On appeal from the New Jersey Council on Affordable Housing.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Fuentes, Ashrafi and Newman.
In this appeal, Valley National Bank (VNB), seeks the reversal of an October 14, 2009, decision by the Council on Affordable Housing (COAH), granting Readington Township's petition for substantive certification based, in part, on the regulations we thereafter invalidated in In re Adoption of N.J.A.C. 5:96 & 5:97 by the New Jersey Council on Affordable Housing, 416 N.J. Super. 462, 471 (App. Div. 2010), certif. granted, 205 N.J. 317 (2011).*fn1 These regulations, adopted by COAH under the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329.19, sought to establish "the obligations of municipalities to provide affordable housing during the 'third round' period from 1999 to 2018 and provide mechanisms for municipalities to achieve compliance with those obligations." Ibid.
We must therefore determine what effect our decision in In re Adoption of N.J.A.C. 5:96 & 5:97 has on the substantive certification challenged by VNB. Because Readington has taken substantial and concrete steps to implement the plan approved by COAH on October 14, 2009, immediate invalidation of Readington's substantive certification is not warranted. We remand the matter to COAH for reevaluation of Readington's fair share obligation following its adoption of the re-amended third round rules pursuant to In re Adoption of N.J.A.C. 5:96 & 5:97.
In order to make the particular facts that led to this appeal meaningful, we must first provide a brief description of the legal environment that governs judicial oversight of these kinds of planning decisions by municipalities throughout our State.
Following our Supreme Court's landmark decisions in the Mount Laurel cases*fn2 , the Legislature enacted the FHA and the State Planning Act, N.J.S.A. 52:18A-196 to -207. In re Adoption of N.J.A.C. 5:94 & 5:95 by the N.J. Council on Affordable Hous., 390 N.J. Super. 1, 21 (App. Div.), certif. denied, 192 N.J. 72 (2007). The FHA in turn created COAH as a means of providing "an administrative mechanism for implementing the Mount Laurel doctrine." Ibid. COAH was thus directed to divide the State into housing regions, estimate the present and prospective need for low- and moderate-income housing at both the State and regional levels, and adopt criteria and guidelines that would enable a municipality to determine its fair share of its region's present and prospective housing need. [Ibid.]
Under the FHA's mandate, COAH's responsibilities include "adjust[ing] municipal fair share based on available vacant and developable land, infrastructure considerations or other environmental factors, and [seeing] that the pattern of development is not inconsistent with the planning designations in the State Plan." Ibid. To accomplish these goals, "[t]he State Planning Commission must provide COAH with annual economic growth and development projections for each housing region, and COAH must periodically adjust regional need calculations based upon the amount of affordable housing generated through any federal, state, municipal or private housing program." Id. at 21-22.
COAH uses this data, along with "pertinent information from studies, government reports, and information from other branches of government," id. at 22, to adopt substantive and procedural rules governing the calculation of municipalities' fair share obligations and the implementation of plans to accomplish the goals of the Mount Laurel doctrine, as well as to periodically update these rules in accordance with shifts in land availability and regional housing needs. These rules are used by COAH to analyze individual municipal plans setting forth the means by which they propose to fulfill a municipality's fair share obligations; when COAH is satisfied that the plans present a "realistic opportunity" for meeting affordable housing obligations, it may then grant substantive certification to the municipality. In re Adoption of N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. at 471-72. A grant of certification means that a municipality "is insulated to a substantial extent from exclusionary zoning litigation for a period of . . . ten years." Id. at 472.
The first round of substantive rules adopted by COAH, N.J.A.C. 5:92-1.1 to -18.20, covered the period from 1987 to 1993; the second round of rules, N.J.A.C. 5:93-1.1 to -15.1, covered the period from 1987 to 1999; these rules were received by the regulated community largely without successful legal challenge. In re Adoption of N.J.A.C. 5:94 & 5:95, supra, 390 N.J. Super. at 24-27. Both the first and second round rules utilized essentially the same methodology for allocating fair share obligations amongst municipalities. Id. at 25. A number of "surrogates" were employed to establish the present need of a given "regional growth area," including overcrowding, the age of housing units, and "lack of plumbing, kitchen or heating facilities as indicators of dilapidated housing." Id. at 23.
Future need was calculated using "statistical analyses to project the number of low- and moderate-income households that would form" during the coverage period of the rules. Ibid. The total calculated need was subsequently reduced based on a number of factors, such as "filtering,"*fn3 "residential conversion,"*fn4 and "spontaneous rehabilitation."*fn5 Id. at 24. This resulting need was then allocated to municipalities "based on employment within the municipality, projected employment within the municipality, the percentage of the municipality in a growth area, and the municipality's wealth." Id. at 23-24.
