MOUNT LAUREL PROCEEDINGS ON REMAND FROM THE SUPREME COURT.
The first dozen years of this controversy, from the filing of the Complaint in February 1972 to publication of the Mount Laurel II opinion on January 20, 1983, are chronicled in the Supreme Court decision. Southern Burlington County N.A.A.C.P. v. Mount Laurel Tp., 92 N.J. 158, 332-336 (1983). However, as a result of Mount Laurel II, the focal point of this
litigation has shifted and the case in its present form bears little resemblance to the pre-1983 lawsuit. This is primarily because the Urban League has been joined in its quest for zoning changes by developers seeking a realistic opportunity to build low and moderate income housing at a profit.
Three months after the decision, Philip B. Caton was appointed as the expert to assist the Court in determining Mahwah's fair share of the present and prospective regional need for low and moderate income housing. In further compliance with the Supreme Court mandate, an expedited fair share hearing date was set. Prior to the hearing, over the municipality's objection, Beaver Creek, Inc. was permitted to intervene and seek a builder's remedy provided that it abide by all previous scheduling.
Three witnesses testified at the fair share hearing. The court-appointed expert presented his fair share formula consisting of three elements of equal weight: vacant developable land, commercial and industrial ratables in the region and employment growth. The resulting allocation of Mahwah's fair share of the regional need through 1990, in his opinion, was 699 units.
Alan Mallach, the Urban League's expert, voiced two objections to Caton's approach. He criticized the failure to include families living in physically standard units who spend more than 25% of their gross income for housing. Mallach also disagreed with Caton on the number of physically sub-standard units that comprised the indigenous need.
Michael F. Kauker, Mahwah's planner, took issue with Caton's regional definition but frankly admitted it was a "judgmental call." There was no allegation that the eight county region defined was unreasonable. He also challenged as being outdated the statistics used by Caton to establish the amount of vacant developable land.
Both Mallach and Kauker disagreed to some extent with the allocation process used by Caton. They disputed the weight or lack of weight given to employment base, fair share figures
assessed against inner cities and selection of a vacancy rate percentage. Nevertheless, all the experts agreed Mahwah has not met its fair share obligation.
Although the arguments against those aspects of Caton's reports have some merit, they involved judgmental decisions and "fine-tuning." All of these calculations are by nature somewhat speculative because they are based upon assumptions and projections over time. Consequently, the conclusions reached by Caton were found to be totally credible.
Shortly after the hearing, a Letter Opinion accompanied by the following Implementation Order was issued:
A fair share hearing in accordance with Supreme Court mandate having been conducted on September 6 and 7, 1983, and it being found that the Township of Mahwah has not met its Mount Laurel obligation:
It is on this 16th day of September 1983, ORDERED:
1. The fair share for Mahwah through 1990 is 699 units to be distributed as follows:
present need -low income units- 266 moderate income- 104
prospective need -low income units- 203 moderate income- 126
2. The Township of Mahwah shall have 90 days from the date of this Order to revise the zoning ordinance to achieve compliance with Mount Laurel objectives.
3. Philip B. Caton of the firm of Clarke and Caton 342 West State Street, Trenton, New Jersey 08618, is hereby appointed as special master to assist the municipal officials in achieving compliance.
4. The master's fees for the fair share hearing shall be paid by the Township of Mahwah.
5. The master shall consider any application to construct Mount Laurel type housing and shall consider any zoning modifications to implement such a plan. The master may, in his discretion, schedule hearings for the presentation of any such plans and notify any appropriate entities, including the parties to this litigation, so as to permit them to be in attendance at any such presentations. In the event any such presentations embody plans which are consistent with Mount Laurel, the master shall make such determinations as he deems appropriate.
6. This being considered an ongoing emergent matter, the master may, upon telephone notice to all counsel, apply to the Court for further instruction.
Following the Implementation Order, seven additional developers came forward to present plans for the construction of Mount Laurel housing on specific sites. Thus, the governing body was confronted with the necessity of considering eight major development applications as part of its rezoning obligation. In the ensuing 90 days, the Planning Board and Governing Body considered developers' submissions and obtained written reports from traffic consultants, engineering experts, the Chief of Police, the Township Superintendent of Schools and the Chairman of the Mahwah Environmental Commission.*fn1 P. David Zimmerman was retained by the Township as an additional planning expert and on December 23, 1983, the Mount Laurel II Housing Plan, prepared by Kauker & Zimmerman, was submitted to the governing body.
The philosophy embodied in Mahwah's housing plan was to achieve compliance with a minimal addition to the housing stock. By rehabilitating dilapidated structures, obtaining rent subsidies for qualified tenants and permitting the construction of accessory units in all residential districts, they felt some of the need could be met without new construction. Another approach was to obtain public funding for construction of subsidized housing on particular sites to be occupied exclusively by low income people. Nevertheless, even under their projections, the planners were forced to turn to interested private developers and allow construction of a substantial number of units under a mandatory set-aside program.*fn2 From the very beginning the governing body was concerned because extensive
use of this method, although likely to produce the required units, could almost double the housing stock and change the character of the community.
The court-ordered rezoning process culminated in the Township Committee's adoption of an ordinance to implement the Mount Laurel II Housing Plan.*fn3 Three sites were rezoned, given a new ML-1 designation and were earmarked exclusively for public housing. An additional three sites were rezoned and given a new ML-2 designation for private development with a 25% mandatory set-aside. Accessory apartments were made conditional uses in all residential districts and some unnecessary cost-generating requirements were eliminated. The Mahwah Housing Commission was created to encourage rehabilitation of dilapidated units, to work with the Bergen County Housing Authority in an effort to secure public sector funding, and to assist in expediting new private sector construction.
The municipality's position is that Ordinance #851 satisfies its obligation as shown on the following chart prepared by its planners:
SUMMARY OF HOUSING PLAN FOR MAHWAH TOWNSHIP, N.J.
Low Moderate Low Moderate Total
1. Accessory Apartments 80 20 100
Manufactured Housing 5 5 10
3. Mahwah Housing Project 41 41
4. Rehabilitation HIP 36 12 77 25 150
(Private Development) 225 150 375
Total Low Needed 466 Units
Total Moderate Needed 230 Units
Although municipal officials claimed they had achieved compliance, none of the interested developers believed Ordinance #851 provided any realistic opportunity for construction. Prior to rezoning, Mahwah's planning experts had given a numerical ranking to each proposed project. However, the Ordinance placed only the two highest ranked proposals in an ML-2 zone. Of the six denied rezoning, four sought intervention to challenge their ranking and seek builders' remedies. Those rezoned asked intervention to attack objectionable ordinance provisions and protect their new zoning designations.
