By Joshua Burd
The path is by no means clear, not even by the most optimistic accounts. But new guidelines on addressing New Jersey’s affordable housing deficit is a key starting point for builders and advocates as they mull the next phase of residential development in the state.
Stakeholders have said as much in recent weeks, conveying cautious optimism even as they grapple with the financial hurdles, legal battles and political debates that have slowed housing production in the past.
“This first step in the process, I think, will go a long way toward bolstering the credibility of the fourth-round process that was established,” Princeton Council President Mia Sacks said, referring to a new phase of state-mandated affordable housing production across New Jersey’s 564 municipalities. She spoke in late October, following the Department of Community Affairs’ release of calculations of each town and city’s obligation over the next decade.
“The numbers are advisory,” she added, “but I think most towns will want to focus their time and energy and financial resources and taxpayer dollars on good planning rather than mounting challenges that I think are unlikely to succeed.”
Sacks was among those on hand for an Oct. 24 program hosted by the Urban Land Institute’s Northern New Jersey chapter, where panelists discussed how local officials, developers and advocates could help meet the needs of low- and moderate-income residents in the upcoming cycle. That came less than a week after DCA unveiled the highly anticipated figures on each community’s unmet need, which totaled more than 150,000 homes statewide.
According to the agency, that includes a deficit of 65,410 existing dwellings that need to be rehabilitated and another 84,698 to be built through 2035 by way of planning and zoning by local governments. Municipalities now have until Jan. 31 to adopt the nonbinding guidelines or provide their own figures — as outlined by a law that Gov. Phil Murphy signed in late March — although the latter option makes them vulnerable to lawsuits by builders and other interested parties.
“It’s not exclusive to New Jersey, but we’re way ahead of the curve in terms of just trying to deal with these issues,” said Tom Trautner, chair of the redevelopment, land use and zoning group at Chiesa Shahinian & Giantomasi PC, who moderated the program at the law firm’s headquarters in Roseland.
“But of course the challenge is that, while everybody might agree or hopefully would agree that creating housing opportunities for persons of low and moderate income is a noble cause, the question is: How do you balance bringing that to fruition while also balancing the need for sound planning and recognizing that New Jersey has some unique characteristics? Which is that there is this local control that municipalities like to have.”
The new DCA guidance applies to the fourth round under state Supreme Court’s Mount Laurel decisions, which have guided New Jersey’s affordable housing policy for some five decades. But the process faces similar headwinds from the third round — which was largely managed by the state judiciary — including the difficulty of underwriting and financing new development that includes below-market housing.
Josh Mann, co-managing member of Millburn-based Iron Ore Properties, said that’s all but impossible without the types of subsidies or financial agreements that often draw intense backlash from residents.
“I think what’s happened over the years is that people are starting to recognize that, when you take 20 percent of a project and you devalue that 20 percent, you actually have to make up for it somehow,” Mann said, alluding to so-called inclusionary projects that have a set-aside for affordable units. “You have to actually be able to pay for it.”
He added that “one of the challenges is how to pay for these things without a PILOT,” or a payment in lieu of taxes agreement that’s typically based on a percentage of the project’s revenue. Builders favor PILOTs because they can lock in payments to a municipality for as much as 30 years, providing certainty that helps to underwrite projects and secure other funding sources, but opponents often cast them as gratuitous tax breaks.
Developers and local officials point out that the alternative is no tax revenue at all, given that the projects would not happen without the agreements.
“I do think a lack of information is often one of the biggest challenges with PILOT conversations,” said Melanie Walter, executive director of the New Jersey Housing and Mortgage Finance Agency.
She added: “It’s important to remember that time and friction are the two things that add money to a deal for no reason. So when we can reduce the amount of time that a deal is taking and when we can reduce the amount of friction between the parties, we’re making the deal more feasible.
“As we’re looking at round four, generally, that’s why collaboration is so critical.”
