Mount Laurel is a populous rural community in Southern New Jersey and a township that covers approximately 22 square miles. But it is also the namesake of a series of precedent-setting legal decisions that govern how the state of New Jersey responds to the construction of moderate and low income housing within its boundaries.

A lawsuit was filed in the early 1970s against the township charging that "exclusionary zoning practices" and other land use controls had precluded affordable housing from being built. The landmark case, Southern Burlington County NAACP vs. Township of Mount Laurel, reached the New Jersey Supreme Court in 1975. The court ruled in Mount Laurel I that the township's "exclusionary zoning practices were contrary to the general welfare requirements of the New Jersey state Constitution" and that all developing New Jersey municipalities had a legal obligation to provide their "fair share" of affordable housing for all residents. At the time, however, the court provided no guidelines or remedies for addressing this municipal obligation.

Mount Laurel II and Beyond

In 1983, after numerous appeals, conflicting judicial decisions and non-compliance by municipalities, the court handed down a second ruling, commonly referred to as Mount Laurel II, affirming its original decision and criticizing local governments for their failure to act. The court also set aside procedures to encourage each of the state's 566 municipalities to meet specific housing obligations. The decision also instituted "builder's remedies"—lawsuits that could be brought against municipalities that failed to adopt a certified plan for affordable housing. During the 1980s, spates of lawsuits were filed about Mount Laurel-type issues. This led to the passage in 1985 of the state's Fair Housing Act and the creation of the Council on Affordable Housing (COAH).

This 11-member council, appointed by the governor, is empowered to: 1) define housing regions, 2) estimate low and moderate income housing needs, 3) set criteria and guidelines for municipalities to determine and address their own fair share numbers and, 4) review and approve housing elements/fair share plans and regional contribution agreements (RCAs) for municipalities. As a quasi-judicial organization, COAH can also impose resource restraints and consider motions regarding housing plans.

Funded by programs offered by the New Jersey Department of Community Affairs (DCA) or the New Jersey Housing Mortgage and Finance Authority (HMFA), COAH is an administrative or regulatory agency. Municipalities, though, are not compelled or coerced to expend their own local funds to build affordable housing. They enter the COAH process voluntarily by filing a housing and fair share plan that establishes a predetermined number of units that are affordable to low and moderate-income households.

Doing Your Fair Share

According to The Fair Housing Act, each New Jersey municipality is required to meet a certain fair share obligation or may propose to transfer up to 50 percent of its fair share to another municipality within its housing region by virtue of a voluntary contractual agreement between the two communities.

As of July 7, 2004, according to COAH, 219 municipalities have been certified by the state agency and 34,296 units have been constructed in COAH-certified and court-settled municipalities; another 2,397 units are under construction; 8,763 units have been transferred in approved RCAs; 12,096 units have zoning or other municipal approvals in place; and 13,307 units have been rehabilitated throughout New Jersey.

"Each town has a fair share of affordable homes they have to supply," says Doug Fenichel, the public relations director for K. Hovnanian, New Jersey's largest builder of single family, condominium and adult living communities, "and they can do that by either building the homes, fixing existing homes or by what's called a regional contribution. They could pay another city to build them," says Fenichel.

Municipalities can accept what are called "payments in lieu" instead of actually constructing any affordable housing units. These payments fund RCA agreements and are used for other affordable housing programs and projects. When accepting payments in lieu, some municipalities require the developer to build only the number of market rate units that would have to be realized were the affordable housing units built. For example, say, a developer chooses to build a total of 100 units, with 20 of those being affordable. Instead the developer pays a fee in lieu of constructing the affordable units, usually $25,000 per unit ($25,000 x 20=$500,000). The developer though only builds 80 market rate units not the 100 that had been planned.

For example, South Plainfield Borough in Middlesex County recently received approval from COAH to send 57 units at a total cost of $1.14 million ($20,000 per unit) to New Brunswick, also in Middlesex County. New Brunswick will use the funds to finance 57 of the 190 units they are constructing in a project known as Fulton Square. The balance of the 133 units will be market rate.

In another recent transfer, Saddle River Borough will shift 22 units of its fair share obligation to Ridgefield Borough in Bergen County. Under the regional contribution agreement, Saddle River will make four payments of $110,000 over three years to Ridgefield Borough, which will apply the funds to finance a scattered site housing rehabilitation program.

New Jersey is an expensive place to live, Fenichel explains, noting that the average cost of a home is around $355,000. The state's objective is to provide low and moderate income housing for its civil service workers, police officers, firefighters, teachers and the like. The problem, however, is that that type of housing is scattered in mostly urban areas. "Only about a dozen cities in the state are getting most of the affordable homes. The major urban areas - that's where most of the affordable homes are being built. And obviously that's just the opposite of the intent of The Fair Housing Act."

New Regulations on the Horizon

Because the existing regulations were thought to be cumbersome and onerous towards municipalities, COAH is proposing new regulations intended to encourage smart growth and planning and better clarify what is required of each municipality.

