Insights

A public hearing before the New Jersey Council on Affordable Housing (COAH) is scheduled July 2 on the third iteration of COAH's "Third Round" affordable housing regulations. COAH published its proposed new Third Round regulations earlier this month in the New Jersey Register after several long years of litigation and court orders concerning its growth share regulations. These published regulations differ slightly from the regulations released by COAH at its April 30 meeting. The public comment period on these regulations runs to August 1.

Whether these new regulations comply with the Supreme Court directive and the Mount Laurel doctrine is an analysis and discussion too lengthy for an update; however, it is important for residential and commercial developers to understand what the publication and likely adoption of these rules mean over the next year.

Nonresidential Developers

For nonresidential developers, it is important to understand that these proposed regulations have no impact on the Nonresidential Development Fee. The moratorium on the Nonresidential Development Fee expired in July 2013, which means that the fee remains in effect today for nonresidential projects that received approval after July 1, 2013. On June 23, 2014, the Assembly passed a bill to extend the moratorium to December 31, 2014. The bill is now before the Senate.

Thus, as it stands today, the Nonresidential Development Fee remains in effect and, when required, must be paid by nonresidential developers.

Residential Developers

For residential developers, now is the time to assess strategy regarding identifying potential projects and how to approach municipalities about projects. The proposed new regulations, as in the past, break a town's affordable housing obligations into three components: (1) a rehabilitation obligation, (2) an unanswered prior obligation, and (3) prospective need. Notably, despite the Supreme Court striking down only COAH's growth share methodology (prospective need), COAH recalculated all three components again.

COAH in its appendices calculates each town's components of its fair-share obligation. The regulations, however, create certain caps and reductions to these obligations, such as the following:

• 1,000 Unit Cap, which states that a town should not have to provide more than 1,000 units within 10 years, unless circumstances show the town can accommodate that growth.
• Buildable Limit, which is based on a development capacity analysis performed by COAH. Towns that receive a buildable limit reduction still have to identify additional opportunities for development as they come up (similar to the "unmet need" concept of the prior regulations when vacant land adjustments were granted).
• 20 Percent Cap, which essentially provides a formula to ensure that a town's prospective need obligation does not exceed 20 percent of the town's housing stock.
• Substantial Compliance Reduction, which is a percentage reduction in the unanswered prior obligation when a town has "substantially complied" with a prior round substantive certification and actually created a substantial percentage of new units that were part of the prior round.

Concerning zoning for affordable housing, the new regulations propose a concept of "Economic Feasibility Studies" to be submitted with fair-share plans to demonstrate that each site identified for affordable housing is realistic and would attract capital to construct the affordable housing. The proposed regulations provide that inclusionary zoning ordinances shall be premised on a 10 percent set-aside for affordable housing. However, the Economic Feasibility Study must draw a rational nexus between the density allowed and the affordable set-aside required (and any other compensatory benefits), and, if necessary, the percentage set-aside should be adjusted. Unlike the prior Third Round regulations, there are no presumptive minimum densities.

Rental bonus credits and similar types of bonus credits have been eliminated. There is still a cap of 25 percent of a town's obligation that can be satisfied through age-restricted housing, unless a town can demonstrate a need for a higher percentage.

Groups have come out in favor of and in opposition to these new regulations. Many have complained that these regulations are not mirrored after the First and Second Round regulations, as was directed by the Supreme Court. In many instances, municipal obligations are lower than they were under the prior Third Round regulations. The constitutionality of these regulations will obviously be the focus of many of the various groups involved.

COAH is scheduled to have a public hearing on July 2 in connection with these proposed regulations. Comments are required to be submitted to COAH by August 1. Both residential and nonresidential developers should be focused on strategy about how to deal with these regulations when they are adopted and the timing of proposed legislation impacting the Nonresidential Development Fee.