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Op-Ed: Adaptive Reuse Can Help Towns with Affordable Housing, Property Taxes

Conversion of older buildings can help meet the preferences of so-called millennials for urbanized locations and proximity to transit

peter s. reinhart
Peter S. Reinhart

New Jersey’s approach to affordable housing has been mired in controversy ever since the landmark Mount Laurel II Supreme Court decision in 1983. Some semblance of resigned acceptance of the Mount Laurel Doctrine prevailed until 2009, when then-candidate Christie made it an issue in the gubernatorial campaign. In the past few years, the battle has intensified with now-Gov. Chris Christie employing various techniques to eliminate the Council on Affordable Housing (COAH). That battle still rages and a showdown with the Supreme Court seems inevitable.

The Mount Laurel Doctrine and COAH were created in the 1970s and 1980s when most real estate development took place on “greenfields.” In more recent years, in response to market demand and environmental concerns, more than half of all development has been in the form of updating and modernizing redevelopment of existing buildings in older urban and suburban towns.

A New Approach

It is time to see if these changes can help New Jersey arrive at a new affordable housing approach that can actually achieve the creation of more affordable housing.

In very recent years, there has been a movement toward redevelopment with a “twist” in the usage of the property: Car dealer showrooms are becoming restaurants, schools becoming offices, parking garages becoming residential structures.

The term coined for this is “adaptive reuse.” New Jersey is seeing some of this and could see more with better coordination between the development community, the planning community, and the municipalities. One obstacle seems to be zoning that is not flexible enough to allow the proposed reuse without major variances.

New Jersey also continues to struggle with how to get affordable housing without creating fiscal burdens on municipalities and in places where affordable housing is needed.

Adaptive reuse may provide assistance on multiple scores and without the environmental concerns associated with developing virgin land.

Older buildings in need of either substantial rehabilitation or even destruction and removal can provide a location for a need that meets current market demands. That demand could be residential, retail, office, or even industrial depending on location. The growing technology industry is very open and willing to locate in less traditional office settings.

Further, the location of buildings in previously developed areas tend to be closer to mass transit hubs. The so-called millennium generation of 20- to 30-year olds has expressed a preference for more urbanized locations and proximity to transit.

Conversion of older buildings into residential structures can more easily carry an affordable housing component than traditional new construction on open fields. Aesthetically, it is easier to include affordable units within a single structure without any outward evidence of lesser fit and finish. Maintenance fees for the association managing the building can be based upon square footage so the smaller affordable units will naturally pay a smaller monthly association fee without the stigma of lower fees as subsidized housing.

Residential-reuse buildings can include affordable units that will go toward satisfying a municipality’s affordable-housing obligation with no new construction and creating property tax revenues that had been lost as the building’s value declined.

Depending on the developer’s target market, it is likely that so-called workforce housing, that is housing targeted to workers earning up to 120 percent of the median income will be created through some of the adaptive reuse.

Zoning Obstacles

As stated earlier, one obstacle to adaptive reuse may be existing zoning. Much of the current zoning ordinances were created decades ago to reflect the desired single-family detached housing, standard office buildings, and large surface parking lots designed for the baby-boomer generation. Today’s demand for housing and offices is different.

Higher density and less dependence on automobiles are hallmarks of this new demand. Zoning ordinances need to adapt as well. Parking requirements should be reduced to reflect the new reality. Densities need to be increased to reflect the desires of the market. Affordable units created should be allowed more design flexibility and still meet the definition.

Financial Incentives

Consideration should also be given to financial incentives to encourage municipalities to accommodate adaptive reuses that generate affordable housing. Perhaps some of the almost $300 million in unused affordable-housing trust funds can be employed to support this affordable housing. Considerable flexibility in creative uses that ultimately generate affordable units should be eligible for state financial support or usage of idle affordable housing-trust funds.

To encourage municipal acceptance of affordable housing, consideration of property tax credits for the entire municipality that meets its affordable housing obligation should be given. If each residential property owner in a town were to receive a property tax credit on its state income tax return, provided their town had achieved full compliance with its affordable housing obligation, resistance to providing affordable housing should diminish. Funding of the tax credits could come from use of the trust funds or other adjustments to the state budget, including use of the property tax credits already in the budget.

Unfortunately, the proposed Third Round Rules from COAH do the exact opposite of redevelopment and adaptive reuse by requiring a municipality’s affordable housing units to be constructed within new inclusionary developments with a 10 percent set-aside. Hopefully, COAH will revise the proposal to focus on redevelopment and adaptive reuse as the primary mechanism for compliance.

Given the seemingly impossible task of getting affordable housing built under any version of the current COAH system, it is time to really think differently. Combining affordable-housing tax incentives with adaptive reuse aligns market forces with tax reform to meet a market and societal and constitutional demand.

Peter S. Reinhart, Esq., is the Director of the Kislak Real Estate Institute at Monmouth University. He was a member of COAH from 1993-2004. He also is a member of the board of NJ Spotlight.

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