407 West State Street, Trenton, NJ 08618  (609)695-3481  NJLM logo 
William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director
NJLM - Understanding Your Affordable Housing Obligation
BUILD AS YOU GROW
Understanding Your Affordable Housing Obligation


By:

Edward J. Buzak, Esq.
Chairman, State League of
Municipalities Affordable
Housing Committee




INTRODUCTION.

In response to complaints that the process of the New Jersey Council on Affordable Housing ("COAH") stimulates and encourages sprawl while still remaining true to the constitutional obligation of municipalities to provide a realistic opportunity for the construction of low and moderate income housing, COAH launched a bold and innovative program to determine municipal obligations for affordable housing. The new method of calculating the obligations, coupled with unique and proactive methods to satisfy the obligation, is anticipated to signify a new era of addressing the thorny and politically sensitive issue of providing for affordable housing while stemming sprawl.

"Growth Share" provides a municipality with a mechanism to predetermine its future affordable housing obligations by careful and deliberate land use planning. No longer will the obligation of municipalities to provide for affordable housing be based upon speculative projections of population, employment and economic growth. Instead, it will be based upon actual residential growth and employment growth.

GROWTH SHARE.

Over the period 1987 through 1999, COAH went through two "rounds" of calculating the affordable housing obligations for the 566 municipalities in this state. The obligations were based upon a complicated formula of speculative projected statewide and regional population, economic and employment growth which was then allocated to individual municipalities, according to land availability, employment growth, and income of residents. Since municipalities had to first produce a plan that provided a realistic opportunity to achieve those numbers and then actually achieve those numbers, critics have long complained that the system instigated sprawl and growth as opposed to responding to the need created by market forces. Opponents have characterized the theoretical and philosophical underpinnings of the previous methodology as the "field of dreams" philosophy -- "build it and they will come". While the Fair Housing Act and the COAH process did provide a municipality with the opportunity to control its own destiny to the extent of selecting among the menu of compliance mechanisms, the previous formula gave a municipality no control over its future obligation. Municipalities were forever catching up to an elusive objective which moved forward every time they approached satisfaction. Municipalities could never know where their obligations would go when the next six year cycle approached.

In a move that defies the bureaucratic inertia that is typically attendant to the regulatory process, COAH, led by DCA Commissioner Susan Bass Levin, has proposed a "build as you grow" philosophy whereby municipalities will incur an obligation for affordable housing based upon their actual residential and non-residential growth. Dubbed "Growth Share", the methodology establishes a simple ratio for providing affordable housing based upon actual growth over the period 2004 - 2014. One of every 10 housing units for which building permits are issued must be affordable (nine market units and one affordable unit). Furthermore, for every 30 jobs created, one unit of affordable housing is added to the obligation. The rule proposal measures job growth by jobs per square foot of construction. For instance, an office building is calculated to provide 3 jobs for every 1,000 square feet. Appendix E of the regulation provides a simple way to calculate job growth. Since municipalities through their planning and zoning process should regulate the scope and intensity of development within the confines of the New Jersey Constitution and the Municipal Land Use Law, municipalities could now not only predict, but more importantly direct, the growth that would determine its future housing obligation.

Let there be no misunderstanding -- the ratios established, one in 10 for residential units and one in 30 for jobs, were developed utilizing the 2000 Census data and sophisticated and complex statistical analysis. By necessity, the ratios established are bottomed in projections of residential growth and in employment growth as were the former numbers. However, the thirteen year history (1987 - 1999) coupled with the 2000 Census data, provided a less speculative projection than in the past. Moreover, the critical difference in the new methodology from the old is that the establishment of affordable housing obligation is, in the end, dependent solely on actual residential and non-residential growth, not mere speculation. Of course, to develop the Fair Share Plan and Strategy, each municipality must embark upon a projection of the degree of residential and non-residential growth it will experience over the next 10 years based upon Construction Permits issued for residential and non-residential development, approval of development applications for both residential and non-residential construction, and probable residential and non-residential development of lands based upon zoning and the market. However, the actual obligation to provide units will be based upon actual, not projected, growth.

THE NUMBER.

