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Fair Share Housing Center, Inc. v. Township of Cherry Hill, New Jersey

173 N.J. 393, 802 A.2d 512 (2002)

MOUNT LAUREL— A municipality cannot exempt choice parcel of land from its affordable housing obligation by the simple expedient of substituting a development fee for a developer’s obligation to build low and moderate income housing on the parcel.

Under Mount Laurel I, the New Jersey Supreme Court “held that developing municipalities constitutionally are required to provide a realistic opportunity for the development of affordable housing for low and moderate-income families.” In Mount Laurel II, “the Court reaffirmed Mount Laurel I and identified several possible methods, such as density bonuses and mandatory set-asides by which municipalities can comply with their constitutional obligation.” The Supreme Court also stated that “municipalities and trial courts are encouraged to create other devices and methods of meeting fair share obligations.” Following Mount Laurel II, “some municipalities adopted development fee ordinances as a possible device or method ‘for meeting fair share obligations.’” Under those ordinances, fees were typically placed into a trust account to satisfy the municipality’s Mount Laurel obligation. Developers challenged several municipal ordinances imposing such fees, and the Supreme Court approved the use of the development fees “as part of the municipality’s housing element, ..., and as a ‘device ... for meeting [a municipality’s] fair share obligations.’” The Supreme Court has consistently reiterated “that every municipality, not just developing municipalities, must provide a realistic, not just a theoretical opportunity for the construction of lower-income housing.” In one later case, the Supreme Court held that, “with the approval of [the Council on Affordable Housing], municipalities could impose development fees on commercial and non-inclusionary residential property as an appropriate inclusionary zoning measure to provide affordable housing.” It recognized that the “principal mode of compliance suggested in Mount Laurel II was mandatory set-asides,” but noted that “[the Supreme Court] never envisioned mandatory set-asides as the exclusive solution for the dearth of lower-income housing.” It further observed that the phenomenon of unfettered non-residential development ha[d] exasperated the need for lower-income housing,” thereby generating “widespread efforts to link such needed residential development to non-residential development” and “to shift the externalities of development to non-inclusionary developers.”

In this case, the municipality had reached an agreement with the Council on Affordable Housing (COAH) addressing the municipality’s first-round realistic development potential. Following that agreement, a very large tract of commercial land became available for development. As a result, under COAH rules, that tract was to be included in the municipality’s vacant land inventory. This meant that a second-round plan and recalculation of the municipality’s realistic development potential should have taken place. The municipality, however, did not propose a plan for substantive certification for either a second round or a third round. Instead, it imposed development fees, providing that the fees were to be held in trust and to be used only for affordable housing. At the time of this case, “[b]y the very terms of the [municipality’s] development fee ordinance, the [municipality’s] authority to impose such fees apparently [had] expired. Further, because the municipality had failed to apply for substantive certification in a second-round (and failed to apply for a judgment of repose), the municipality was “subject to challenge because of its failure to initiate compliance with its round two or round three obligations.”

Numerous community organizations challenged the ability of the developer of this very large tract of land to avoid constructing affordable housing merely by paying a development fee. The lower court upheld that system, but the Supreme Court, on review, felt that the lower court’s determination significantly misconstrued the earlier case law. In effect, the lower court had determined “that development fees can serve as a substitute for on-site construction of affordable housing.” In essence, the lower court believed that “development fees are the functional equivalent of mandatory set-asides.” The Supreme Court rejected the lower court’s understanding. It pointed out that while it had previously stated “that it was fair and reasonable, subject to COAH authorization, to require non-inclusionary developers to pay a development fee as a condition for development approval because ‘they possess, enjoy, and consume land, which constitutes the primary resources for housing[,]’ [w]e did not hold that by imposing development fees a municipality unilaterally could determine that the land subject to such fees permanently could be eliminated by the municipality as a site to be used to satisfy its affordable housing obligation.” The Court was careful to point out that its holding did not “suggest that every available site in a municipality seeking substantive certification must be used for affordable housing.” Nonetheless, the Court felt that a “municipality’s fair share obligation would be undermined irreparably if a municipality could, in effect, exempt choice parcels of land from its affordable housing obligation by the simple expedient of imposing a development fee.”

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