On February 22, 1984, an order was issued instructing the Master to review Ordinance #851 for compliance and report his findings to the Court. The order also permitted all developers who previously submitted proposals to intervene by March 1, 1984. The following developers asked for and were granted leave to intervene:
Intervenor Acreage Proposed Zone
Kilmer Woods 93 1400 ML-2
Franklin Commons West 20 284 ML-2
Ridge Gardens 38 540 PRD-6
Franklin Commons East 44 624 R-20
High Debi Hills 32 404 C/R-40
The Master's report took issue with the Kauker-Zimmerman conclusion that Ordinance #851 provided a realistic opportunity for creation of 800 lower income units. Caton felt the allowance of accessory apartments, rehabilitation of dilapidated units and public sector new construction would realistically provide a maximum of only 129 units, leaving the balance of required units to be provided through a mandatory set-aside program. He also criticized the mandatory set-aside percentage and the failure of the ordinance to eliminate cost-generating requirements not necessary for public health and safety.
All six intervening developers joined the Master in alleging it was not economically feasible to build under the terms of the ordinance. Their experts concluded a 25% mandatory set-aside as well as cost-escalating ordinance standards effectively precluded any chance for a profitable project. Absent substantial relief from the Court, they flatly stated these projects would be abandoned in favor of more profitable investments.
The compliance hearing began as scheduled on April 4, 1983. Since it was the first one ever held, the question of burden of proof was raised at the outset. It was ruled that the municipality had the burden of proving compliance and must first submit evidence to justify its position on the effect of Ordinance #851. Trial commenced with the issue of whether fair share credit was to be given the municipality for 100 units of accessory apartments.
II -- ACCESSORY APARTMENTS
To draft an Ordinance for implementation of their Mount Laurel II Housing Plan, Mahwah's experts examined its present housing stock with an eye toward converting parts of existing houses into lower income units. They found 68.8% of the 3,809 units in the municipality were one-family houses with three or more bedrooms, thus suitable for conversion into multiple units. Next, analysis of accepted demographic material confirmed the size of individual households in the township has been shrinking largely because of the increased divorce rate, the trend toward postponing marriage and the growing number of senior citizens. This led them to conclude Mahwah's aging stock of roomy houses was an underutilized resource readily available for use in the effort to achieve compliance.
P. David Zimmerman, the Township's expert in this field, explored the various alternatives for housing lower income people in these existing houses. He considered legalizing "granny flats", small self-contained removable units designed for installation in backyards. Although they are extensively used in Australia, this concept was rejected because it was untested in this country and could significantly alter existing neighborhood character. The concept of "shared housing", where kitchens and other major facilities in existing houses are used in common, was also rejected. He believed legitimization of this practice would be akin to legalizing rooming houses and not appropriate for a suburban municipality like Mahwah.
Accessory apartments, on the other hand, presented a different set of facts, which led Zimmerman to conclude they could provide an acceptable solution. Accessory apartments are created by converting part of a single family residence into an independent unit which shares only a yard, off-street parking and perhaps an entrance. They are an inexpensive source of new housing, allow more efficient use of existing structures, help insure proper maintenance of older homes, ease the financial burden of senior citizen homeowners and enable single
parents to keep their children in a stable environment in the wake of divorce.
In an attempt to project the number of accessory apartments that would be built over the next six years should Mahwah revise its ordinance to permit them, Zimmerman surveyed municipalities which had adopted such regulations in the past. He found a lack of data in New Jersey and, consequently, focused upon the experience of five municipalities in other states. His study encompassed the history of accessory apartments in Westport, Connecticut; Weston, Connecticut; Babylon, New York; Lindenhurst, New York and Renton, Washington. Taking an average of percentage of accessory units in each town (8.2% to 14.2%), he divided these figures into the average time accessory apartment ordinances had been in effect (23.2 years) and ascertained an annual absorption rate (0.36% to 0.66%). Applying this annual absorption rate to Mahwah, he concluded 116 accessory apartments (the average between 82 and 150) would be built by 1990. To be conservative, he reduced this figure to an even 100 units. This turned out to be only 2.6% of the Township's housing stock, well below the 8.2% to 14.2% found in the municipalities studied. This lower absorption rate convinced him a realistic opportunity existed for the production of these apartments, providing building costs would allow marketing at appropriate rents. To test this theory, he developed a specific pro-forma for Mahwah using a $10,000 average cost of conversion and the following presumptions:
(a) A $10,000 home improvement loan at 14% for 15
(b) Increased taxes 16.38 per month
(c) 10% profit on $10,000 83.33 per month
Applying Caton's regional income data, Zimmerman determined a two-person low income household can afford a monthly rental of $266 for a one-bedroom apartment and a moderate income
household can afford $432 for the same unit. This led him to conclude accessory apartments "are eminently affordable to all low and moderate income households."
With a potential monthly income stream of up to $432 measured against expenses of only $149.56, Zimmerman felt the potential profit was large enough to make conversion an attractive proposition to homeowners. As an added incentive, he reasoned, market value of real estate would increase at least in the amount spent for the home improvement. He suggested if the proposed Mahwah Housing Commission promoted this program, there was a strong likelihood more than 100 lower income households would be living in accessory apartments by 1990.
Mahwah's Township Committee incorporated Zimmerman's recommendations into Ordinance #851. Accessory apartments were legalized for the first time and permitted as conditional accessory uses in all residential zones. A limitation of one accessory unit per house was imposed with the further requirement it be situated entirely "within the habitable portion of the principal dwelling." The floor area had to be not less than 400 square feet nor more than 800 square feet and cover no more than 30% of the principal dwelling. Occupancy was limited to a maximum of three people. Each unit was required to have its own kitchen, bathroom and entrance. Owner occupancy of either unit and adequate off-street parking for both units was mandatory. A certificate of occupancy would be issued "only if at least one of the households has a low or moderate income."
The other three experts who reported on this subject agreed that authorization of accessory apartments is an acceptable mechanism to help achieve compliance under most circumstances. However, the restrictive provisions in this ordinance combined with the nature of Mahwah's housing stock caused them to sharply dispute Zimmerman's projections. Caton was conservative in his prognostication about the future effectiveness of these provisions. Both Alan Mallach, the Urban League's
expert, and Peter Abeles, Franklin Commons East's expert, believed these amendments would not result in the production of any significant number of lower income units.
Zimmerman's five town study was attacked as being misleading because nearly all the conversions included in his computations had taken place prior to the enactment of ordinances. Once accessory apartments were legitimized, very few subsequent conversions had been reported. Although accessory apartments comprise 10% of Babylon's housing stock, only six applications have been processed since passage of its ordinance in 1980. In Princeton Township, one of the few New Jersey municipalities to allow accessory apartments and similar to Mahwah in many respects, only 16 conversions under the ordinance were reported over a 10 year period.
Mallach testified Zimmerman's conclusions were distorted by the input of the data from Babylon. That municipality, he pointed out, has a completely different type of housing stock than Mahwah where houses were selling last year at prices well over $100,000. In Babylon, prior to its ordinance, there were scores of vacant tract houses for sale and homeowners were more concerned about paying mortgages than preserving property values. In his opinion, Mahwah homeowners would not convert 1/3 of their $100,000 houses into rent-controlled apartments. Caton concurred noting Zimmerman's projection has a fundamental problem: the absolute lack of precedent. None of the other ordinances referred to imposes a price ceiling on rentals.
