How ‘Filtering’ Affects Housing Affordability in New Jersey

Mercer County, NJ Superior Court Judge Mary C. Jacobson, who ruled in recent housing case. (click to expand). Via njcourts.com

On both coasts of the USA, high housing costs have become a major problem. Residents in states like California, New Jersey, Connecticut and Massachusetts often have to pay a very high proportion of their income just to find a place to live – a problem that results in many residents seeking a less expensive place to live in other states. Two potential solutions could provide more affordable housing. The first is to build more social housing, operated by local government or non-profit agencies, and provided to qualifying low-income households. The other approach is to build lots more market-rate housing, in the hope that some of it will become affordable over time. But does this really happen in real life? A major recent court case in Mercer County, New Jersey addressed this issue…

‘Filtering’ is the term used to describe the process by which market-rate housing becomes affordable housing. The idea is that in the same way as a brand new luxury car eventually becomes a cheap used car, new market-rate housing ultimately becomes affordable even to low-income people. The real-life rate of ‘filtering’ became an important question in the recent Mercer County fair housing trial. All towns in New Jersey are required by state law to provide their ‘fair share’ of affordable housing, and the purpose of this trial was to put a number on how many new homes were required for each town to meet that ‘fair share’. Advocates for affordable housing, represented by the non-profit ‘Fair Share Housing Center‘, argued for several months against attorneys representing Princeton and West Windsor, who hoped to reduce the amount of affordable housing they needed to provide.

Ruling over all this was Judge Mary Jacobson, a highly-respected Superior Court judge who famously issued the ruling that same-sex couples had the right to marry in New Jersey. To come up with reasonable numbers for new housing construction, which would be legally binding on the towns, Judge Mary Jacobson spent several days listening to the various attorneys attempt to justify their models for how filtering affects affordable housing production in New Jersey. Interestingly, both sides argued that filtering would affect the amount of new affordable housing that ought to be built. The expert for the towns argued that ‘downward filtering’ would ultimately make existing market-rate housing affordable, meaning that towns didn’t need to build so much new affordable housing to meet their ‘fair share’ of state housing need.

In arguing that filtering would increase affordability, the towns’ expert drew in part  on models that had been developed previously by New Jersey’s “Council On Affordable Housing” (COAH). COAH was originally set up to determine how much affordable housing each town ought to build, and developed five criteria for when filtering would create more affordability. Importantly, these criteria required that there is an overall housing surplus and a surplus of new housing construction over new household formation. It is very debatable that these criteria are met in many New Jersey towns. As many towns strictly limit construction of new homes through zoning and land use regulations, there is rarely a surplus of new housing, and increasing demand means that instead of becoming more affordable, housing is actually filtering up, that is, becoming more expensive instead of cheaper.

The expert representing Fair Share Housing Center argued that ‘upward filtering’ is taking place in New Jersey, which means that towns ought to build even more affordable housing than they otherwise would. He also expressed skepticism that filtering could be demonstrated in New Jersey at all. Recent court rulings have found that solid data to support the effect of filtering in New Jersey do not exist, but have not ruled out that such effects may be significant. Judge Jacobson ultimately dedicated 6 pages of her 200+ page ruling to a consideration of different filtering models. She found that the effect of filtering was ‘controversial’ and noted that “calculating filtering is an extremely complicated process involving many variables”. Ultimately, Judge Jacobson expressed a lack of confidence in either of the filtering models presented during the trial, and decided not to use assessments of filtering in determining each town’s affordable housing obligations.

The question of how filtering affects housing costs in New Jersey therefore remains unresolved. Even a top judge, hearing lengthy evidence from top housing experts, could not put a figure on whether filtering is leading to greater or lesser affordability. Anecdotally, old houses in the Princeton area are not becoming more affordable, but are instead becoming more out-of-reach to middle-class people with each passing year. This would suggest that ‘upward filtering’ is in effect, potentially because of a lack of new housing construction. But for now, this remains an open question, until better data becomes available.

Read Judge Jacobson’s full judgement here, including the section on filtering, which is pages 121 – 128…

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