New Jersey towns can no longer hide behind the stalled Mount Laurel process.

On March 8, 2018, Judge Mary Jacobson established the methodology that judges will rely upon to calculate a town’s affordable housing obligation for the Third Round, which encompasses the Gap Need (1999-2015) and the Prospective Need (2015-2025).

The declaratory judgment actions were halted last year while the Fair Share Housing Center (FSHC), two Mercer County towns and several developers conducted a 36-day trial to determine how the court should calculate affordable housing needs. Henry and Irina successfully prosecuted the first trial on Third Round affordable housing obligations, resulting in Judge Wolfson’s decision in In re South Brunswick, 448 N.J. Super, 441 (Law Div. 2016). However, other courts refused to follow Judge Wolfson’s calculation of need, which followed closely the calculation of need by FSHC’s expert, David Kinsey.

Even though the decision is specific to Mercer County (Region 4), other Mount Laurel judges in New Jersey have signaled that they intend to rely upon Judge Jacobson’s decision as the benchmark to calculate each of the six region’s Third Round fair share obligations. Many other courts have appointed Mr. Reading as the “numbers master,” so this decision will inform Mr. Reading’s final determinations on municipal affordable housing obligations.

In this Chart, we compare Judge Jacobson’s calculation of Prospective Need to the formula used by Judge Wolfson in In re South Brunswick.

We also compared Judge Jacobson’s calculations for the Expanded Prospective Need in this Chart.

The court drew on different aspects of all of the expert’s opinions. In some aspects, Judge Jacobson adopted Fair Share Housing Center’s expert’s position, in other aspects the municipal expert’s position, and still in others some form of either expert’s position with modifications recommended by the Regional Master.

The Statewide affordable housing need is more than double the municipal expert’s calculation. The final municipal obligations have yet to be finalized. However, the municipal expert calculated a total statewide obligation of 63,070 low- and moderate-income (LMI) units, while the Mercer Decision determined that the statewide affordable housing obligation is 159,630 LMI units.

Below are some of the significant issues that affected the court’s calculation.

Low and Moderate Income Qualification
The Court endorsed using HUD-based income grids to calculate fair share obligations, which is the same conclusion reached by Judge Wolfson. The Court declined the municipal expert’s reliance upon the FHA, which identified LMI households as those with income less than 80% of the region’s median household income,

Substantial Asset Test
The court also rejected the municipal expert’s decision to exclude LMI households with substantial assets, as did Judge Wolfson. Many of these households are comprised of senior citizens who may have savings, which can be applied to other expenses like medical bills.

Population Projection and LMI Household Formation Rates
Judge Jacobson refused to follow Judge Wolfson as to the projected growth of New Jersey’s population, and the rate of household formation. The court’s refusal to follow Dr. Kinsey’s projections results in a decrease in projected population growth of 60,000, and reduces new LMI household formation by 65,162. These projections significantly reduce the 2015-2025 prospective affordable housing need for the State.

Municipal Allocation Factors
The decision adopts FSHC’s municipal allocation factors that will prescribe a percentage of the regional need to each municipality. The exact allocation among the regions and municipalities has yet to refined, which must occur before municipal obligations are calculated.

Filtering
Filtering refers to market rate housing that becomes more affordable as it ages. The Court rejected both experts’ methods to calculate filtering due to the lack of reliable data. This was a significant issue since the municipal expert’s position reduced the statewide obligation by 64,000 units, and FSHC’s expert’s position increased the obligation by 86,000.

Gap Present Need
Judge Jacobson also calculated the affordable housing need that was created and not fulfilled during the “Gap Period” from 1999-2015, following the Supreme Court ruling in In re Ocean County Municipalities, 227 NJ 508 (2017). See Fox Real Estate Alert January 18, 2017. This need is called “Extended Present Need” and determined to be 74,248 units statewide.

Overall, Judge Jacobson’s decision will enable other State court’s to calculate municipal affordable housing need through Mr. Reading’s application of Judge Jacobson’s formula to municipalities throughout the State. This will allow the courts to proceed with the determination of municipal affordable housing compliance based on this calculation of municipal need.

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