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Calton Homes Inc. v. Council on Affordable Housing

Decided: November 19, 1990.


On appeal from the New Jersey Council on Affordable Housing.

Shebell, Havey and Skillman. The opinion of the court was delivered by Shebell, J.A.D.


In this appeal Calton Homes, Inc. (Calton)*fn1 challenges the substantive rules adopted by the New Jersey Council on Affordable Housing (Council), N.J.A.C. 5:92-1.1 et seq., "on two grounds: (a) three of the rules are facially invalid because they conflict with the letter of the [Fair Housing] Act or the legislative intent, and (b) the Substantive Rules as a whole produce an excessive dilution of the municipal obligation that violates the constitutional requirements of Mount Laurel II."

The three targeted rules are: (1) N.J.A.C. 5:92-7.1(b) (the "1,000-unit cap rule"), which became effective August 4, 1987; (2) N.J.A.C. 5:92-16.1 et seq. (the "accessory apartment rule"), which became effective February 16, 1988, and (3) N.J.A.C. 5:92-14.4(d) (the "rental credit rule"), which became effective December 15, 1986. Calton alleges that these three rules directly affect its position as a landowner and as a Mount Laurel litigant against the Township of Middletown and substantially contribute to the statewide dilution of housing yield under the Fair Housing Act (Act), N.J.S.A. 52:27D-301 et seq.

On March 31, 1988, Calton filed a notice of appeal from the adoption of the 1,000-unit cap and the accessory apartment rules. Thereafter, Calton filed a motion for leave to amend its notice of appeal to include a challenge to the rental credit rule and a broad-based challenge to the alleged dilutionary effect

that all of the Council's substantive rules had and would have upon "municipal lower income housing obligations." The motion was granted on August 11, 1988.


In Southern Burlington County NAACP v. Township of Mount Laurel, 67 N.J. 151, 336 A.2d 713 (1975), appeal dismissed and cert. denied, 423 U.S. 808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975) (Mount Laurel I), our Supreme Court held that Mount Laurel's municipal zoning ordinances violated the "general welfare" provision implicit in Art. I, par. 1 of the state constitution and explicit in the "zoning enabling act," N.J.S.A. 40:55-32, by failing to "make realistically possible the opportunity for an appropriate variety and choice of housing for all categories of people who may desire to live there, of course including those of low and moderate income." Id. 67 N.J. at 187, 336 A.2d 713. Every municipality was declared to have an obligation to create a realistic opportunity for the construction of low and moderate income housing "at least to the extent of the municipality's fair share of the present and prospective regional need therefor." 67 N.J. at 174, 336 A.2d 713.

Eight years later Mount Laurel Township remained "afflicted with a blatantly exclusionary ordinance[;]" Southern Burlington County NAACP v. Township of Mt. Laurel, 92 N.J. 158, 198, 456 A.2d 390 (1983) (Mount Laurel II). Therefore, the matter was again brought before the Supreme Court. Id. In Mount Laurel II, the Court defined in detail a variety of procedures and remedies to effectuate enforcement of each municipality's constitutional obligation. Id.

In response, the Legislature passed the Fair Housing Act in 1985. N.J.S.A. 52:27D-301 et seq. It declared that "every municipality in a growth area has a constitutional obligation to provide through its land use regulations a realistic opportunity for a fair share of its region's present and prospective needs for housing for low and moderate income families." N.J.S.A.

52:27D-302(a). The "scheme" created by the Act was designed to satisfy that obligation. N.J.S.A. 52:27D-303.

The major feature of the statutory scheme was the creation of the Council on Affordable Housing. N.J.S.A. 52:27D-305(a). In addition to other duties, the Council was charged with (1) "[d]etermin[ing] housing regions of the State," (2) "[e]stimat[ing] the present and prospective need for low and moderate income housing at the State and regional levels," and (3) adopting criteria for the determination of each municipality's fair share of that need and for the determination of any adjustments to that share based on environmental and other legitimate planning concerns. N.J.S.A. 52:27D-307(a)-(c). Upon execution of these duties, municipalities were to begin the process of petitioning for the Council's "substantive certification." N.J.S.A. 52:27D-313. Substantive certification would then be granted if the petitioning municipality's fair share plan and housing element made "the achievement of the municipality's fair share of low and moderate income housing realistically possible." N.J.S.A. 52:27D-314(b). A grant of substantive certification protects an approved municipality from any further exclusionary zoning lawsuits for a period of six years. See N.J.S.A. 52:27D-313, -317 and -322. In Hills Development Co. v. Bernards Township, 103 N.J. 1, 510 A.2d 621 (1986), the Supreme Court upheld the Act's constitutionality. Id. 103 N.J. at 25, 510 A.2d 621.

