‘Carnevale Plaza’ on Nassau Street, under construction in March 2016. The complex includes 5 below-market-rate rentals. (click to expand)

A ruling is expected soon in the Mercer County affordable housing trial, which is likely to require Princeton to supply hundreds of new affordable homes. We already considered where the new homes might go. And recently, planners gave some clues about sites they are considering for housing. But how will the town pay for the new homes? And will it mean higher property taxes?

In recent years, most new affordable housing in Princeton has been built as ‘inclusionary developments’. This means that developer must make 20% of the units in a new apartment or townhouse project available to lower-income households, who pay based on what they can afford, as opposed to paying a market-based rent. The Avalon Bay development on Witherspoon Street, for example, included 56 affordable apartments, which is 20% of the 280 homes at that site. Princeton could use this approach to build any number of new affordable homes. But not everybody likes that, because building 800 affordable homes using a 20% setaside rule means that developers would also be building 4,000 new market-rate homes. Town officials have argued that this justifies their approach of using highly-paid lawyers to try to reduce Princeton’s affordable housing obligation.

Some activists have argued that developers should have to include a higher proportion of affordable units in new developments. They say that developers could afford to make 30%, or even 50% of new apartments in their buildings available at reduced rent. This is almost certainly not true. Private developers only build when they can make a profit, and if the town imposed even higher requirements to supply homes at below-market-rate rents, the developers are just going to walk away. That still leaves Princeton with the problem of how to build its required affordable housing.

Grand opening of the completed Carnevale Plaza in September 2016 (click to expand).

But the town has other options to fund housing. We could pass a housing bond, where everybody agrees to raise taxes a little bit, to create a pot of money that could be used to build affordable homes. We already do this to build new facilities at schools, and homes built in previous decades by the Princeton Housing Board were also funded using local taxes. With funds from a housing bond, the town could build developments that are 100% affordable. Interestingly, very few of the people who support higher affordable housing requirements are also in favor of a housing bond. That’s because it would raise our taxes, and most people in Princeton already feel like they are taxed enough.

Using the power of local zoning, however, the town can create money quite literally out of thin air. The value of property in Princeton is dependent on how it is zoned. If it is zoned for very-low-density development, the land is worth less, because it is hard to build much on it. When land is upzoned, it is worth much more, because it is possible to build more on it. By upzoning certain pieces of land around the town, Princeton Council could dramatically increase its value. Some of this land could then be sold for development, bringing a windfall of money that could be used to fund other, 100%-affordable housing complexes. Princeton Council already owns at least two sites that could be developed: the old Princeton First Aid and Rescue Service site, on Clearview Ave, and the old hospital parking lot, on Franklin Ave. No decision has yet been made on how to use these sites.

Some other possibilities remain for getting funds for affordable housing, but they seem less certain. First, the town could try to get some more money out of Princeton University. This doesn’t seem totally unreasonable, because the University wants to expand, and we have to hope that the town is negotiating with them about how the housing needs of staff for a bigger college will be addressed. But the town already struck a long-term deal with the University in 2014 regarding contributions to support municipal functions, and it’s not clear that University officials will be open to another shakedown. Some amount of federal cash will also be available, but it is in short supply at the best of times, and with the current administration, these are not the best of times.

As ever, the town could be consulting today to figure out what approaches local residents prefer. If the town is to use upzoning (regulatory arbitrage) as a way to generate funds for housing, we ought to be identifying suitable sites and making planning changes to support that. Without an appropriate basis in the town master plan, such changes may risk accusations of ‘spot zoning’, but with the expertise of our chief planner, Lee Solow, and our ‘land use engineer’, Jack West, many things are possible.