Insights

In a landmark 3-2 decision issued yesterday, In re Adoption of N.J.A.C. 5:96 & 5:97 by N.J. Council on Affordable Housing, the New Jersey Supreme Court upheld the invalidation of COAH's Third Round Rules (the "Rules"), holding that the Rules were in conflict with the Fair Housing Act (FHA) as currently written. The court reasoned that COAH's growth share methodology was not founded in regional need and failed to impose definitive obligations contrary to the FHA and Mount Laurel. The court mandated that COAH adopt new regulations based on the methodology of the prior rounds within five months' time. The court noted the prior rounds' methodology had withstood the test of litigation in the past.

However, the court did not stop its analysis with that ruling. It opened the door to allowing new legislative solutions that satisfy the Mount Laurel affordable housing obligation. The court separated the constitutional obligation for towns to provide affordable housing from the remedy of calculating and satisfying that obligation. In so doing, the court noted that, after three decades of economic and social change, a new remedy "may be successful at producing significant numbers of low- and moderate-income housing."

The court signaled that the Legislature may amend the FHA or enact a new statutory framework to allow COAH greater flexibility in adopting creative affordable housing solutions. The remedy previously adopted in prior round rules "should not be viewed as a constitutional straight jacket to legislative innovation." In fact, the court noted a different type of growth share approach may very well be successful and in harmony with Mount Laurel. However, the court did not give additional guidance as to what alternative method would be acceptable.

What this means for developers in New Jersey

This decision has significant ramifications for developers. First, the court has set a deadline of five months for COAH to promulgate rules consistent with the FHA and based on the prior round methodology. These new rules likely will result in significant obligations for municipalities that have chosen to use this time of uncertainty to do nothing with regard to affordable housing. One can anticipate that these municipalities will aggressively lobby the Legislature to make significant amendments to the FHA. Despite that, the next several months should create an opportunity for developers to work with willing towns in developing sites that provide affordable housing, similar to 2008 when towns had to revise their affordable housing plans based on the then-new Third Round Rules.

Second, it seems inevitable that the Legislature will resume its involvement in the affordable housing arena. Because the court did not provide any real constitutional parameters as to what would be acceptable under Mount Laurel, whatever legislation is adopted will likely result in further litigation.

The court's decision is the first step toward providing developers and municipalities with guidance as to what the framework will be in connection with their affordable housing obligations. However, this is not the final act in this drama, and it remains to be seen what the playing field will look like a year from now.

For more information on the Supreme Court decision and its impact, please contact the attorneys listed above.