Much of the criticism of Zimmerman's pro forma was based upon a total lack of back-up information. The $10,000 estimated conversion cost was considered much too low and 15 year home improvement loans at 14% interest are no longer available. Other deficiencies were the failure to include utility charges, insurance premiums and reserve for maintenance and repairs. Mallach determined these apartments could not possibly rent for less than $304 to $416 a month. Both he and
Abeles were of the opinion there would be only a trickle of conversions unless a direct financial incentive is given to homeowners.
Turning to the ordinance restrictions, they found no basis for the one unit per single-family home limitation. The consensus was the number of units should be dictated by available space and house configuration. Locating the accessory apartments entirely within the habitable portion of the principal dwelling was also deemed arbitrary since it eliminated the use of attached garages and prevented any structural additions. The limitation on square footage in many cases would prevent the most economical type of conversion (simply partitioning off a second floor). The limit on the number of occupants was found to bear no relationship to health and safety standards. In sum, these unnecessary conditions would, in all probability, inhibit homeowners from undertaking these building alteration projects.
Zimmerman's contention that real estate value would be increased by the cost of conversion was emphatically rejected. With houses selling in and above the $100,000 range, the other experts considered an accessory apartment for tenancy by a lower income household a deterrent to resale and a depressant of market value. Most prospective purchasers would want these homes for their own family use and the prospect of dispossessing a lower income tenant before reconverting would hurt future sales.
Caton's projections accepted Zimmerman's formula, but made adjustments to compensate for the distortion caused by the inclusion of Babylon. He then reduced his figure to reflect the anticipated slow beginning of the program and negative effect of the rent ceiling. Predicated on the assumption of an ordinance modification to allow the use of attached garages, he concluded Mahwah should be credited with a total of 25 units.
Given a less restrictive ordinance, the potential exists for municipalities to use this mechanism more productively. However,
based upon the evidence in this case, the accessory apartment provisions of Ordinance #851 provide a realistic opportunity for the production of 25 units of lower income housing (5 low and 20 moderate).
Mahwah plans to provide 325 units of lower income housing through the public sector, both by new construction and use of existing structures. A substantial portion of these units will be the result of on-going independent programs of the Bergen County Housing Authority; others will be the product of cooperative agreements which have already been executed between the Township and the Authority.
The Kauker-Zimmerman report claims credit for 54 units of public housing by new construction. "Stag Hill Site A", an eight acre tract owned by the County and under contract to the Authority, and two smaller parcels, have been rezoned for this purpose. These parcels have been designated ML-1, requiring 100% of the units be available for low and moderate income households. HUD has given site approval and reserved funds for a specific project on "Stag Hill Site A". Forty-five units, all exclusively designed for low income renters, will be constructed there. An additional nine units will be built on a different parcel under contract to the Authority. These sites have received HUD approval, are appropriate for development and the Authority has successfully completed projects of this type in the past.
Caton agreed all 54 of these units should be credited toward the fair share.
The Township also claims credit for 30 moderate income units under an "Affordable Housing Program" sponsored by the Bergen County Housing Authority. The Authority buys the land, makes site improvements and, through public bidding,
contracts for construction. The purchasers pay only actual construction costs, which have been averaging $40,000. Because a $10,000 down payment is required, acquisition is limited to the upper segment of moderate income families. These units will be built on "Stag Hill Site A" in conjunction with the rental housing.
The Authority has been successful in providing these affordable units in the past and the Master expects continued success. He believes the combination of low and moderate income housing by rental and ownership opportunities will provide a good economic mix on the site and agrees Mahwah should receive full credit for these 30 units. During the trial Carla Lerman, Executive Director of the Bergen County Housing Authority, testified funds are available for an additional five units. Her testimony is credible and gives Mahwah credit for all 35 units.
B -- MAHWAH HOUSING PROJECT
The Kauker-Zimmerman report proposed a "Mahwah Housing Project" be constructed on an eight acre parcel owned by the County known as "Stag Hill Site B." Three development options, with varying numbers of lower income units, were proposed.
The first option involved a HUD program in which three or more bedroom apartments would be constructed for rental to lower income families. A total of 477 of these units may be made available by HUD in this fiscal year. They will be allocated throughout Region 2, an area encompassing New York, New Jersey, the Virgin Islands and Puerto Rico. Mahwah plans to construct 80 of these units on this site. Carla Lerman testified the only action taken by the Authority has been to request an allotment of 100 of these units from HUD. The program has not yet been advertised throughout the County and no site selections have been made. Mahwah's only action has been to express an interest to the Authority.
The Master found that no realistic opportunity for this type of construction exists, because Mahwah's chance of obtaining such a large percentage of the Region 2 allocation is remote.
The second alternative was for the Township to seek HUD funding through the Bergen County Community Development Block Grant Program. These funds would be used to provide infrastructure improvements on the site, making it economically feasible to build 80 units, 41 of which would be affordable to low income families.
The third option was to induce the County to sell this parcel to a developer at private sale, on condition lower income housing be built. The raw land cost would be set low enough to allow the developer to profitably build 84 market rate units and 24 subsidized units.
Utilization of "Stag Hill Site B" for any type of Mount Laurel housing seems unlikely in the foreseeable future. The evidence shows it to be topographically unsuitable in many respects. The proposed alignment of Highway I-287 borders the property and has caused the Bergen County Housing Authority to reserve consideration of acquisition at this time. The present ML-1 zoning designation precludes the private development options and the proposal to sell public lands to a private developer without open bidding or specific statutory authority is of questionable legality.
There is no realistic opportunity for the creation of lower income units through any of these options.
The Township intends to participate in a HUD Section 8 Rental Subsidy Program. This is a mechanism to subsidize renters spending more than 30% of their gross income for housing. Tenants qualifying under federal guidelines are issued a Certificate of Participation, which requires them to find an apartment at a rental not exceeding the regional ceiling fixed by HUD. The landlord must agree to participate before
HUD will subsidize the difference between the approved rent and the amount the tenant is able to pay.
This program is already available to Mahwah tenants under the auspices of the Bergen County Housing Authority. However, only six certificates are being used in the Township, mainly because rents exceed the HUD maximum. Twelve other families are on the waiting list, but there is no guarantee future participants will find qualified housing in the municipality.
Both Caton and Mallach agree this rent subsidy program is not an appropriate tool to be used in the context of meeting fair share. It is an income transfer device, which neither creates new housing nor rehabilitates substandard units. In addition, families living in physically standard units but forced to spend more than 25% of their gross income on housing were specifically excluded in the fair share computations. Had they been included, the fair share number would be substantially greater than the 699 units identified.
The municipality is entitled to no credit toward the fair share for this program.
Kauker and Zimmerman originally reported the existence of 150 dilapidated units in the Township, all of which were to be rehabilitated by 1990. A dilapidated housing unit is defined as one with multiple serious deficiencies in need of substantial rehabilitation in order to be suitable for permanent habitation. Lower income occupants of such units are an underhoused segment of the population, generally comprising the bulk of the indigenous component of a municipality's present housing need. See Mount Laurel II -- Challenge and Delivery of Low-cost Housing, Center for Urban Policy Research, Rutgers (1983). Consequently, any such unit salvaged through rehabilitation while remaining affordable should be credited against the township's fair share obligation.
