Affordable Housing and Municipal Choice

Abstract

State governments affect local tax and expenditure decisions in numerous and complex ways. Requirements for municipal courts, mandatory recycling, the reassessment of property values, the content of public education curricula, school financing methods, and master plans for land use are examples of state mandates imposed on local governments. In most instances, communities have little choice in deciding how to meet state requirements. In general, municipalities comply within the prevailing framework of state-local government finances and oversight. Affordable housing is another area where the state and local government interface has expanded. In the past decade, rapid appreciation of house prices in many areas, slower growth in real income, and changes in federal housing programs have placed affordable housing on the political agenda. State and local governments have responded in a variety of ways to increase the supply of housing for low and moderate income households (Barnes 1987; Mallach 1984; Pickman et al. 1986; Rosen 1984; Sidor 1988). In this paper we examine the problem facing municipalities in one state, New Jersey, given a statutory goal that each community provide its fair share of affordable housing. One interesting aspect of this legislation is that municipalities can choose among a number of options, each with different economic and land-use consequences, in deciding how to fulfill their affordable housing obligation. The paper is organized as follows. Section I describes the origin of the affordable housing initiative in New Jersey and the op-