In contrast to the relatively conflict-free history of the first and second round rules, COAH has faced significant legal challenges to its third round substantive rules, N.J.A.C. 5:94-1.1 to -9.2, covering the period from 1987 to 2014. These challenges have largely focused on methodological changes made to: (1) the calculation of overall regional need; and (2) the allocation of this need amongst municipalities. We first addressed these challenges in In re Adoption of N.J.A.C. 5:94 &5:95, supra, 390 N.J. Super. 1, a case that had a particular focus on the then newly implemented "growth share" methodology for allocating affordable housing need to municipalities.
The third round rules included three major components for determining a municipality's fair share requirement:
(1) a municipality's 'rehabilitation share'*fn6 based on the condition of housing revealed in the data gathered for the 2000 Census . . . ; (2) a municipality's unsatisfied prior round obligation (1987 through 1999) . . . ; and (3) a municipality's 'growth share' based on housing need generated by statewide job growth and residential growth from 1999 through 2014. [Id. at 27.]
We summarized the "growth share" calculation as follows:
To meet the prospective need as defined by COAH, each municipality must provide for the development of one affordable housing unit for every eight new market-rate residential units projected, plus one affordable unit for every twenty-five newly created jobs. Municipalities will not calculate each new or additional job created in the municipality. Rather, COAH has determined that various categories of new construction will create varying numbers of jobs, depending upon the category, or "use group," of the construction. For example, an office building will generate three jobs per 1000 square feet, whereas a strip mall will generate one job per 1000 square feet.
However, municipalities will not be responsible for the new jobs created by, for example, rehabilitating an existing vacant office, store or factory. [Id. at 29-30 (citations omitted).]
We noted that, "[i]n the first and second rounds, COAH assigned a specific fair share number to every municipality." Id. at 48. However, under the third round methodology, municipalities "can decide for themselves how much affordable housing they want in the future," because a municipality's growth share projection, based on anticipated construction and job creation, is only converted to an "actual growth share obligation" following the "issuance of permanent certificates of occupancy." Id. at 48, 50. "Because a municipality's actual growth share obligation is directly linked to the number of housing units that are built in a municipality and the number of jobs generated by non-residential development, each municipality controls its destiny." Ibid.
Such an approach "is inconsistent with both the Mount Laurel doctrine as articulated by the Supreme Court and as codified in the FHA." Id. at 53. While "[m]unicipalities need not guarantee that the required amount of affordable housing will be built," they are still required to "adopt land use ordinances that create a realistic opportunity to meet the regional need and their own rehabilitation share." Id. at 54.
We found, however, that the growth share methodology, as implemented, "encourages municipalities to adopt master plans and zoning ordinances that retard growth, in order to minimize the municipality's fair share allocation." Id. at 55. As such, the growth share approach was violative of the Mount Laurel doctrine "to the extent that the methodology . . . permits voluntary compliance, and excludes job growth and housing growth resulting from rehabilitation and redevelopment." Id. at 86.
We ordered COAH to amend its third round rules to reflect the determinations it made in its decision regarding the methodology for calculating affordable housing need and allocating it amongst municipalities. See id. at 88. COAH adopted revised third round rules on June 2, 2008, and, following a substantial number of appeals challenging their validity, adopted amendments to the revised rules on October 20, 2008, which were ultimately codified at N.J.A.C. 5:96-1.1 to -20.4 and N.J.A.C. 5:97-1.1 to -10.5 and Appendices A through F. In In re Adoption of N.J.A.C. 5:96 & 5:97, supra, this court addressed the revisions that COAH made to the growth share methodology in light of the holding in In re Adoption of N.J.A.C. 5:94 & 5:95 and initially noted that [i]n the revised third round rules, COAH has made projections of the number of housing units that will be built, and the number of jobs that will result from new non- residential development, in each municipality between 1999 and 2018. See N.J.A.C. 5:97-2.2(d), -2.4(a), and App. F. Based upon these projected growth figures, COAH has assigned each municipality a housing obligation proportional to the projected growth within the municipality-one unit of housing obligation for each five units of projected growth in the number of housing units and one unit of housing obligation for every sixteen jobs projected to be created. N.J.A.C. 5:97-2.2(d).
On an initial review, the modified version of the growth share methodology adopted in the third round rules may appear to have eliminated the power of municipalities to relieve themselves of the obligation of providing any significant amount of affordable housing by adopting land use regulations that discourage growth. [416 N.J. Super. at 480.]
We cited several provisions that appear to support the validity of the revised growth share mechanism by adjusting for any difference between a municipality's projected growth share and actual ...