Pennrose and the Jewish Federation of Southern New Jersey are developing 1721 Springdale Road in Cherry Hill, an 80-unit affordable housing rental project. The property will be largely age-restricted but include a 20 percent set-aside for adults with developmental disabilities. — Courtesy: Pennrose and Kitchen & Associates
By Joshua Burd
In towns and cities across New Jersey, the wounds run deep when it comes to the state’s long, tortured history with affordable housing policy.
Cherry Hill is no exception. The South Jersey township had been mired in decades of costly, time-consuming litigation amid clashes with builders and housing advocates, putting the issue squarely on the radar of Mayor Chuck Cahn when he took office in 2012.
“It was a huge demand on our time and our resources, and obviously a lot of money that was spent,” Cahn said. “But, more importantly, it was also an impediment to economic development in our town.”
That gave way to the breakthrough that came about three and a half years later.
In June 2015, Cahn announced agreements with both the Fair Share Housing Center and a private developer, allowing the township to fulfill its affordable housing obligations while preserving open space, setting up plans to redevelop existing sites and protecting taxpayers from additional lawsuits.
“Right from the beginning, we thought it was best to come up with some type of settlement, and although it took a period of time, we were able to work something out that I thought worked for all sides,” Cahn said. “And at the end, it was really to take back control of our zoning — I think that was the biggest part of it.”
The milestone meant that Cherry Hill was among the first to settle after a state Supreme Court ruling that, once again, shook up New Jersey’s affordable housing landscape. In March 2015, the court stripped the Council on Affordable Housing of its oversight, effectively ordering hundreds of New Jersey municipalities back to the negotiating table after years of uncertainty.
Two years later, dozens of towns in New Jersey may finally be ready to turn the page, even as many others dig in for what looks to be an even longer fight.
For those that have settled, local officials and developers have perhaps the clearest path forward in more than a decade, paving the way for new development that supports low- and moderate-income residents.
“I think the conversation is starting to turn,” said Tim Henkel of Pennrose, a developer that specializes in affordable and mixed-income housing. The Philadelphia-based firm has projects pending in towns such as Edison, Woodbridge, Cherry Hill and others that have settled or are in the process of doing so. Henkel, a senior vice president, said he has been encouraged to see large towns “working hard” to fulfill their obligations.
How that translates to new construction is still largely unknown. More than 100 towns had reached settlements with the Fair Share Housing Center and developers through late February, the advocacy group said, while another 30 or so were in negotiations. As part of the deals, local governments have agreed to zone for more than 33,000 affordable homes through 2025, although experts caution that production will be impacted by market forces, the availability of subsidies and the availability of development sites.
For now, several towns are looking to move the ball forward. Woodbridge, a suburb of about 100,000 residents, was among the largest in the state to engage Fair Share about its unmet need. While the plans are not final, its present and prospective obligation through 2025 has come down to 607 units from more than 1,000.
“We’re not afraid of it,” Woodbridge Mayor John McCormac said of affordable housing, adding that the policy goal dovetails with the township’s plan to revitalize its central business district.
“It belongs downtown, where there’s access to transit, there’s access to shopping, there’s access to schools, there’s access to jobs.”
Cherry Hill’s settlement, which outlines a 1,000-unit obligation, paved the way for at least four projects to advance. The township council has since approved a plan to redevelop the site of a shuttered motel and 1other buildings on Park Boulevard, along Route 70, where Cherry Hill Land Associates plans to build 176 apartments and 16 townhomes.
All of the proposals, including a project by Fair Share and two others by Cherry Hill Land Associates, have 15 percent of the units reserved for low- and moderate-income families.
“(That) is the goal of affordable housing: You want to see it be inclusionary,” said Erin Gill, the township’s director of policy and planning. “All of those projects are actually fairly high-end projects with the affordable housing component.”
Other towns are now lining up affordable and mixed-income projects, but only after their hands were forced by the state Supreme Court. The 6-0 ruling sent shockwaves through the state and came 40 years after the first Mount Laurel decision in 1975, one of two landmark cases that spawned the Fair Housing Act and efforts to crack down on exclusionary zoning.
But by 2015, it had been more than a decade since the Council on Affordable Housing had produced guidelines for local governments that weren’t challenged in court.
It’s why the justices stripped COAH of its oversight, blasting the agency as “nonfunctioning.” In the process, they ordered more than 300 municipalities to file petitions to have their zoning plans reviewed by judges and court-appointed consultants. Advocates and developers had the opportunity to contest those plans, paving the way for settlements or trials that are now taking shape across the state.
More than 200 municipalities had not settled through late February, with some still deliberating and others awaiting trial in several counties. Add in the fact that the state Supreme Court weighed in once again in mid-January, ruling that towns must count the so-called gap years from 1999 to 2015 when calculating their obligations.
By Fair Share’s count, that includes more than 100,000 units of unmet present need for the period, when COAH’s guidelines were in flux.