The Bergen County Home Improvement program (HIP) provides the only public funding currently available for this purpose. Financial assistance for rehabilitation is given to lower income households in the form of low interest or deferred payment loans for correction of serious code violations relating to health and safety. A mere 13 rehabilitations have been completed in Mahwah under this program since 1980 and only five applications are currently being processed. Nevertheless, the township planners hope to substantially increase the number of HIP applications by utilizing the proposed Mahwah Housing Commission. They intend to educate the target population through an aggressive out-reach campaign and urge owners of dilapidated houses to take advantage of the County's program.*fn4
In his fair share report, the Master identified 102 substandard units as the indigenous component of Mahwah's present need; the Township subsequently reduced its figures to conform. Furthermore, since only owner-occupied units are eligible for HIP loans, Caton estimated the number of dilapidated units that would qualify by applying the owner-to-renter ratio which presently exists in Mahwah. This eliminated tenant-occupied units, leaving a balance of 60 eligible structures. He concluded it would be realistic to expect 1/3 of these to be rehabilitated by 1990; ten low and ten moderate. The evidence clearly supports the Master's conclusion.
E -- MANUFACTURED HOUSING:
Credit for ten units of manufactured housing is claimed by the municipality. The basis for this assertion is its proposed participation in an experimental program sponsored by the Bergen County Housing Authority. This project would entail
acquiring suitable sites in Mahwah for the construction of rental housing by a prefabricated technique.
This pilot program is too speculative at this juncture to be given credit.
The evidence compels a finding that Mahwah's claim for credit of 325 public sector housing units is overstated. Based upon the testimony and exhibits, the Township has demonstrated a realistic opportunity for the production of only 109 units, 64 low and 45 moderate.
The mandatory set-aside is the only other device in Ordinance #851 designed to provide a realistic opportunity for construction of Mount Laurel housing. Since the extent of its use now becomes the pivotal issue, a recapitulation of the effect of prior rulings on Mahwah's fair share obligation will clarify the extent of the problem. So far, credit has been disallowed for 291 units claimed by the municipality as shown on the following chart:
CLAIMED BY MAHWAH ALLOWED BY THE COURT
Low Moderate Total Low Moderate Total
Accessory Apartments 80 20 100 5 20 25
Public Units 42 42 84 54 35 89
Manufactured Housing 5 5 10 0 0 0
Mahwah Housing Project 0 41 41 0 0 0
Rehabilitation HIP 113 37 150 10 10 20
Totals 270 155 425 69 65 134
Subtracting credits allowed by the Court from the total fair share obligation leaves a deficit of 565 units to be provided
through the mandatory set-aside ordinance provisions.*fn5 However, in order to achieve compliance, it will be necessary to either rezone or fashion remedies for a greater number of units.
In Oakwood at Madison, Inc. v. Tp. of Madison, 72 N.J. 481 (1977), the Supreme Court recognized the necessity for overzoning. Judge Conford, dealing with production of least-cost housing, noted:
sound planning calls for providing for a reasonable cushion over the number of contemplated least cost units deemed necessary and believed theoretically possible under a particular revision. Plaintiff adduced testimony that a reasonable margin over any formulaic quota was necessary in order to produce any likelihood of achievement of the quota. The reasons are evident. Many owners of land zoned for least cost housing may not choose to use it for that purpose. And developers of least cost housing may not select all of the zoned land available therefor, or at least not within the anticipated period of need. Thus, overzoning for the category desired tends to solve the problem. [ Id. at 519.]
In Mount Laurel II, the Court applied this concept to fair share obligations holding, "a realistic opportunity to provide the municipality's fair share may require over-zoning, i.e., zoning to allow for more than the fair share if it is likely, as it usually is, that not all of the property made available for lower income housing will actually result in such housing." [92 N.J. at 270; emphasis supplied.]
Even Mahwah's housing plan recommended zoning for a surplus of 101 units "to assure greater ability to implement and achieve compliance." During the trial, the opinions of experts were so varied as to be of little assistance. Zimmerman's report recommended zoning for 101 extra units. In his testimony, he attributed the entire surplus to accessory apartments and public sector housing. He said no overzoning was required
in the private sector because applications by builders assured the construction of the mandated units. The Master testified the extent of overzoning should depend on the reliability of the local housing plan, the final content of the ordinance and the size of the various development proposals. Under the facts in this case, Caton felt the extent of overzoning could be reduced from the current 101 unit projection. Peter Abeles opined site and financing problems will prevent successful completion of some of these projects. Overzoning is modest insurance that the Mount Laurel obligation will be met. He recommended 20% to 25% overzoning. Alan Mallach testified if there were no ready builders and this were merely a rezoning of vacant sites, 50% overzoning would be appropriate. In this case, he felt 10% overzoning would be adequate unless Kilmer Woods decides not to construct lower income housing. In that event, he feels there should be a total rezoning.
Throughout these proceedings some developers have voiced an intention to abandon their projects unless the mandatory set-aside provisions of Ordinance #851 are substantially changed. Kilmer Woods is the largest project involved and at the required 25% set-aside, would provide 325 lower income units. It has a preliminary site plan approval for construction of 500 luxury townhouses on the site under the prior zoning (PRD-6). Emsey-McBride, the developer, maintains this site plan is protected from the zone change to ML-2 for a period of 3 years from the date of preliminary approval under N.J.S.A. 40:55D-49. Depending on the outcome of this litigation, it intends to decide at some future time either to build lower income housing or litigate the novel issue of whether the constitutional dimensions of Mount Laurel II predominates over the statutory protection afforded by the Municipal Land Use Law.
Ridge Gardens, Franklin Commons East and Franklin Commons West are separate entities with aspects of common ownership and a single managing partner. At the required 25% set-aside, they would provide 362 lower income units. Thus,
the fate of 72% of the potential lower income units involved rests in the hands of two decision-makers. If either one abandons his project any prospect of meeting the fair share will be greatly diminished.*fn6
Mixed income developments under a mandatory set-aside concept have never before been attempted in New Jersey. The total absence of precedent, the concentration of power, the hazards of the construction business, the vicissitudes of the economy and the spectre of protracted litigation make completion of every one of these projects extremely questionable. Considering the evidence in this case, overzoning of 25% of the units to be furnished through private sector construction is necessary to provide a "reasonable cushion". Thus, a total of 706 units must be provided through mandatory set-asides: 565 deficit and 141 overzoning.
In order to provide 706 units of lower income housing under a mandatory set-aside program, a total of from 2824 to 3530 new units would have to be constructed. This will almost double the existing housing stock and, according to the township's experts, have a tremendous adverse impact on the community. Mahwah's position is the Court should either postpone its Mount Laurel II obligation or phase it over a period of years.
Throughout this litigation, Mahwah maintained the belief compliance should be achieved with minimal addition to the housing stock. This was grounded on the assumption any significant addition will cause a precipitous rise in municipal taxes and change the rural character of the community. To advance this argument, Kauker discussed the "community character"
which currently exists in Mahwah. He explained the community character is the way people perceive their environment; their reactions to visual impacts of buildings and land use, attitudes about the way individuals interact, even perceptions while sitting in traffic. Planners gauge this character by examining several factors: population change, rate of this change, density, land use mix, financial ability of the municipality to provide services and changing relationships with other communities.
