New Jersey Gov. Jon Corzine has on his desk a bill, which the state's Senate and Assembly passed last month, that would open the gates for developers to convert certain age-restricted projects to non-age restricted.
The bill would cover residential projects that have been approved but are not yet started, and would be in effect through 2011. Its advocates frame this legislation in terms of how it would stimulate the state's housing industry and create more affordable homes, as converted projects must set aside 20% of their dwellings for low- to moderate-income buyers.
"The most important engine in our economy has been the builders," says Assemblyman Joseph Malone, who co-sponsored the bill. "If we don't get them started again, we're not going to have economic viability, as we've lost a good part of our manufacturing base and Wall Street has slowed down."
Corzine has committed to producing or preserving 100,000 affordable housing units in the state over the next decade. But some observers question whether he'll sign this bill. To close a potentially massive budget deficit and get reelected next fall, Corzine needs support from mayors around the state, several of whom have voiced strong opposition to this bill.
Some object to it on grounds that it supersedes home rule. But their primary objection is that the bill would defeat the very reason their towns favor age-restricted housing in the first place: to stem the influx of school-aged children into their communities and, consequently, hold down costs related to education and school construction. (New Jersey is one of the few states that fund education through property tax.)
"One of the big issues in this state has been towns demanding that builders only build active adult," says Doug Fenichel, a spokesman for Red Bank, N.J.-based Hovnanian Enterprises, which is currently selling out of several Four Seasons active adult communities in the state. That municipal proclivity, though, has created a glut of age-restricted housing in New Jersey.
A recent study conducted by Otteau Valuation Group, an East Brunswick, N.J.-based research firm, found that, based on absorption rates in the fourth quarter of 2008, there were 229 months of unsold age-restricted single-family detached homes on the market statewide, versus 17 months of unsold inventory overall. The firm also found that in eight densely populated counties in northern New Jersey there were 215 months of unsold age-restricted attached homes.
The study estimates that, based on what's in the pipeline now, the number of age-restricted single-family detached homes coming onto the market would increase by 10% in 2010 and by 50% between 2013 and 2015 before leveling off. If Corzine signs this bill, however, "my expectation would be that two-thirds of that pipeline product would convert to open-market units, and the balance point would be reached in half that time,” says Jeffrey Otteau, president of Otteau Valuation Group, who spoke with BUILDER this morning.
Otteau suspects that some elected officials who are against development in general are "hiding behind" the school issue to oppose this bill. But he thinks these politicians need to appreciate demographic realities that find only 35% of New Jersey households with children living in them, compared to 50% in 1985. "And we're headed toward 25%," Otteau predicts.
Stephen Shaw, a home builder who is also Mayor of Mountain Lakes, N.J., isn't buying the home-rule argument, either. "These projects have already gone through the review process," says Shaw, who owns Shaw Built Homes. "The project wouldn't change, only who you are allowed to market it to." He believes that a lot of age-restricted product—one- and two-bedroom, attached, smaller—if converted would appeal to younger couples with no children who otherwise are having trouble finding affordable housing in a state that ranks among the most expensive in the country.
Shaw also thinks this bill will jump-start stalled projects. He points to one local developer who couldn't get financing for an age-restricted project. After Mountain Lakes' planning board ok'd the switch to non-age-restricted, this developer was able to move forward on a 44-unit building with an eight-unit affordable component.
Paul Schneier, president of Pulte Homes' metro New York/New Jersey division, tells BUILDER that his company supports this legislation, although he calls the 20% affordable requirement "a challenge" for several reasons, not the least of which being that land in New Jersey is so expensive. "You can't get your money back on land [with low-income housing] and can only get back 40% to 50% of the sticks and bricks," says the division president for another large production builder in the state. Otteau suggests that builders might meet that requirement by
"swapping out" the recreational components in their developments (such as clubhouses, which would be less in demand among younger buyers) and building affordable units in their place. (He concedes, though, that such a change would require a redo of the site plan.)
Regardless of what Corzine decides and despite the current glut, that market for active adult housing in New Jersey isn't going away. Sources at Pulte and Hovnanian say their active adult communities in the state continue to sell. "The only impediment is the ability of buyers to sell their existing homes," says Schneier. Fenichel adds that Hovnanian is starting new homes in its Four Seasons communities in Passaic and Bridgewater, mostly because “we don't have a lot of inventory.”
John Caulfield is senior editor at BUILDER magazine.
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