Does Counting Costly Homes as ‘Affordable’ Let Towns Lowball Housing Needs?

Colleen O'Dea | April 20, 2016 | Housing
Some municipalities are listing ‘McMansions’ on their rosters of affordable housing, even though they’re out of reach of low- and middle-income buyers

One of the houses in High Bridge that consultants hired by the towns say has "filtered" and is now affordable.
Affordable-housing activists think they now know one reason that municipalities have underestimated New Jersey’s housing needs: They believe that the consulting firm working with many of the towns is counting expensive homes as “affordable.”

Among the houses identified as affordable in the consultant’s report are a 4-bedroom, 3.5-bath house with a fitness center and maid’s quarters in Toms River; a 5-bedroom 2.5-bath home with an in-ground saltwater pool and spa in Swedesboro; and a 3-bedroom, 2-bath oceanfront apartment with a patio, hot tub, and access to a pool that sold for $500,000.

“If towns are arguing that half-million-dollar ‘McMansions’ with pools and hot tubs are affordable to working families, then they’ve lost touch with reality,” said Kevin Walsh, executive director of the Cherry Hill-based Fair Share Housing Center, which is in Superior Court in several counties seeking to establish local affordable-housing quotas.

It has been more than a year since the state Supreme Court took responsibility for writing affordable-housing rules away from the Council on Affordable Housing, which failed to meet a court-imposed deadline for putting new rules in place, and gave it to the Superior Court judges. The rules are necessary because the Supreme Court’s Mount Laurel doctrine, now more than 30 years old, requires all towns to provide their “fair share” of homes affordable to those with low and moderate incomes. Cases are still winding their way through the state’s courts, without any decision yet.

Fair Share has submitted a report by its consultant, David Kinsey, a visiting lecturer at Princeton University’s Woodrow Wilson School of Public and International Affairs, that contends municipalities need to provide 350,000 affordable units — an average of 620 per town — in order to comply with the Mount Laurel doctrine. But Econsult, a Philadelphia-based consulting firm, prepared a report for some 250 municipalities that banded together to fight Fair Share, calculated much smaller obligations — 155,000 statewide, or an average of 274 in each municipality.

Since the Econsult report was released this past January, Fair Share has been arguing that its numbers are too low. Its lawyers recently received from the court process details of Econsult’s methodology for calculating one part of it obligations, known as filtering. Under the last set of affordable housing rules, which expired more than 16 years ago, filtering occurs when homes age and depreciate in value, passing from wealthier residents to those of more modest means. Through a complex formula, filtering reduces a municipality’s affordable housing obligation.

Fair Share analyzed the database of units Econsult considered having filtered down into being affordable and found nearly 20,000 units that had sold for $300,000 or more since 2002. More than 400 properties had sold for $500,000 or more, with the highest sale price $705,000 for a 4-bedroom Surf City home. Filtering relies on prices declining for older homes over time, but Econsult’s filtering analysis counts homes that have actually increased in value: some 8,300 of the $300,000 homes actually resold for more money.

“We have been saying for a long time that central provisions of Econsult’s report won’t stand up to scrutiny,” Walsh said. “The most expensive counties have not accidentally created affordable housing. Towns need to start dealing with the real world, not a fantasy world in which working people can afford half-million dollar homes.”

Jeffrey Surenian, the lawyer who contracted with Econsult for the municipalities, said he is seeking a response from the consultant to Fair Share’s charges about the filtered homes.

Fair Share noted that an Ocean County judge ruled last February that municipalities, at least those in Ocean, have an obligation to provide affordable housing needed during the so-called gap period from 2000 through 2015, when no housing rules were in effect. Econsult’s report contended that there was no obligation for that period. According to Fair Share, that ruling caused Econsult to more than double its initial assessment of New Jersey’s housing need for a 25-year period beginning in 1999 to 72,000 units. Surenian is appealing that ruling for Barnegat.

“If every CO issued in this state was for an affordable unit for the next 10 years, we would still be radically short of satisfying the constitution according to FSHC– and FSHC thinks that by taking such patently unrealistic positions it is advancing the best interests of lower-income households,” Surenian said.

Without a state agency to set the rules, judges are going to have to decide how many affordable units already exist and how many communities need to build. Although it is possible that judges could use different rules to do that in different counties, it is more likely that judges in counties where cases are not proceeding quickly will view the first decisions issued as precedent and use similar rules across the state.

Judges are to set housing quotas for communities that date back to 1985 in municipalities that did not fulfill prior needs and anticipate need through 2025.

The first decisions in affordable housing cases are not expected before June.