The new methodology uses actual residential and employment growth to determine a municipality's affordable housing obligation. What COAH is proposing is a "growth share" model that will enable each community to determine its obligation based on actual growth over time. Secondly, COAH will identify how many units a town needs to rehabilitate to comply with fair share mandates. Under this growth share formula, for every 10 residential units a municipality builds from 2004 to 2014, one affordable unit must be provided. And, additionally, for every 30 jobs created by the municipality, one affordable housing unit must be supplied. The new plan also allows up to 50 percent of a municipality's obligation to be fulfilled through senior housing. Towns will even get bonus credit when they create handicapped-accessible townhouse units so as to provide more affordable housing for families with disabled individuals.

Some type of growth share methodology is also something that K. Hovnanian is advocating, according to Fenichel. "What we would like to see happen is, first of all, there needs to be according to the law, a set amount of homes designated," says Fenichel. "What we would like to see is the state go into what we call 'growth fit' and that's where the state looks at different communities and development trends and infrastructure and designates certain communities to accept growth," he says. "And then create programs to help those communities deal with that growth."

The builder's role, says Fenichel, is first and foremost to build the homes. A builder could—but is not required to - make a suggestion in the planning stages that might help a certain community meet its fair share obligations.

Planning vs. Overdevelopment

Poor planning and zoning causes sprawl or wasteful, scattered development or overdevelopment. The Fair Housing Act contains enforcement measures intended to reduce suburban sprawl. Under a builder's remedy, as provided for under Mount Laurel II, any municipality that fails to file an affordable housing plan with COAH or resists efforts to meet its fair share obligations can be sued by a builder. As such, 80 townships and/or boroughs in New Jersey are under a court order or a stipulated settlement to comply with fair share mandates.

In fact, smart growth initiatives have been embraced by Governor James E. McGreevey, whose comprehensive plan calls on the state Department of Environmental Protection (DEP) and other government agencies to develop plans that will reduce suburban sprawl; lead to cleaner air, cleaner water and preservation of open space; reduce the rate at which forests, open spaces and undeveloped land are lost to development; and promote sound planning, especially in environmentally-sensitive areas. McGreevey's plan maps out areas in New Jersey where the state would like to encourage growth, take a cautious approach to development and even restrict development in certain places.

Transferring Development Rights

Governor McGreevey recently signed legislation to promote smart growth and preserve farmland and natural open spaces, which constitutes 43 percent of the buildable land left in New Jersey. Signed in March 2004, the State Transfer of Development Rights Act (TDR) takes effect in September 2004. TDR, according to New Jersey Future (NJF), a nonprofit, nonpartisan research and advocacy organization and a watchdog group that promotes smart growth initiatives, is a planning tool that municipalities can use to preserve open land without having to make taxpayer-funded purchases to protect open space tracts.

Despite preservation efforts, New Jersey is losing 10,000 acres of farmland and 8,000 acres of open space per year to development: equal to 18,000 acres or 28 square miles each year, according to NJF. By incorporating TDR provisions in their land-use regulations, municipalities can allow the transfer of development rights from historic, natural or farming areas to other areas where building is desired. Owners of land targeted for conservation may sell their building rights to developers, agreeing in return to a restrictive covenant that protects their land in perpetuity. In this way, growth can be directed to places where the community can support it, says NJF. Using TDR, municipalities must first develop a land use plan that identifies both growth and conservation areas. Growth areas should be served by or targeted to receive such infrastructure as sewer and transportation. Conservation areas may be set aside in farmland, historic districts or environmentally-sensitive land. TDRs may operate in a single municipality or regionally. A TDR bank can be established to help create a market for development rights—willing sellers in conservation areas can sell their rights to developers, who will then use those rights to bring high density development to a receiving area that can sustain such growth. For example, in Chesterfield Township, future growth is directed towards a new town center that has a capacity to support affordable housing, retail shops and stores, municipal and community services, schools, and other uses. Owners of farmland surrounding the new village will sell their development rights in exchange for preserving the township's rural character.

Eric Wilkinson, policy director for New Jersey Future, says NJF's aim is simply to promote stable growth and encourage the redevelopment of existing urban and suburban areas of New Jersey. The state plan (officially called the Development and Redevelopment Plan) was first adopted in 1992, and is now in its third iteration, according to Wilkinson. The state plan sets out specific goals for how the state should develop, but the plan is not binding upon any regulatory authority or force of law. It is up to state agencies to carry it out, he explains. The state Planning Commission drafts the appropriate provisions and the individual counties then review it and list their areas of agreement and disagreement, according to Wilkinson.

"In Mt. Laurel, the Supreme Court recognized there is a need for a much better plan in the state," Wilkinson says. "It provided an impetus for the legislature to act. Affordable housing should be in places where the state plan says it's a reasonable place to grow."

Debra A. Estock is Managing Editor of The Cooperator.