“There are still a lot of (towns) that are being completely unreasonable and obstructive, and there are others who are being reasonable,” said Kevin Walsh, executive director of the Fair Share Housing Center, which is based in Cherry Hill. “And there are some that are in between that are choosing which way to go.”
The earliest towns to settle were in counties where Superior Court judges have moved the process along, such as Middlesex, Ocean and Camden, Walsh said. Many of those towns have ended up with about a 30 percent reduction from what Fair Share had identified as their unmet present and future obligations, thanks to a series of legal nuances and good faith efforts to reach a deal.
In Blairstown, for instance, local officials have agreed to an obligation of 87 units through 2025, down from the 135 units identified by an earlier Fair Share analysis. In Mount Laurel, the governing body has approved plans to zone for nearly 1,100 low- and moderate-income homes, roughly half of what Fair Share initially sought.
Like Cherry Hill, many of those towns have likely weighed the cost of another long, drawn-out court battle. Lori Grifa, a partner with Archer and Greiner in Hackensack, pointed to the fact that a settlement comes with protection from lawsuits by developers and advocates until 2025, assuming they move forward with their affordable housing plans. “Presumably, they gave thoughtful consideration and the governing body decided it was better to take a settlement than it was to litigate,” Grifa said. “That’s how cases get settled.”
It remains to be seen if many other towns follow suit — especially as they await the results of other trials. But for those that have settled, Grifa believes local officials will be more reluctant to use stall tactics than they have in prior years. Under COAH, many towns would submit inclusionary zoning plans and obtain “a blanket immunity” from litigation if the agency certified those proposals, she said, even if the plans were thin or half-hearted attempts at appeasing a developer.
With judicial oversight, that seems far less likely.
“Now you have to go to a courthouse and explain to a judge why you haven’t moved,” said Grifa, the state’s Department of Community Affairs commissioner from 2010 to 2012. “And judges have the power of contempt orders and they also have the power to decide what the zoning ought to be.”
She added: “The other towns are painfully aware that, if you roll the dice, you could end up with a court order for a very high density development that you really don’t want.”
Even with so many towns standing pat, the fact remains that proposals for residential projects are poised to move forward in dozens of others. Among those that have settled, obligations call for anywhere from a dozen units to more than 1,000.
Only time will tell if that unleashes a surge of new multifamily development in the state, as experts say there are barriers to new construction of low- and moderate-income housing.
For one thing, resources for 100 percent affordable developments are increasingly scarce, and insiders say the main funding sources for such projects may be threatened by federal tax code reform. All that could hinder the efforts of towns that seek to fulfill their obligation using as few projects as possible.
“The reality is that, unless we have more resources to fill in the gaps that are created by limiting what you can charge in rent in affordable housing projects, you’re not going to be able to provide it,” said Anthony Marchetta, executive director of the New Jersey Housing Mortgage and Finance Agency. “The only other option besides subsidy financing, which the HMFA is the primary provider of in the state, would be bonus densities.
“And, if anything, that’s the one thing that the towns really want to avoid.”
RELATED: A perfect storm for HMFA
Local officials have used bonus densities to reduce their obligations in the past, allowing market-rate developers to increase their unit count in exchange for setting aside a portion for low- and moderate-income renters. Those set-asides have reached as high as 20 percent in prior cases throughout the state, but experts say the economics don’t always support such a formula.
“The whole thing presupposes that there’s enough demand to build the four units so that somebody is comfortable subsidizing the fifth unit,” said John Hague, a partner and land use attorney with Greenbaum Rowe Smith & Davis LLP in Woodbridge. He noted that many towns can’t support higher densities because they’re in environmentally protected areas, while others have opted for lower densities after “(looking) at what their circumstances are and what’s supportable.”
“They have to be highly sensitive to the economic realities of the set-aside percentages when they go into their settlements,” Hague said.
While occupancy and rents are still high in the state’s booming multifamily market, some are expecting the momentum to cool in the coming years, as the current cycle winds down. That has some developers questioning whether the demand for housing of all types will last long enough to fulfill any agreed-upon obligations, especially with set-asides of 10 to 15 percent.
Others fear that local leaders who are suddenly eager to see development may ignore a changing market. Ronald Ladell, a senior vice president with AvalonBay Communities Inc., said the rental market has become robust, but noted that construction costs are rising and rent growth is moderating, as financing tightens and interest rates rise.
RELATED: As towns push fair share plans, developers face an interesting twist
“This cycle is entirely predictable, but the significant increase in supply due to the dysfunction in the affordable housing process may soon result in some unintended and negative consequences, particularly for merchant builders,” Ladell said. “In no way will those towns and sites that are most desirable and appropriate be impacted, and the prospect of additional affordable housing being built in New Jersey could not come any quicker.
“Yet, when certain factors disrupt the normal equilibrium, usually only the strongest prosper.”