Mann pointed to potential solutions going forward, thanks to a pair of laws that were passed alongside the fourth-round affordable housing bill. One measure, S1422, allows developers with shorter-term PILOTs to claim accelerated depreciation on new affordable housing properties, giving them added relief against state income taxes and a way to absorb the cost of 20 percent inclusionary projects.
The second law, A3337, allows projects that receive monies from state or local affordable housing trust funds to qualify for a PILOT agreement. That benefit, which is mostly exclusive to legally designated redevelopment areas, could unlock additional projects.
“Those two things alone are extremely helpful,” said Mann, a past president of the New Jersey Builders Association. “And if you have a municipality that understands that these are necessary tools in order to make it work, I think it can be extremely valuable moving forward.”
Also critical, Walter said, is the continued availability of state and federal funding programs. She noted that HMFA received some $475 million under the American Rescue Plan Act, which President Biden signed in March 2021, helping to support low-income housing projects that were considered urban preservation, the creation of workforce housing or the construction of 100 percent affordable housing in communities with Mount Laurel obligations. That has helped the agency finance nearly 14,000 low- and moderate-income units over the last two years, including new construction or preservation and rehabilitation projects.
HMFA’s pipeline remains full, Walter added, with 150 active projects on the books that would comprise 11,800 units and $5 billion in construction value.
“So as we’re looking toward round four, we know that we need to create subsidy programs that have that same kind of leveraging capacity for federal 4 percent Low-Income Housing Tax Credits,” she said, referring to a key program that HMFA has paired with ARPA funding, “because those deals had to be workable for the Mount Laurel obligations to be met.”
The state’s new framework also faces a looming legal battle, the latest during decades of debate and controversy over how to expand affordable housing. A Superior Court judge has ordered state officials to appear on Dec. 3 for a hearing in connection with the new calculations, following a motion by 22 towns to block implementation of the DCA program.
It was the latest salvo in a fight that began in early September when the Montvale-led coalition sued to block the enabling legislation, arguing it imposes excessive mandates without fully considering local conditions and resources.
“The Court’s decision to hear our case demonstrates that this is a serious issue impacting local governments across New Jersey,” Montvale Mayor Mike Ghassali said. “We are simply asking for equitable treatment and a system that reflects today’s realities rather than relying on outdated formulas that fail to account for the unique needs of each community.”
In the meantime, proponents of the new law say the debate is still burdened by stigma and misinformation. Walter cited a “real challenge with understanding and defining affordable housing, not only in New Jersey but across the country. And what it results in is the sense that there is this ‘other’ housing.”
“We’re talking about communities in New Jersey (where) 80 percent of the (area median income) level can be as high as $70,000 to $90,000, depending on the community,” Walters said, referring to a key benchmark for affordable housing. “When you start talking about that level being low-income housing, which is what we’re describing, people are shocked. So getting over that hurdle and that mental hurdle around affordable housing is critical.”
She noted that many HMFA projects are mixed-use and include social services, health care, employment opportunities and other opportunities for residents in the building and nearby.
“That right there changes the conversation and allows you to start to make headway, but those conversations are still happening on a recurring basis in every community because there’s so much stigma and so much history of separation,” Walter said.
On a positive note, she said the new DCA framework is a departure from the “chaos” that consumed the third round under Mount Laurel. That makes it important “to refocus on really having that structure and that opportunity to rationally approach the issue now, and it really creates a different dynamic,” she added.
Governing bodies that come up with their own calculations under the new DCA framework are subject to challenges from developers, affordable housing advocates and other stakeholders through the end of February. Ultimately, though, towns and cities have until June 30 to adopt specific zoning and other plans to address the deficit outlined by DCA.
“(We) know that the old excuses really aren’t going to work anymore,” said Josh Bauers, Fair Share Housing Center’s director of exclusionary zoning litigation. “So we have a process that’s going to function, we have new legislation that got passed earlier this year that really codified a process that I think heard a lot of the concerns of the municipalities, (such as) ‘we didn’t know what our number was’ or ‘the process is too complicated’ and so on and so forth.
“Well, we have a formula that’s now in the statute, we have a process that’s very clear with very clear deadlines.”
