plan.
2. The court-masters who had to review the plan.
3. The Mt. Laurel judges’ independent review of the plans.
4. Processes for the broader public to be involved, including both proceedings at the municipal level for adoption of master plan elements and ordinances as well as a fairness hearing process before the court based upon the settlement of class actions in which anyone impacted by a municipal plan could be heard.
In addition, there was always the back up of a builder’s remedy lawsuit for towns which did not proceed in good faith.14
The Results—2015 to 2022
Over 340 New Jersey municipalities decided to take the option of filing declaratory judgment suits to avoid builder remedy litigation. The FSHC has participated in every one of these cases. Builders with property and private citizens have participated in many of them. The results reported by FSHC in a presentation to the State and Local Government Section/Land Use Institute Webinar in January 2021 are as follows:
• Projected 50,000+ additional affordable homes over next decade from 330+ municipal agreements following Mt. Laurel IV in addition to the 65,000 units developed earlier.15 FSHC also reported on the beneficial results of earlier Mt. Laurel development. New Jersey showed the greatest increase of all States in Share of Units Sited in Neighborhoods with under 30% Poverty (-29.9); New Jersey also showed the greatest decrease of all States in Poverty Exposure of Tax Credit Units (-11.5%).16
• For adults, access to housing reduced exposure to disorder and violence, improved mental health, and increased economic independence.
• For children, access improved education, learning conditions at home, school quality, and reduced exposure to disorder and violence.
• No adverse effects on taxes, property values, or crime rates.17
The range of techniques now being used to satisfy the housing obligations is truly remarkable. This writer’s experience as a court-master in just six of the 330 settled cases has included the following remarkable array, for both rental and for sale affordable homes:
1. Housing developments with a portion of units sets aside as affordable.
2. Adaptive reuse of uneconomic office space for affordable housing and retail uses.
3. Reuse of former sites for hospital and other facilities, like quarries.
4. Public private partnerships for the redevelopment of obsolete downtown properties.
5. Deed restrictions newly placed on existing multifamily dwellings.
6. Conversion of formerly proposed senior housing sites into sites for mixed family and affordable housing.
7. Overlay zones particularly in more built-up towns to ensure that any future reuse of currently occupied sites would include affordable homes.
8. Use of development fee trust funds and federal block grant moneys to fund rehabilitation of existing dwellings.
9. Development of alternative dwelling units like up to 10 units of accessory apartments in existing homes as well as group homes for people with disabilities.
10. Municipally sponsored construction of 100% affordable development where there is a realistic plan for such development.
This is based on only a small sample of the 340+ approved plans.18 All are encouraged by the applicable COAH regulations as described further on.
Where land is currently unavailable to meet the full obligation and it must be deferred, in built-up towns or those without access to sewer or water infrastructure, the housing obligation may be deferred but not extinguished. These so-called vacant land and/or durational adjustments provide a means for ensuring that changes in land use planning, for example, by redevelopment, must account for the unresolved fair share.
The Role of the Court-Masters and the Plan Approval Process
Court approval is a two-step process. The fairness hearing evaluates, with public input, whether both the fair share number used in a settlement and the mechanisms to address the obligation are fair to the low- and moderate-income class.19 Before the decision by Judge Mary C. Jacobson, there had been two competing fair share calculations. Most cases were settled with FSHC prior to the more definitive ruling by Judge Jacobson, allowing a discount of up to 30% off the third-round number in the expert’s study.
At the fairness hearing the proposed plan is scrutinized not only by FSHC and any objectors, but by the court-master and the court. Findings as to the adequacy of the proposed plan are placed on the record. These findings are subject to the municipality actually implementing the plan through resolutions, ordinances, contracts and appointment of administrative officials, all of which must be done before there is a final approval of the municipal plan, and entry of a judgment of compliance and repose, described below as the second step in the process.