In addition to "Growth Share", the Number (Fair Share Obligation) consists of two additional components. The first is the Rehabilitation Share, a staple in any formula for calculating affordable housing needs. The Rehabilitation Share consists of the total substandard housing units occupied by low and moderate income families in the municipality, based upon the 2000 Census data. If a municipality can demonstrate that it has rehabilitated units since 2000, it will be given credit for that rehabilitation against its obligation. As in the past, municipalities can undertake their own survey of substandard housing if they believe the Census data is inaccurate. Three indicators of deficiency are utilized to establish the rehabilitation component: (i) 1.01 or more persons per room in housing built in 1939 or before; (ii) inadequate plumbing facilities evidencing a lack of exclusive plumbing or incomplete plumbing facilities; or (iii) inadequate kitchen facilities indicated by a shared use of a kitchen or the non-presence of a sink with piped water, a stove or a refrigerator. This last indicator is adjusted for the purposes of the calculation and then the municipality is provided with a credit against that figure. There is no need to do the calculation -- Appendix C of the regulations sets forth the net Rehabilitation Share of each municipality in the state.

The second component represents the Remaining Prior Round Obligation for the period 1987 through 1999. This Obligation consists of the first round prospective need, the second round prospective need, and the second round reallocated present need, all as adjusted by actual 2000 Census data. In other words, as mentioned above, a municipality's obligation for affordable housing in the first two rounds was based upon projections and speculation of various indicators of growth. Some of those projections were accurate, but many were not. The Remaining Prior Round Obligation has now been adjusted based upon actual data. That adjusted figure is then reduced by prior round deliveries of credits, reductions and other adjustments, to produce a net Remaining Prior Round Obligation. To further understand the remaining obligation a footnote at the end of Appendix D should be reviewed.

This second additional component is necessary so that municipalities that have failed to satisfy any of their obligation in the past rounds do not walk away from that obligation. They must still fulfill the obligation from 1987 through 1999. To the extent that that Obligation may be less than originally projected, those municipalities must satisfy the lesser number. Those municipalities that have already satisfied the higher unadjusted obligation, and have taken advantage of the COAH process (or who were compelled to address their affordable housing obligation based upon litigation), receive a credit for their "oversubscription" to be applied to their third round Fair Share Obligation. Therefore, several municipalities have significant credits against their future "Growth Share" and are not punished for their efforts.

In summary, a municipality's Number is made up of three components (i) Rehabilitation Share; (ii) the adjusted Remaining Prior Round Obligation (1987 - 1999); and (iii) Growth Share.

COMPLIANCE.

The mechanisms available to a municipality for satisfying its obligation have been refined and expanded. While the details of each mechanism are beyond the scope of this article, a few of the more important techniques include the reintroduction of ECHO ("Elder Cottage Housing Opportunities") housing, expanding age restricted housing limit to 50% (up from 25%), providing additional credits for units with enhanced handicap accessibility and units available to very low income sales units (2 for 1), increasing developer's fees by 100% (while increasing RCA obligations from $25,000 to $35,000 per unit) and proposing the creation of a statewide affordable housing fund as a repository for Regional Contribution Agreement payments.

CONCLUSION.

The utilization of a "Growth Share" approach prospectively equips municipalities with a control over their own destiny beyond that which was contained in the old Rules. Under the proposed regulations, not only can a municipality participate directly in its method of complying with its obligation, but it can now control the extent of its future obligation by exercising its planning and zoning powers to reduce the level of residential and non-residential development within its boundaries to deal with its prospective growth. The "field of dreams" philosophy has been replaced with a "build as you grow" philosophy which puts the ability to control sprawl squarely in the hands of municipalities. If the proposed regulations are adopted and if municipalities utilize the powers granted to them, they will have significant control over the way in which they will develop.

The proposed regulations will face public scrutiny through at least three public hearings and 60 day comment period proposed by DCA. Opponents to the regulations have already threatened litigation and, it may be years before the validity of the regulations is ultimately decided. This is particularly unfortunate because as the years go by, non-recoverable time is lost in squarely dealing with the issue. Housing for low and moderate income families is an extremely difficult issue to address, and the variations in dealing with it are endless. We all may be better off in seeing how the proposed regulations actually work rather than anticipating their demise before their actual birth.