On May 18, 1987, the Council proposed the adoption of the current N.J.A.C. 5:92-7.1(b) (the "1,000-unit cap"). 19 N.J.R. 806(a). The proposal was adopted on July 6, 1987, to be effective August 3, 1987. 19 N.J.R. 1431(a). On November 16, 1987, the Council proposed the adoption of the current N.J.A.C. 5:92-16.1 et seq. (the "accessory apartment rule"). 19 N.J.R. 2089 (b). It adopted that rule on January 19, 1988, effective February 16, 1988. 20 N.J.R. 385(b). On November 7, 1988, the Council limited the availability of the accessory apartment rule to municipalities that had petitioned for substantive certification prior to December 19, 1988. N.J.A.C. 5:92-16.6(b); 20

N.J.R. 3123(c). On December 15, 1986, the Council adopted the current N.J.A.C. 5:92-14.4(d) ("the rental bonus rule").

In order to receive substantive certification, a municipality's housing element and fair share plan must address its "pre-credited need." As demonstrated below, a municipality's pre-credited need represents its allocated share of the region's need for low and moderate income housing after adjustments for the operation of normal market forces and before adjustments for circumstances unique to the municipality. A municipality's pre-credited need is based upon a statistical model and is calculated essentially as follows:

Indigenous Need The number of substandard housing

units occupied by low and moderate in-

come households, but capped in such a

way that no municipality's indigenous

need shall exceed the region's average.

N.J.A.C. 5:92-5.2.


Reallocated Present The municipality's share of the excess

Need need of the region. N.J.A.C. 5:92-5.4.

= (equals)

Present Need The sum of indigenous need and reallo-

cated present need. N.J.A.C. 5:92-5.5.


Prospective Need The municipality's share of the number

of low and moderate income households

that the region is estimated to need.

N.J.A.C. 5:92-5.6.

= (equals)

Total Need The sum of present and prospective

need. N.J.A.C. 5:92-5.7.


Demolitions Number of units of affordable housing

expected to be demolished. N.J.A.C.


- (deduct)

Filtering Number of housing units occupied by

middle to upper income households that

will become available to low and moder-

ate income households. N.J.A.C. 5:92-5.-


- (deduct)

Residential Conver- Number of affordable housing units that

sions will be created by the conversion of non-

residential structures or the subdivision

of residential structures. N.J.A.C. 5:92-


- (deduct)

Spontaneous Reha- Number of affordable housing units that

bilitation the operation of the market will create

by rehabilitating substandard units.

N.J.A.C. 5:92-5.11.

= (equals)

Pre-credited Need The sum of total need and demolitions

minus reductions for filtering, conver-

sion and spontaneous rehabilitation.

N.J.A.C. 5:92-5.12. [244 NJSuper Page 445] Once a municipality's pre-credited need has been calculated, that number is subjected to a variety of credits, caps, and adjustments to arrive at the municipality's fair share number. This fair share number represents the units that a municipality must establish as reasonably likely to be created by its fair share plan. Credits are granted for the number of low and moderate income housing units created between April 1, 1980 and the time of the petition. N.J.A.C. 5:92-6.1. Next, a variety of downward adjustments are available to that portion of each municipality's pre-credited need which represents its prospective need and its reallocated present need. N.J.A.C. 5:92-8.1. These adjustments are designed to recognize that some municipalities lack developable land sufficient to satisfy their pre-credited need. Adjustments may be granted, for example, for the presence of historically significant sites, N.J.A.C. 5:92-8.2(b)(1), environmentally sensitive lands, N.J.A.C. 5:92-8.2(b)(3), and land associated with prohibitive infrastructure costs. N.J.A.C.

5:92-8.5. Thus, the pre-credited need may be further reduced ...

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