Kauker described Mahwah as a diverse but well-balanced community with varied housing types. The municipality is approximately 26 square miles which includes 16 square miles of conservation zone. According to the 1980 census, the population was about 12,100 people living in 3,721 housing units. He explained that the population is distributed into identifiable neighborhoods, each with distinctive characteristics.
Fardale, located in the southeast corner of Mahwah, is a low density area, consisting mostly of single family homes on one acre lots. It also contains a PRD zone with a clustering of townhouses. The township's western section is largely pastoral with a scattering of one family homes and limited capacity roads. The central area is low-density with many open spaces and mostly 1 acre zoning. A good deal of its land mass lies in the conservation area of the State Development Guide Plan. Ramapo Ridge is the neighborhood designated by the Governing Body for high-density development. It is zoned for and has been developed with office buildings and townhouses. Kilmer Woods, the largest Mount Laurel II development, is planned for this area with the municipality's approval. West Mahwah, an older area located north of Route 17, is densely developed with commercial uses, garden apartments and older homes on small lots. Cragmere, located in the northeastern section between Franklin Turnpike and Airmont Avenue, consists of many different housing types: old homes on small lots, new homes on 1/2 acre and acre lots, garden apartments and a PRD development. Masonicus, the northeasterly section of town,
east of Airmont Avenue, contains one family houses, townhouses, and is similar to Fardale.
Kauker then turned to the impact immediate compliance would have on Mahwah. He calculated an average growth rate from 1950-1980 of 850 units per decade. To project the rate from 1980-1990 he used three different formulas: under Ordinance #851 there would be 1925 new units; using Caton's 22% set-aside, 2,796 units; and with a 20% set-aside, 3,495 new units would result. The population would rise from 12,100 to a possible total of 24,386, what he termed a "population explosion."
Another significant aspect of impact was the projected change in ratio of single-family to multi-family units. Currently, Mahwah has roughly 66% single family dwellings, while in Northern Bergen County 90% of the housing units are single-family. Projecting the 24,386 population and total of 8,409 units in 1990, the ratio of single to multi-family will become approximately 44% single and 55% multi-family. He noted that only the urbanized South Bergen towns have more multi-family than single-family homes. This factor alone, he stated, would change Mahwah from a semi-rural to an urban or semi-urban community.
Kauker also noted Mahwah's current share of Bergen County's housing units of 1.25% would rise to 2.14% in 1990. This would result in an "unfair share" for the township. Based upon a telephone survey, he formed the opinion the housing market in Mahwah's region cannot absorb all the market rate units that would be built under the mandatory set-aside program. According to this reasoning, if Mahwah and only a few other towns are compelled to fulfill their Mount Laurel II obligation, the market would be saturated and the rest of the municipalities would be "held harmless" from producing lower income housing.
The Master and other experts disagreed with Kauker's opinion of negative results which would occur if compliance is
achieved. They asserted community character involves the mix of land uses and their proportions, not visual impressions. Impact really involves the effect of development on infrastructure, i.e., roads, sewers, water supply and municipal services. All agreed Mahwah's infrastructure is sufficiently developed to accommodate all the Mount Laurel II construction required with little difficulty. Even if visual impressions were considered, the impact of new construction would be trivial because all the new set-aside developments would occupy less than two% of Mahwah's land mass.
Moskowitz was the only expert who agreed with Kauker the change in proportion from 60% single-family/40% multi-family units to 45% single-family/55% multi-family units would be substantial. The others characterized the proportional change as insignificant, noting an increase in multi-family units is a trend in all communities due to the prohibitively high cost of one family houses. Also, they felt Kauker's assumption that 50% or more multi-family is some sort of standard for urban character is simply incorrect. Hence, Kauker's theory that compliance would change the semi-rural nature of the community is unfounded.
The notion that compliance would cause a precipitous rise in taxes was advanced by Zimmerman. Based upon his calculations, the municipal tax burden of set-aside and public housing units will be significantly greater than tax revenues generated. This difference, which he termed a municipal subsidy, would be $1,557,000 or $500 more in taxes for each present homeowner.
The other experts rejected this theory for several reasons. There was no reliable back-up data to support any of his calculations and the industrial and commercial segments of the tax base were not included. Indeed, the rezoning of Franklin Commons from an industrial zone to ML-2 by the township is inconsistent with Mahwah's argument. It was also pointed out single-family houses cost municipalities more than they generate
in taxes and multi-family units generally break even or produce revenue.
Finally, to ameliorate this alleged negative impact, the township planners advanced the argument any fair share should be phased. It was suggested the development occur over 18 years, representing three Master Plan periods, as had been recommended for settlement in other communities involved in Mount Laurel II litigation.
The evidence in support of the community impact theory was unpersuasive. There was a total lack of underlying data produced to verify Mahwah's position. The "destruction of neighborhood" theme, created by Kauker for this litigation, is totally subjective and not based upon established planning principles. The true measure of community impact is the capacity of infrastructure to absorb new construction. Clearly, Mahwah's roads, sewers, utilities, schools and water supply system are all capable of accommodating the required development.
The change in ratio of one family homes to multi-family units is of little significance. Even absent Mount Laurel II, all experts agreed economics have changed the pattern of development in Northern Bergen County. Zimmerman's prognostication of a $500 per year tax increase for present homeowners is totally unfounded.
The postponement for phasing argument has already been disposed of by the Supreme Court. In response to Mount Laurel I, Mount Laurel Township rezoned and included "control provisions" to equate the fulfillment of its fair share obligation with fulfillment of similar obligations by other municipalities in the county. The trial court found no provision in Mount Laurel I making a fair share obligation dependent upon the action of other municipalities. So. Burl. Cty. N.A.A.C.P. v. Tp. of Mt. Laurel, 161 N.J. Super. 317, 348 (Law Div.1978). Mount Laurel II specifically approved this ruling. 92 N.J. at 304 n. 54.
VI -- THE MANDATORY SET-ASIDE PERCENTAGE
The Implementation Order of September 6, 1983, in addition to requiring the revision of Mahwah's zoning ordinance, directed the Master to consider specific proposals by developers. To this end, Caton conferred with various municipal officials and set informal guidelines to assist interested developers. The township planners wanted to have these developments designed in a manner compatible with the existing housing stock. Instead of high rises, they suggested townhouses with building heights similar to those previously constructed in the municipality or condominium flats with densities approximately the 14 units per acre found in the Garden Apartment (GA-200) District.
In order to determine economic feasibility, prospective developers had to ascertain the required number and sales price of the mandated lower income units. The original proposals were all based upon a 20% set-aside, i.e. four market rate units for each lower income unit. Sales prices of the lower income units were computed on the basis of income ceilings furnished by the Master.*fn7
All proposals submitted were evaluated by township planners as part of the site selection process. They considered the following "potential development impacts" for all projects: onsite environmental impact, community-wide impact and compliance with current standards. The category of environmental impact dealt with the effect of the individual project on land and vegetation, flooding and streams, form and location of buildings, interior road network and parking and proximity to social and cultural amenities. Community-wide impact was
identified as increased demand on utilities, off-site traffic and population density. Compliance with current standards included consistency with existing master plan and zoning controls, potential for completion of the project and consistency with Mount Laurel objectives.