407 West State Street, Trenton, NJ 08618  (609)695-3481  NJLM logo 
William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director
BUILD AS YOU GROW
Understanding Your Affordable Housing Obligation


By:

Edward J. Buzak, Esq.
Chairman, State League of
Municipalities Affordable
Housing Committee




INTRODUCTION.

In response to complaints that the process of the New Jersey Council on Affordable Housing ("COAH") stimulates and encourages sprawl while still remaining true to the constitutional obligation of municipalities to provide a realistic opportunity for the construction of low and moderate income housing, COAH launched a bold and innovative program to determine municipal obligations for affordable housing. The new method of calculating the obligations, coupled with unique and proactive methods to satisfy the obligation, is anticipated to signify a new era of addressing the thorny and politically sensitive issue of providing for affordable housing while stemming sprawl.

"Growth Share" provides a municipality with a mechanism to predetermine its future affordable housing obligations by careful and deliberate land use planning. No longer will the obligation of municipalities to provide for affordable housing be based upon speculative projections of population, employment and economic growth. Instead, it will be based upon actual residential growth and employment growth.

GROWTH SHARE.

Over the period 1987 through 1999, COAH went through two "rounds" of calculating the affordable housing obligations for the 566 municipalities in this state. The obligations were based upon a complicated formula of speculative projected statewide and regional population, economic and employment growth which was then allocated to individual municipalities, according to land availability, employment growth, and income of residents. Since municipalities had to first produce a plan that provided a realistic opportunity to achieve those numbers and then actually achieve those numbers, critics have long complained that the system instigated sprawl and growth as opposed to responding to the need created by market forces. Opponents have characterized the theoretical and philosophical underpinnings of the previous methodology as the "field of dreams" philosophy -- "build it and they will come". While the Fair Housing Act and the COAH process did provide a municipality with the opportunity to control its own destiny to the extent of selecting among the menu of compliance mechanisms, the previous formula gave a municipality no control over its future obligation. Municipalities were forever catching up to an elusive objective which moved forward every time they approached satisfaction. Municipalities could never know where their obligations would go when the next six year cycle approached.

In a move that defies the bureaucratic inertia that is typically attendant to the regulatory process, COAH, led by DCA Commissioner Susan Bass Levin, has proposed a "build as you grow" philosophy whereby municipalities will incur an obligation for affordable housing based upon their actual residential and non-residential growth. Dubbed "Growth Share", the methodology establishes a simple ratio for providing affordable housing based upon actual growth over the period 2004 - 2014. One of every 10 housing units for which building permits are issued must be affordable (nine market units and one affordable unit). Furthermore, for every 30 jobs created, one unit of affordable housing is added to the obligation. The rule proposal measures job growth by jobs per square foot of construction. For instance, an office building is calculated to provide 3 jobs for every 1,000 square feet. Appendix E of the regulation provides a simple way to calculate job growth. Since municipalities through their planning and zoning process should regulate the scope and intensity of development within the confines of the New Jersey Constitution and the Municipal Land Use Law, municipalities could now not only predict, but more importantly direct, the growth that would determine its future housing obligation.

Let there be no misunderstanding -- the ratios established, one in 10 for residential units and one in 30 for jobs, were developed utilizing the 2000 Census data and sophisticated and complex statistical analysis. By necessity, the ratios established are bottomed in projections of residential growth and in employment growth as were the former numbers. However, the thirteen year history (1987 - 1999) coupled with the 2000 Census data, provided a less speculative projection than in the past. Moreover, the critical difference in the new methodology from the old is that the establishment of affordable housing obligation is, in the end, dependent solely on actual residential and non-residential growth, not mere speculation. Of course, to develop the Fair Share Plan and Strategy, each municipality must embark upon a projection of the degree of residential and non-residential growth it will experience over the next 10 years based upon Construction Permits issued for residential and non-residential development, approval of development applications for both residential and non-residential construction, and probable residential and non-residential development of lands based upon zoning and the market. However, the actual obligation to provide units will be based upon actual, not projected, growth.

THE NUMBER.