But others question whether new construction will outpace demand. Even Walsh said there are caps, bonuses and other factors that “remove the sharp edges” from a town’s obligation and have the potential to limit development.
For instance, an obligation to build affordable housing can’t exceed 20 percent of a town’s total housing stock, while such a mandate also must not exceed 1,000 units for a 10-year period.
Fair Share also noted that towns get credit for two homes for every one rental unit created as affordable housing. And Walsh said towns, in some cases, have been receiving credit for units that were developed between 1999 and 2015, even while the COAH rules were uncertain.
Meantime, other towns have had obligations scaled back because of a lack of developable land, existing housing and proposals to rehabilitate older units.
“There are some towns that have to do very little because they’ve been doing something all along,” Walsh said. But for every town that has compromised or negotiated in good faith, he still believes there are many others who have no intention of doing so.
“There are some towns that have done absolutely nothing, and their goal still is to do nothing,” he said. “They have nothing to bring to the table, so what we’re working hard to do is to make sure they’re not rewarded for their obstruction.”
For municipalities that have yet to settle or craft a new affordable housing plan, stakeholders say the reasons vary. There are those that are simply committed to fighting, while others point to ongoing litigation that could bring additional guidance.
These days, the highest-profile battle ground is in Mercer County.
Since early January, a trial has been underway before Superior Court Mary Jacobson, as Hopewell, Lawrence, Princeton, East Windsor and West Windsor clash with Walsh’s organization over their obligations. Experts say the trial is not expected to end in a settlement, as others have, but last well into the spring as competing experts offer their take on the scope of the state’s housing obligations.
“All eyes are on this trial,” said Walsh, who spends about three days a week inside Jacobson’s Trenton courtroom.
The prospects for a lengthy trial only increased when the Supreme Court ruled in mid-January — about a week into the Mercer County trial — that towns must count the gap years from 1999 to 2015 in their calculations of present need.
RELATED: Inside the courtroom: NJBA attorneys weigh in on high-profile Mercer trial
“I suspect the (Supreme Court) was hoping to provide some clarity and finality to the process,” said Michael Cerra, assistant executive director for the New Jersey State League of Municipalities. “But I think, in reality, the opposite has turned out to be the case, because we now have experts on both sides dealing with a redefined present need and trying to determine and identify what that obligation is.”
It’s why Cerra feels that “the prognosis is not improved in the wake of (the gap year decision). I think the court ruling has created far more uncertainty.” He also suspects that, for towns that were not close to a settlement previously, the gap year decision “might have driven the sides further apart.”
Cerra acknowledged the financial burden of continuing to fight, but was hopeful the Mercer County decision and the input of the court-appointed special master would provide some long-awaited clarity for municipal leaders.
“It’s ultimately the decision of Judge Jacobson, but whatever determination (the expert) has in Mercer County is probably going to be a similar determination in the other vicinages,” he said. “Once the Mercer County determination is made, that might drive more settlements, and it may allow other vicinages to act in a more expedited manner to resolve the situation. “That remains to be seen. … There are others that are lining up and waiting.”
After years of legal wrangling and judicial intervention, stakeholders on all sides of the affordable housing debate have pined for a new legislative solution.
They know that’s unlikely this year, with a gubernatorial race underway and the entire Legislature up for grabs. But as settlements play out across the state, Lori Grifa said 2017 may bring the answers that are needed to pave the way for a new remedy in Trenton.
She pointed to the fact that the settlement process is now entering its third year and could potentially reach a “natural end for all of this.”
“The towns that have reached settlements are going to come to terms with numbers that are going to be good until 2025,” Grifa said. “And then the towns that haven’t — they’re either going to have a number that’s produced as a result of a trial, or maybe they’ll ultimately settle. “The irony is that it’s probably impossible to have any legislative fix in 2017, but by the end of 2017, we’re going to have a lot of clarity as to what kind of affordable housing is going to be built and where it’s going to be built.”
Christiana Foglio, founder and CEO of Community Investment Strategies, said she hopes the meaning and the perception of affordable housing can evolve as more towns come to grips with their obligations. If not, new development could continue to miss a key segment of the market that is largely overlooked.
“I still think there is pent-up demand, but I really believe there is a whole section of the market that isn’t being served at all,” said Foglio, whose firm is based in Lawrenceville. “That has to become the conversation for the next round of affordable housing debates — and that’s the 60 to 120 percent of median income.”
Today, she said, “it’s a very small amount of that market that we’re piercing. And I think, unfortunately, that we’re still responding to the Mount Laurel legislation and goals of a different time,” rather than looking at market conditions, supply needs, demographic shifts and other factors that go beyond the original solution for exclusionary zoning.
“I think the solution looks a lot different today than when we were coming up with plans in the ’80s,” she said. “And I think that’s going to be the real challenge for the next administration and for the Legislature to, basically, have the guts to say, ‘We have to rethink this.’ ”