Community-wide impacts were the most heavily weighted, and environmental impacts the least. The proposals were then ranked in order of their desirability: (1) Kilmer Woods; (2) Franklin Commons West; (3) Ridge Gardens; (4) Cherry Hills West; (5) Beaver Creek; (6) Minetto; (7) High Debi Hills; (8) Franklin Commons East; (9) Cherry Hills East; (10) Buehler.*fn8
The township planners had not anticipated the number of developers eager for an opportunity to provide lower income housing. Zimmerman testified the balanced Mahwah Housing Plan called for about 1/2 of its fair share obligation or 350 units to be provided through mandatory set-asides with a total new construction limited to 1,000 units. This would require a 33 1/3% set-aside, forcing builders to subsidize each lower income unit with profits from only two market rate units. A 20% set-aside would result in 1750 new units which, in his opinion, would radically change the character of the municipality.
In Ordinance #851, the Township Committee settled on a 25% set-aside at a density of 14 units per acre and a height limitation of three stories. They also incorporated a number of cost reduction provisions for construction in the ML-2 zone. The new zone included only three tracts that would adequately provide the required private sector construction:
Total Units at Lower Income Units
14 per acre at 25% set-aside
Franklin Commons West 200 50
Kauker and Zimmerman considered the 25% set-aside reasonable. They believed the 14 unit per acre density in ML-2 zones automatically increased raw land values to an extent large enough to enable developers to profitably subsidize at a 3 to 1 ratio. The basis for this conclusion was a new methodology they devised and used to economically evaluate each developer's submission. The first step was to ascertain the land value after rezoning by taking the proposed sales price of the market rate units, multiplying it by 14 for each acre and ascribing a land value of 10% of that figure. Next, they computed an anticipated profit on all units by applying a profit percentage to the proposed sales price. Then, they estimated the savings developers would realize in site preparation because of the ordinance cost reduction provisions. The total increased land value, profit on construction and site preparation savings were termed a "found resource."
The second step was to calculate the dollar amount of the subsidy needed for the lower income units. This was done by adjusting the developer's estimated construction costs downward to arrive at what they considered the reasonable cost of construction. Then, the gross income to be derived from the sale of lower income units was calculated by using the Master's figures to compute allowable sales prices. Subtracting allowable sales prices from the reasonable construction costs yielded the subsidy required. This was dubbed the "shortfall."
Finally, the "shortfall" was deducted from the "found resource" to ascertain the net financial gain or loss resulting from the rezoning. A good deal of testimony concerned the
application of this methodology to the financial data furnished by Emsey-McBride in the pro forma for Kilmer Woods. Despite many concessions about the accuracy of the figures used, Kauker and Zimmerman concluded this project would yield astronomical profits. And, they were convinced an economic analysis of the other proposals would show the same result, i.e., FOUND RESOURCE minus SHORTFALL equals WINDFALL.
None of the other experts agreed with either the approach or conclusions of the township planners. Initially, there is no uniform existing base price of land upon which to assess the value of these diverse properties for the purpose of measuring an increase in value attributable to the zone change. The sites involved were located in a variety of districts: Kilmer Woods and Ridge Gardens were PRD-6 (townhouses at six units per acre); Franklin Commons West was GI-200 (general industrial); Beaver Creek and Franklin Commons East were R-20 (single-family on 1/2 acre lots) and High Debi Hills was R-40 (single-family on one acre lots).
Secondly, construction under a mandatory set-aside program is completely different from building under the pre-existing ordinance. Even in the PRD-6 district, the increase from 6 to 14 units per acre is so great as to represent a change in kind, not degree. Tight plot plans, minimum amenities and scaled down individual units are required in ML-2 construction. While undisputed evidence showed present low density townhouses in Mahwah are selling in the $150,000 range, market rate units in ML-2 developments are projected at $50,000 to $90,000. Obviously, land values will not increase in proportion to the number of units, especially in an experimental mixed income development.
Thirdly, there is no sound basis upon which to gauge anticipated building costs. The expert testimony varied between $28 and $48 per square foot for "sticks and bricks" construction costs in today's marketplace. It is reasonable to anticipate a delay in the commencement of construction until the appellate
process is completed in this case. None of the witnesses even dared to project future building costs.
Finally, the township planners estimated there would be a savings of from $500 to $1,000 per unit for site improvement costs because of the ordinance amendment. They considered this part of the "found resource" and credited it as a gain to the developer. Elimination of restrictions and exactions not related to public health and safety are required by Mount Laurel II and Mahwah's experts' premise results in a surcharge to developers for eliminating the very cost-generating requirements responsible for inflated housing prices.
In sum, Mahwah's planners were more concerned with limiting production of new units and preventing windfall profits than providing a reasonable opportunity to construct lower income housing. To this end, they requested proposals based upon a higher than 20% set-aside. Several developers offered 22% on condition tax abatements be granted or major off-site improvements be provided. The Township, however, deemed these submissions as admissions which bolstered their position on profitability.
The Master conditionally endorsed a 22% set-aside provided sufficient concessions and incentives were granted. His position was based upon updated income figures which substantially raised sales prices of subsidized units. Since the original proposals anticipated profitability at 20%, he reasoned this added revenue should make 22% feasible. Not totally enamored of a requirement above 20%, he reported: ". . . while a distinction of 2% might seem diminimus (sic), it could actually reduce the total residential rezoning required by as much as 250 units."
The other experts were all adamant that any increase above the 20% set-aside would unnecessarily jeopardize the prospects for construction. Alan Mallach testified the 25% set-aside deviates from the position of the Supreme Court in Mount Laurel II and disregards the historical basis for the 20%
set-aside. Since there are willing builders with ample developable sites in Mahwah, the only possible reason for proposing the higher level is to discourage construction. He pointed out a 20% or less set-aside has been the national experience with few deviations; e.g. a 12 1/2% set-aside Maryland program has produced over 5,000 lower income units, a 25% set-aside California program has been successful but under much more liberal income conditions for buyers of subsidized units. He emphasized there is no history of any lower income units being produced under a 25% set-aside with the stringent Mount Laurel income restraints. The difference between a 20% and 25% set-aside imposes a significant increase in cost to the builder, affects marketability and increases the risk.
Peter Abeles not only agreed with Mallach but testified the 20% set-aside should be adopted on a state-wide basis. He said the surest way to stop Mount Laurel type development is to increase the set-aside precentage. Twenty percent (20%) has become the generally accepted standard in pending litigation and adjudication of a specific percentage in each case will lengthen and add to the cost of litigation. Put another way, it is unnecessary to reinvent the wheel in every case.