The review of the plans is not cursory. Any housing sites must be (1) realistically available and developable, i.e., have access to infrastructure, approvable, e.g., have a reasonable chance of surviving environmental reviews, and (2) suitable, that is, compatible with other land uses.20 Unreasonable cost generative development requirements are not permitted as are impact studies that would question the density or suitability of a court-approved site.21 In other words, a town cannot require an impact study which would undermine the court’s determination of site suitability, density, or character. Minimum densities of 4 to 6 units per acre are generally mandated.22 If a municipality proposes to undertake its own construction, both the regulations and FSHC, along with the court-master, will want to see a realistic plan for funding and actual construction, with a back-up commitment to bond for any shortfall if grants do not cover the entire cost of the proposal.23
Similar to the effect of the Supreme Court’s 2015 decision, the regulations developed pursuant to the New Jersey Fair Housing Act encourage a variety of techniques for meeting fair share as described above24 But they also impose obligations, in particular, for rental housing, affordability standards, phasing in of affordable units in mixed income developments, bedroom mix, and affirmative marketing requirements.25 Further, they must accommodate a mix of incomes, averaging 52% of the HUD median income for the relevant region for for-rent units and 55% for for-sale units.26
Price controls enforce affordability standards. A for-sale unit must be priced so that no more than 28% of the family income be paid for mortgage interest and amortization, assuming a 5% down payment, plus insurance, property taxes which must be based on the price restricted value of the unit, and condo or homeowner fees. Rental units must have lease amounts that do not exceed 30%, including utility charges, of the relevant family income.27
The court, the court-master, and especially FSHC also review plans for rehabilitation of deficient units which are included in calculations of present need. Substandard units that are proposed to be rehabilitated to satisfy present need must meet minimum expenditures of $10,000 per unit, and are subject to affordability controls of 6 years for owner-occupied units and 10 years for rentals.28
At the conclusion of the process, after adoption of the necessary ordinances, bonding resolutions, spending plans, rehabilitation, and marketing manuals, and the like, the court will hold a compliance hearing to make sure the plan is being implemented. If it approves the plan, the court will issue a final judgement of compliance and repose like COAH’s former grant of substantive certification. The Order will recite the court’s findings that the plan has satisfied the Fair Housing Act and the Mt. Laurel doctrine. It will grant the municipality protection against builder remedy lawsuits and other Mt. Laurel litigation through the end of the planning period, now 2025.
The State is still always learning. For example, the early controls started expiring a few years ago. Their extension became a key problem. Hence, we now have provisions for options to buy units at the restricted price and/or continue controls at the end of the 30-year control term.29 The point here is that these regulations, in both their flexibility and their demands, are a rich source of potential solutions for a whole host of affordable housing issues that exist through our country.
What Now: The Future of Mt. Laurel and Affordable Housing
New Jersey has a framework in place. But frameworks are not a building. The 50,000 units projected by FSHC will hopefully appear in real life before too long. But there are no guarantees. A lot depends on the ability of FSHC and the courts plus compliance monitors to keep watch. Will there be resistance when developments actually have to come in for approvals before local board and State regulatory authorities? Many developments were stalled in the past during the local approval process when local boards had to confront unfriendly neighbors clamoring that the whole thing was a mistake.30 How will courts, agencies, and localities actually manage the process between approval of a housing plan and actual construction. The record over the past twenty years does not suggest that plan certification equates to shovels in the ground. New Jersey still has a multi-level development approval process heavily dependent on State as well as local approvals from a variety of entities, from sewer authorities, to zoning officers, to State department regulators, and time is the enemy of affordable housing. These issues have been addressed to some extent by the enforcement of the requirement that all proposals show that they can be approved, and by the broad discretion given to municipal plans, but a prediction is not an outcome.
Also, with so many municipal projects being proposed, will the communities actually get the grants, and spend the money needed to see these housing opportunities come to fruition, especially if neighbors show up to complain? Who will keep the foot on the housing pedal when they do?
The economy also can hold surprises. Many of the units approved in the first and second rounds were stalled by housing recessions that recurred in the 1990s, and especially 2008. By the time the recessions had lifted, housing preferences had changed, away from suburban townhomes of the kind projected in the second round, 1994 to 2000. The great variety of housing types proposed now will help by providing a more resilient choice of dwellings. But as the Supreme Court itself remarked in Mt. Laurel III, uncertainty characterizes predictions about residential building.31
One giant question is the fourth round. The process is supposed to begin anew in 2025, a mere three years from now. How that will occur can only be guessed now.
The bottom line, as stated in Mt. Laurel II, is that courts “may not build houses, but we do enforce the Constitution.”32 The builder’s remedy remains a real backstop option if all else fails.33 New Jersey courts have acted more emphatically and empathetically than those elsewhere, giving our State better odds than most of our nation to make progress in reaching its affordable housing goals.
Endnotes
1. 221 N.J. 1 (2015). The case is also known as Mt. Laurel IV.
2. 67 N.J. 151 (1975).
3. 92 N.J. 158 (1983).
4. N.J.S.A. 52:27D-301 et seq.
5. 103 N.J. 1 (1986).
6. See, infra, n.7.
7. See In re Adoption of 5:96 and 5:97, 215 N.J. 578 (2013), voiding the so-called growth share approach. COAH missed several deadlines imposed by the Supreme Court for adopting new, compliant regulations for fair share allocations. The Court finally ran out of patience in March 2015.
8. Several trial courts grappled with the various allocation methodologies that had been advocated by the interested parties. Matter of Application of Township of South Brunswick, 448 N.J.Super. 441 (Law Div. 2016), and the later opinion by Judge Jacobson in March 2018, involving West Windsor and Princeton townships. Colleen O’Dea, NJ Court Determines How Many Affordable-Housing Units Needed by 2025, NJ Spotlight News (Mar. 12, 2018) (njspotlight.com/2018/03/18-03-11-nj-superior), finding the state-wide need including the gap period to be 155,000 units of affordable housing. This opinion has not been officially published.