In addition to "Growth Share", the Number (Fair Share Obligation) consists of two additional components. The first is the Rehabilitation Share, a staple in any formula for calculating affordable housing needs. The Rehabilitation Share consists of the total substandard housing units occupied by low and moderate income families in the municipality, based upon the 2000 Census data. If a municipality can demonstrate that it has rehabilitated units since 2000, it will be given credit for that rehabilitation against its obligation. As in the past, municipalities can undertake their own survey of substandard housing if they believe the Census data is inaccurate. Three indicators of deficiency are utilized to establish the rehabilitation component: (i) 1.01 or more persons per room in housing built in 1939 or before; (ii) inadequate plumbing facilities evidencing a lack of exclusive plumbing or incomplete plumbing facilities; or (iii) inadequate kitchen facilities indicated by a shared use of a kitchen or the non-presence of a sink with piped water, a stove or a refrigerator. This last indicator is adjusted for the purposes of the calculation and then the municipality is provided with a credit against that figure. There is no need to do the calculation -- Appendix C of the regulations sets forth the net Rehabilitation Share of each municipality in the state.

The second component represents the Remaining Prior Round Obligation for the period 1987 through 1999. This Obligation consists of the first round prospective need, the second round prospective need, and the second round reallocated present need, all as adjusted by actual 2000 Census data. In other words, as mentioned above, a municipality's obligation for affordable housing in the first two rounds was based upon projections and speculation of various indicators of growth. Some of those projections were accurate, but many were not. The Remaining Prior Round Obligation has now been adjusted based upon actual data. That adjusted figure is then reduced by prior round deliveries of credits, reductions and other adjustments, to produce a net Remaining Prior Round Obligation. To further understand the remaining obligation a footnote at the end of Appendix D should be reviewed.

This second additional component is necessary so that municipalities that have failed to satisfy any of their obligation in the past rounds do not walk away from that obligation. They must still fulfill the obligation from 1987 through 1999. To the extent that that Obligation may be less than originally projected, those municipalities must satisfy the lesser number. Those municipalities that have already satisfied the higher unadjusted obligation, and have taken advantage of the COAH process (or who were compelled to address their affordable housing obligation based upon litigation), receive a credit for their "oversubscription" to be applied to their third round Fair Share Obligation. Therefore, several municipalities have significant credits against their future "Growth Share" and are not punished for their efforts.

In summary, a municipality's Number is made up of three components (i) Rehabilitation Share; (ii) the adjusted Remaining Prior Round Obligation (1987 - 1999); and (iii) Growth Share.

COMPLIANCE.

The mechanisms available to a municipality for satisfying its obligation have been refined and expanded. While the details of each mechanism are beyond the scope of this article, a few of the more important techniques include the reintroduction of ECHO ("Elder Cottage Housing Opportunities") housing, expanding age restricted housing limit to 50% (up from 25%), providing additional credits for units with enhanced handicap accessibility and units available to very low income sales units (2 for 1), increasing developer's fees by 100% (while increasing RCA obligations from $25,000 to $35,000 per unit) and proposing the creation of a statewide affordable housing fund as a repository for Regional Contribution Agreement payments.

CONCLUSION.

The utilization of a "Growth Share" approach prospectively equips municipalities with a control over their own destiny beyond that which was contained in the old Rules. Under the proposed regulations, not only can a municipality participate directly in its method of complying with its obligation, but it can now control the extent of its future obligation by exercising its planning and zoning powers to reduce the level of residential and non-residential development within its boundaries to deal with its prospective growth. The "field of dreams" philosophy has been replaced with a "build as you grow" philosophy which puts the ability to control sprawl squarely in the hands of municipalities. If the proposed regulations are adopted and if municipalities utilize the powers granted to them, they will have significant control over the way in which they will develop.

The proposed regulations will face public scrutiny through at least three public hearings and 60 day comment period proposed by DCA. Opponents to the regulations have already threatened litigation and, it may be years before the validity of the regulations is ultimately decided. This is particularly unfortunate because as the years go by, non-recoverable time is lost in squarely dealing with the issue. Housing for low and moderate income families is an extremely difficult issue to address, and the variations in dealing with it are endless. We all may be better off in seeing how the proposed regulations actually work rather than anticipating their demise before their actual birth.

 

 

Click Here to return to the League's Home Page