Harvey Moskowitz, one of Kilmer Woods' experts, pointed out that although Mount Laurel II referred to 20% as a minimum, it has already become a standard. He likened it to set-back requirements where the minimum also becomes the maximum. His opinion was the additional financial risk imposed by a 25% set-aside will effectively prevent construction. Robert Mcauliffe, Kilmer Woods' other expert, echoed Moskowitz' sentiments. He testified any increase in the 20% set-aside would change the social complexion of the development and cause Kilmer Woods to abandon its project because of the increased marketing risk.
The weight of the credible evidence presented combined with the intent of Mount Laurel II and marketplace factors
compels a finding that a 20% set-aside is the maximum permissible to engender the construction of lower income housing.
VII -- THE LOW/MODERATE RATIO
The apportionment of the 699 units comprising Mahwah's fair share obligation has been set at 230 units of moderate and 469 units of low income housing.*fn9 Facially, it would appear this 2 to 1 ratio of low to moderate should be incorporated into the mandatory set-aside program by requiring two low for every moderate unit. During the rezoning process, the Master requested developers to structure their pro formas on the basis of providing 60% low and 40% moderate income units. Nevertheless, the submissions made and the ordinance enacted provided an even split: 50% moderate and 50% low.
Obviously, if all developments are built out at this ratio there will be a surplus of moderate and a shortage of low income units. Unless a total much greater than the fair share is provided, the prospective need for low income housing will not be met. For obvious economic reasons, none of the developers have challenged the 50%/50% split. Even the Urban League has adopted this position for the reasons set forth below in the report of Alan Mallach:
The 50/50 standard, which is supported in the Mount Laurel II decision implicitly at 309, reflects both practical and theoretical considerations. The practical grounds are straightforward: since each low income unit is substantially more financially burdensome for a developer, any increase in the number
of low income units makes the financial feasibility of the development, that much more problematical. This is extremely important, since (a) it is in the interest of the Mount Laurel remedy to make development feasible; and (b) there is a finite limit to the amount of additional cost which can be added to market units, where one is trying to develop a relatively affordable market-rate product. Moderate income units can be provided with a modest subsidy; low income units require a deep subsidy, perhaps as much as $20,000/unit.
If the 50/50 approach were dramatically at variance with the distribution of need, it might be necessary to reappraise the above point, and perhaps seek alternatives (a smaller overall percentage, perhaps, with more low income units than moderate income units). It is not seriously at variance with the need, for one compelling, although unfortunate, reason. The mandatory set-aside approach simply cannot subsidize units down to the level where the very poor can afford them. There is a de facto floor on the affordability of a unit provided through this approach, which is likely to be in the area of 40% of median at a minimum. If one looks at the distribution of households between 30% and 80% of median, rather than from 0% to 80%, one finds that the split is 60% moderate income and 40% low income.
This analysis might suggest that a 60% moderate/40% low split would be appropriate. This, however, is not the case, for two reasons. First, within the present need category, there is a disproportionate concentration of low income households, which dictates provision of more low income units. Second, the ability of low income households to find minimally acceptable housing at a price they can afford within the existing (used) housing market is substantially less than that of moderate income households. For these reasons, it is desirable to seek to meet a greater part of the low income need, within that income range which can be accommodated through the set-aside approach, than the moderate income need. Thus, the 50/50 approach appears to balance both practical and theoretical consideration.
It should be noted that Mallach's report goes on to identify an "intermediate" segment of the lower income population as those households earning between 50% and 65% of the median. He observes that affordable housing for this particular segment is often overlooked by municipalities and developers in the course of structuring Mount Laurel compliance strategies.
The Master dealt with this problem by requiring developers to target their prices, for planning purposes, toward households earning 65% and 50% of the median. This would allow for the price structure to be subsequently refined to a full range of income levels equally above and below these benchmarks without economic penalty to the developer; i.e., 30% to 50% for low income and 50% to 80% for moderate income. Thus, the rezoning
process in Mahwah has provided for the needs of a reasonably broad range of lower income levels.
With regard to the proportion of low versus moderate income units, the evidence established if more than 1/2 of these subsidized units are sold to low income households the resulting socio-economic composition of individual developments will adversely affect marketability. Accordingly, the township's requirement that developments include a minimum of 50% of the lower income units for low income households is at the reasonable maximum for proportionality. The proposed developments in Mahwah are each sufficient in size to accommodate a 50/50 distribution of low/moderate units.
VIII -- REMOVING EXCESSIVE RESTRICTIONS AND EXACTIONS
The astronomically high cost of housing in New Jersey motivated the Supreme Court in Mount Laurel II to order the removal of all municipally-created barriers to construction of mandated lower income housing. When it rendered the decision in 1983, the Court had documentation before it that the average 1981 new home price in New Jersey had been $75,000, a figure affordable by only 1 in 20 families. 92 N.J. at 212 n. 6. Other factors indicated judicial intervention could significantly lower housing costs. For example, in 1972, evidence demonstrated the selling price of some new single-family homes could have been decreased from $57,618 to $33,843 by merely reducing lot size and frontage requirements. 92 N.J. at 259 n. 25.
In dealing with the problem, the Court specifically required elimination of zoning and subdivision restrictions and exactions not necessary for the protection of health and safety. In so doing, they recognized achieving the delicate balance between required cost reduction measures and protection of health and safety would be difficult in future cases. Guidelines were set instructing trial courts to consider updated standards in the construction field in conjunction with specific evidence submitted
by the parties to determine whether municipally-imposed housing costs have been sufficiently reduced. 92 N.J. at 259. In the case of Mahwah, developers advocated specific ordinance revisions to achieve the required cost reduction and furnished a good deal of credible evidence on the subject. The municipality offered virtually no opposition on this point.
The evidence established house sales in Mahwah during 1984 have been averaging $150,000; in nearby Saddle River the average sales price is $450,000. The current price of housing in Northern Bergen County is shown in the 1984 Annual Survey of Bergen County Housing Developments:
Price Project Name Location Plot Size
$115,000 Tributary Woods Englewood 2713
$115,900 Willow Court Townhouses Englewood 2 acres
$174,900 West Woods Norwood 100 x 100
$179,900 Hemlock Estates Midland Park 100 x 150
$189,900 Fardale Estates Mahwah 24,800
$210,000 Midvale Estates River Vale 18,000
$229,900 West Woods Norwood 100 x 100
$279,000 Aris Estates Allendale 3/4 acre
$285,000 Manor Estates Washington Twsp. 1 acre
$298,900 Hidden Acre Estates Wyckoff 25,000
$300,000 Saddle Ridge Estates Upper Saddle River 1 acre
$320,000 Tivon Construction Woodcliff Lake 23,500
$344,900 Town & County Developers Woodcliff Lake 3/4 acre
$359,900 Five Oaks Haworth 45,000
$359,900 Town & County Developers Montvale 1 acre
$389,900 Town & County Developers Montvale 1 acre
$449,900 Lily Pond Franklin Lakes 1 acre
$449,900 Town & County Developers Upper Saddle River 1 acre
$450,000 Leonard Estates Franklin Lakes 1 acre
$475,000 Forest Ridge Upper Saddle River 1 acre
$525,000 Rio Vista Cresskill 1 acre
$648,000 Twinbrook Estates Saddle River 2.14 acres
$675,000 Urban Farms Franklin Lakes 1 acre
$685,000 Saddle River Estates Saddle River 2 acres
$685,000 High Ridge Saddle River 2 acres
$735,000 High Ridge Saddle River 2 acres
$749,500 Powder Hill Estates Saddle River 2 acres
$750,000 Timberline Manor Alpine 2 acres
$759,000 Nigro Construction Co. Saddle River 2 acres
$995,000 High Ridge Saddle River 2 acres
$1,000,000 Rio Vista Alpine 2 acres
"The Well-to-do Buoy the Market," The Record (Hackensack, N.J.) May 20, 1984, Section R at 2.
