New Jersey Affordable Housing Saga Continues: COAH’s New Regulations

May 2014Articles In the Zone

On April 30, 2014, the Council on Affordable Housing (COAH) approved proposed Third Round Regulations and authorized the publication of the new regulations in the New Jersey Register in accord with the State Supreme Court’s March scheduling Order. The new regulations will be published on June 2, 2014, and the public comment period will expire on or about August 4, 2014. COAH has scheduled a public hearing on Wednesday, July 2, 2014, to receive public comment on the proposed rules.

By way of a brief background, the rules adopted by COAH represent the third attempt by the Council to adopt a constitutional methodology and compliance standards to meet the New Jersey’s constitutionally mandated Mount Laurel affordable housing obligation. The prior two attempts each were found to be unconstitutional.

In the Matter of the Adoption of N.J.A.C. 5:96 and 5:97 by the New Jersey Council on Affordable Housing. 215 NJ 578 (2013); In re Adoption of N.J.A.C. 5:94 and 5:95, 390 N.J. Super. 1 (App. Div. 2007).

As a result, municipal affordable housing obligations have not been definitively calculated since the expiration of the prior round on June 30, 2000. More than 14 years have elapsed without any constitutional guidelines to determine municipal affordable housing obligations and how those obligations will be satisfied.

The new Third Round rules, however, violate the Supreme Court’s prior ruling and are potentially unconstitutional. The Supreme Court’s directive was that COAH calculate and allocate affordable housing obligations for the third round following the prior round (1987-1999) methodology. Instead, COAH has proposed a methodology for calculating the affordable housing obligations that neither follows the prior round methodology, nor adheres to the Supreme Court’s prior decisions in this field.

The proposed regulations have generated agreement among municipal, developer, environmental and affordable housing advocates who have all voiced concerns regarding the validity of the methodology used to calculate affordable housing obligations and the effectiveness of the available compliance mechanisms to meet this obligation.

Some of the highlights relative to the proposed rules are the alleged reliance on private market production of affordable units as the primary mechanism to assure production of affordable housing. The proposed rules provide for a mandatory 10 percent affordable housing set aside, with no minimum density standards. This presumptive 10 percent set aside for all inclusionary developments requires an economic feasibility analysis to support any density bonus for affordable housing set asides greater than 10 percent, or justification for all other requested compensatory benefits. The economic feasibility and compensatory benefit study requires an assessment of capital markets, an assessment of whether “the rate of return is sufficient to attract developers” and the assessment of the development and how it will affect the “character of the community.” However, there are no guidelines as to what is “feasible,” or what is a sufficient rate of return, and these factors have universally been rejected by courts as requirements for establishing inclusionary zoning.

Municipalities are faced with a very difficult problem. The proposed rules eliminate all bonus credits. Coupled with the revocation of regional contribution agreements, the end result is that affordable housing requirements will be required to be developed within the municipality, and on a unit per credit basis. COAH’s rule proposal eliminates rental bonus credits, and substantially increases rehabilitation requirements.

These rules establish a new methodology to calculate third round obligations. This methodology does not follow the 1987-1999 methodology. The methodology reduced affordable housing requirements by a 24,925 unit filtering deduction from overhaul need, the use of certificates of occupancy issued from 2011 to 2013 (the depth of the reception) to project housing activity and development moving forward, and most notably, undertaking a statewide vacant land analysis to reduce the affordable housing obligation based on the alleged lack of available developable land.

Finally, the calculation of development potential for remaining vacant land is calculated based upon the average net density of the municipality. Therefore, the more exclusionary a municipality, the more it is rewarded by a reduced number of available units through the “realistic development potential” of the remaining land. The regulations contain other flaws as well.

The proposed rules will be published in the New Jersey Register on June 2, 2014. The public comment period commences on June 2 and will expire on or about August 2, 2014. Property owners, developers and affordable housing advocates have this opportunity to weigh in on the proposed regulations and begin to establish a record whereby these regulations can be either modified, or successfully challenged.

View the entire issue of In the Zone (pdf)