New Jersey’s approach to providing sufficient affordable housing has a long history and its next chapter is set to begin on July 1, 2025. The state’s caselaw on constitutional affordable housing creates opportunities for developers to increase residential zoning density and foster redevelopment. 

Developers should begin strategizing now to take full advantage of the ways the state’s case law incentivizes the construction of affordable housing units.

Background

New Jersey municipalities have a constitutional obligation to provide a realistic opportunity for the production of low- and moderate-income affordable housing. In a series of decisions collectively referred to as the Mount Laurel Doctrine, New Jersey courts have created a process to determine municipal compliance with their affordable housing obligations.

Currently, a municipality’s compliance with the Mount Laurel Doctrine is determined through declaratory judgment actions filed in a municipality’s specific Superior Court vicinage. These actions allow a municipality to seek immunity from builder lawsuits while the municipality prepares a Housing Element and Fair Share Plan.

These Fair Share Plans function as a municipality’s roadmap for satisfying its regional fair share of affordable housing. Once the municipality prepares the Fair Share Plan and the court approves it through the granting of a Final Judgment of Compliance and Repose, or JOR, a municipality is protected from future builder lawsuits, which could expose them to rezonings imposed by the court. If the municipality does not receive a JOR, multiple Builder’s Remedy lawsuits could be filed resulting in court-ordered rezonings.

As of April 2023, more than 340 Fair Share Plans have been approved in connection with the Third Round of compliance with the Mount Laurel Doctrine. Fair Share Housing Center reports that more than 20,000 affordable housing units have been created through the declaratory judgment process.

The Third Round covers obligations up to July 1, 2025. After that date, municipalities enter the Fourth Round – a 10-year period from July 1, 2025, to June 30, 2035 – and will need to prepare new Fair Share Plans by again proving that they have provided a sufficient amount of zoning opportunities for the production of the municipality’s fair share of affordable housing for the Fourth Round.

The new Fair Share Plans must cover not only new regional fair share housing estimates for the Fourth Round, but also any prior, incomplete obligations from the Third Round. While this procedure may change in the next two and a half years, there are at present no legislative changes in the process. Therefore, the Third Round procedures are expected to provide the mechanism used to determine municipal compliance in the Fourth Round.

Why is this important for developers?

While the Fourth Round may appear to concern only municipalities, developers should be aware of the opportunity this creates for new developments. To incentivize the construction of affordable housing units, New Jersey courts have permitted sites currently zoned residential to have greater market-rate unit densities than otherwise allowed under their current zoning or, in some cases, even allowed the rezoning of non-residentially zoned areas to create residential or mixed-used developments.

To be included in these new Fair Share Plans, however, developers need to know:

• if their sites could be seen as an attractive opportunity for such inclusionary zoning (i.e., adequate size, access to roads, utilities, etc.)
• if the municipality is aware of and receptive to such a site

This is a delicate process because, although some municipalities are receptive and proactive in their approach to complete their Fair Share Plans, others will include such sites in their Fair Share Plans only after a Builder’s Remedy action has been filed. In some municipalities, there will be heavy competition among developers to have their sites selected and deemed the best location for these rezonings.

Developers who do their homework earlier will likely benefit in this process. Critically, developers who are not a part of the Fair Share Plan proposed by the municipality to the court or who do not intervene early enough in a municipality’s declaratory judgment action may be closed out from the process altogether.

The bottom line is that the declaratory judgment process provides an opportunity to rezone and redevelop properties for substantially greater densities, as well as to reposition underperforming office and retail properties to mixed use projects.

What to look for in the lead-up to July 2025

During the lead-up to the Fourth Round, municipalities will begin to review which sites in their Fair Share Plans still provide a realistic opportunity for low- and moderate-income housing. Some Fair Share Plans were approved only recently, and, therefore, their sites may likely still be considered realistic by the court. Other sites may be stale because some municipalities obtained their Fair Share Plan approval as early as 2017. This creates opportunities for developers in communities that were previously deemed compliant. These sites may become stale for various different reasons from changed utility access, topography, or changes in state land use laws such as the new Stormwater and Flood Hazard Area rules.

There is also an opportunity to intervene and assert site specific relief in instances where a municipality has failed to properly implement its Fair Share Plan. This is particularly important to evaluate in municipalities that are already substantially built out and have received a “vacant land adjustment.” A “vacant land” municipality may be forced to include “new development opportunity” properties into the Fair Share Plan if the approved Fair Share Plan has failed to produce affordable housing.

Although the affordable housing numbers for the Fourth Round have not been determined, the Third Round’s methodology may shed light on the prospective need for affordable housing unit production in certain municipalities. Therefore, some municipalities will likely require more affordable housing units than are currently provided in their zoning given the potential for growth in the next 10 years.

For more information, please contact Ruben D. Perez at rperez@foxrothschild.com, Elizabeth J. Hampton at ehampton@foxrothschild.com or Jeffrey R. Chang at jrchang@foxrothschild.com.