With a single exception, every witness who dealt with the subject recognized a tremendous demand for conventional housing in the Mahwah region at more affordable prices.*fn10
Naomi D. Friedman, a local real estate broker testified prospective purchasers looking for housing under $100,000 are regularly directed to either Rockland County, New York or Central New Jersey. There was a unanimity of opinion that potential first-time home buyers with annual incomes of less than $30,000 are effectively cut out of the Mahwah market because no quality housing is currently being offered at an appropriate price range.*fn11
A Housing Market and Feasibility Analysis prepared for Beaver Creek by Real Estate Research Corporation verified the existence of a large market for housing at prices, expressed in 1983 dollars, from between $56,000 and $81,250 per unit. The report concluded smaller units in this price range will attract a diverse group of buyers, most with annual incomes in the $25,000 to $30,000 range. They found significant numbers of these potential home buyers live in Northwest Bergen County and are eager to purchase housing if it can be marketed in this price range.
Mandatory set-aside developments involve concepts totally different from those employed in building conventional projects. Townhouses currently being built in Mahwah at 4 or 6 to an acre at prices in excess of $100,000 are not suitable market rate units for Mount Laurel type development. Mixed income projects at 14 to an acre cannot be expected to compete with these low-density luxury developments. Market rate units must be priced below existing levels yet high enough to subsidize lower income units. Marketability becomes the key issue. All developers concurred in the findings of Real Estate Research Corporation and projected their sales prices for market rate units between the low $50,000's and high $80,000's. This reaches the untapped market of potential home buyers who cannot afford the current Mahwah prices but earn more than 80% of the region's median income. To provide a realistic
opportunity for builders to sell some units for as little as $50,000, subsidize others and still make a reasonable profit, requires Mahwah's ordinances be thoroughly cleansed of cost additive measures not necessary for health and safety.
Minimum standards relating to health and safety factors fall into many areas. Conceptually, local regulations in this field can be divided into two categories. There are the land planning provisions governing set-backs, placement of buildings, buffering, amount of open space, densities, etc., which are generally found in zoning codes. Subdivision and site plan ordinances usually set forth technical standards for performance criteria concerning construction of roadways and parking areas, surface drainage, land clearing and soil removal and other site improvements.
John Rahenkamp, an expert in landscape architecture and land planning was retained by Beaver Creek to review Mahwah's existing development codes. He is nationally recognized for his work in the area of reducing building costs through the use of innovative but proven techniques. Rahenkamp analyzed Ordinance #851 in light of other code requirements to determine whether the township had reduced unnecessary cost generating requirements to the extent required by Mount Laurel II.
He began by analyzing the design and engineering standards in Mahwah's ordinances relating to on-site improvements, then made a judgment as to whether each required improvement was really necessary for public health and safety. If unnecessary, it was eliminated. If necessary, he looked for less costly recognized engineering methods to produce the required results. His preference was to keep land in its natural state, allow for flexibility in site plan design, take advantage of natural contours and encourage innovative use of materials. This low technology approach, in his opinion, is equally as effective but less costly than traditional rigid site improvement requirements. Rahenkamp concluded Ordinance #851 failed to
comply with Mount Laurel II and the municipality's efforts resulted in only minimal savings. The Master concurred.
Other experts on behalf of developers also provided reports and testimony on the subject of cost reduction supplementing Rahenkamp's study. The municipality did not offer a single shred of evidence to contradict the recommended cost reduction provisions.
If traditional zoning laws were applicable, the more costly municipal requirements would be upheld as a reasonable exercise of governmental discretion and Rahenkamp's recommendations would carry no legal weight. Actually, the existing regulations may well be valid when applied to construction in other zones. However, in zones designated for the production of lower income housing, site plan and subdivision regulations are valid only if they eliminate all restrictions and exactions not necessary for the protection of health and safety. Consequently, the cost reduction provisions of Ordinance #851 as they affect Mahwah's development regulations must be evaluated under the new test set forth in Mount Laurel II.
Therefore, the Court's evaluation of each cost reduction provision contained in Ordinance #851, in light of the uncontradicted evidence presented, follows:
ORDINANCE #851 § 9A -- PHASING
1. THE APPROVING AGENCY MAY REQUIRE THE CONSTRUCTION OF A DEVELOPMENT IN TWO OR MORE STAGES AND MAY PHASE THE CONSTRUCTION OF STAGES IN PERIODS OF TWO OR THREE YEARS BETWEEN ISSUANCE OF BUILDING PERMITS FOR EACH STAGE.
2. WITHIN THE ENTIRE DEVELOPMENT IF DEVELOPED IN ONE STEP, OR WITHIN EACH STAGE IF THE DEVELOPMENT IS A STAGED PROJECT, LOWER INCOME
HOUSING SHALL BE PHASED IN ACCORDANCE WITH THE FOLLOWING SCHEDULE:
PERCENTAGE OF TOTAL PERCENTAGE OF LOWER
DWELLING UNITS INCOME DWELLING UNITS
(BUILDING PERMITS) (CERTIFICATES OF OCCUPANCY)
THE ABOVE PERCENTAGE SHALL REFER TO THE PERCENTAGE OF TOTAL DWELLING UNITS HAVING FINAL SITE PLAN OR SUBDIVISION APPROVAL AND THE PERCENTAGE OF LOWER INCOME DWELLING UNITS COMPLETED AND CERTIFICATES OF OCCUPANCY ISSUED.
COMMENT: The purpose of Paragraph 1 is to lessen the impact of sudden development on the municipality. By controlling the pace of development, the township will be able to better manage off-site problems caused by new construction such as traffic, water supply and sewerage disposal. However, it can also be used as a tool to prevent construction of lower income housing by failing to issue building permits for periods of two or three years. The evidence established Mahwah's infrastructure is capable of handling the extent of new development required. The pace of construction should be governed by market conditions. This paragraph is unreasonable.
Paragraph 2 limits the issuance of building permits for market rate units until a set percentage of subsidized units have been sold. This is designed to prevent developers from selling only market rate units, harvesting a profit, then abandoning the project. The ordinance ratio, however, fails to take in account the need to allow the sale of market rate units at the beginning of a project in order to provide sufficient cash flow to subsidize the lower income units. The schedule below, recommended
by Rahenkamp, assures the construction of both types of housing in tandem while providing the builder with a more reasonable opportunity to develop.
Market Rate Housing Lower Income Housing
Percentage (Maximum) Percentage (Minimum)