9. The Court decided to appoint a special Mt. Laurel judge in each of the state’s 15 judicial vicinages.
10. These specifications are discussed, infra.
11. 221 N.J. at 30. Subsequent pages, 221 N.J. at 30-33, described some specific modifications in the calculation of need and fair share that had been approved by the courts. Examples are bonuses for transit-oriented development, elimination of certain factors in estimating substandard housing, and credits for extension of affordability controls. The details of fair share calculation may be fascinating, but they would require an entirely separate article. This essay is more concerned with the dynamics of achievement, recognizing that achievement of the full need is aspirational.
12. Id. The Court later decided that needs generated during COAH’s 15-year period of dormancy also had to be addressed. In re Declaratory Judgments, 227 N.J. 508 (2017).
13. 221 N.J. at 23.
14. This has happened. In re Township of East Brunswick, Docket No. L-4013-15 (N.J.Super.Ct., Law Div. 2022), order filed February 24, 2022.
15. David N. Kinsey, Ph.D., FAICP, NJPP, Kinsey & Hand, Planning, Princeton, New Jersey, with data provided by NJ COAH, December 2014, from data recorded by municipalities and reported to NJ DCA.
16. Ellen, Ingrid G., Keren Horn, Yiwen Kuai, Roman Pazuniak, and Michael David Williams, “Effect of QAP Incentives on the Location of LIHTC Properties” U.S. Department of Housing and Urban Development Office of Policy Development and Research (2015).
17. Massey and other studies cited in Rothstein, Color of Law studying Ethel Lawrence Homes in Climbing Mt. Laurel, Douglas Massey, et al. (2013).
18. This material is taken from review of the Housing Plans submitted to the Court by the author as court -master in Washington, North Plainfield, and Peapack-Gladstone and Bernardsville Boroughs, the Town of Clinton, and Lebanon Township.
19. The fairness hearing procedure was first set out in Morris County Fair Housing Council v. Boonton Twp., 197 N.J. 359 (Law Div.), aff’d o.b. 209 N.J.Super. 108 (App.Div 1986), and East/West Venture v. Borough of Ft. Lee, 286 N.J.Super. 311 (App.Div. 1996). Both the fairness hearing and the ultimate compliance hearing must be conducted with public notice and an opportunity for citizens to be heard by the Court. Notice is given by mail to the interested party list and by publication.
20. N.J.A.C. 5:93-5.3(b).
21. N.J.A.C. 5:93-10.2 & 10.3.
22. N.J.A.C. 5:93-5.6.
23. N.J.A.C. 5:93-5.5. See also N.J.A.C. 5:93-5.2 (h) which requires a similar municipal commitment to fund rehabilitation programs.
24. See n.19, supra, and N.J.A.C. 5:93- 5.9 to 5.16. It is noted that the references in the regulations, e.g., 5:93-6, to regional contribution agreements, i.e., paying a city to undertake part of a suburbs obligation, are no longer valid since the authorization for RCA’s has been repealed. P.L. 2008, c.48, §16.
25. N.J.A.C. 5:93-5.6 (d), 5:93-5.15, 5:93-7.4; 5:93-11.
26. N.J.A.C. 5:93-7.4.
27. N.J.A.C. 5:93-7.4 (h) and (i). In its January 2021 presentation, FSHC gave examples of how these price controls make a difference. Market rents in a rental complex near Princeton were $2,260 for a one bedroom to $4,565 for a three bedroom; the corresponding affordable rentals were $580 to $1,160 and $804 to $1,608, based on income ranges for the affordable units.
28. N.J.A.C. 5:93-5.2(g)-(k). $2,000 of this sum may be used for administration of the rehabilitation program.
29. N.J.A.C. 5:93-5.4.
30. Signs of this resistance are still evident. See the controversy over units proposed for among other things property formerly owned by Rosie O’Donnell in the extraordinarily affluent community of Saddle River close to New York City. northjersey.com/story/news/bergen/saddle-river/2020/03/03/saddle-river-nj-residents-protest-affordable-housing-settlement/4938843002/ (Mar. 4, 2020). President Nixon spent his retirement there.
31. Hills Development Co. v. Bernards Twp., 103 N.J. 1, 54 (1986).
32. 92 N.J. at 213.
33. Toll Brothers v. West Windsor Twp., 173 N.J. 502 (2002).
Hon. Peter A. Buchsbaum, Ret., is now of counsel to the Flemington firm of Lanza and Lanza, doing affordable housing court-master work. He served as Mt. Laurel Judge for Vicinage 13, which includes Somerset, Warren, and Hunterdon counties. This article is adapted from earlier versions which appeared in 44 Zoning and Planning Law Reports Issue 7 at 1 (2021) and 57 Willamette L. Rev. 201 (2021).