How is the proposed 42-unit building on the firehouse site different from the Broad Street West project that so many Summit residents opposed?

Unlike BSW, which was driven by developers, this project comes from longstanding Summit residents who want to see Summit expand affordable housing options so people of all income levels have an opportunity to live in our wonderful town. Our motivation comes in part from witnessing the plight of our neighbors who live and want to stay in Summit, but are being displaced by property sales and rent increases with no affordable options in town.

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A local nonprofit made up of Summit residents, the Summit Affordable Housing Corp., has developed a sound model for financing a 42 - unit affordable building and will work with the City to secure financing and select a builder, all while keeping the interest and well-being of the Summit community front and center. SAHC board members are: Douglas Cohen, Nancy Galietti, Rev. Denison Harrield, Norm Miller, Richard Whipple, and A. Dennis White.

 

Also, the proposed 42-unit apartment building on .85 acres amounts to 49 units per acre, 40% less dense than the proposed BSW development, which was 140 units on 1.6 acres, or 87.5 units per acre. The building will be no more than four stories and will fit well with other buildings in this part of town.

 

Additionally, unlike BSW, financing for this project will be completely transparent and follow New Jersey Housing and Mortgage Finance Agency (NJHMFA) guidelines. Developer fees are set by NJHMFA and will be clearly stated. Also, unlike BSW, these 42 units will remain affordable in perpetuity and cannot be sold to generate any windfall profit for the developer.

 

In contrast to BSW, all 42 units in the proposed building will be affordable to moderate-income and low-income households. BSW, on the other hand, was designed as market rate housing and would have generated 22 affordable units under state law requiring a 15% affordable unit set aside. As BSW showed, the downside of the City promoting market rate housing as a way to generate affordable housing is that, in a town like Summit with little buildable land, any market rate development would have to be very large and out of scale with the rest of the community in order to generate enough affordable housing to meet Summit’s “fair share.” 

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What does this building have to do with Summit’s Mount Laurel Settlement Agreement?

Summit entered into a Settlement Agreement with Fair Share Housing Center in 2016 in which it agreed to “take all reasonable steps needed to achieve the goal of facilitating the construction of fifty (50) new rental/ownership affordable units within the City” by June 2025. Under the Mount Laurel Doctrine, which is case law developed under a series of NJ Supreme Court decisions, the 50 units are considered Summit’s “fair share” of the affordable housing need in our region. The Settlement Agreement was entered as a Court Order by New Jersey Superior Court.

 

To date, with less than a year and a half remaining, the City has facilitated the development of 16 affordable units. An additional 7 affordable units could possibly be added before 2025, depending on the outcome of a building permitting review for a 46-unit market rate development on Morris Ave., which would bring the total number of new affordable units to 23, still 27 units short of what Summit agreed to in the Settlement Agreement.

 

Whether or not Summit satisfied the Settlement Agreement by undertaking “all reasonable steps needed to achieve the goal” of 50 new affordable units by 2025 is a factual issue to be determined between Summit, Fair Share Housing Center, and, possibly, the courts. City officials should seek the guidance of its affordable housing attorneys and consultants about the factual and legal issues involved and the possible ramifications for our community if it is found to be out of compliance with the Settlement Agreement.

 

It's clear, though, that approval and facilitation of this proposed 42-unit affordable building in partnership with a local nonprofit community development corporation would be a “reasonable step” on the City’s part toward meeting the Settlement Agreement’s goal of 50 affordable units. Moreover, it’s important to keep in mind that under state constitutional law, the City’s obligation to promote affordable housing is ongoing and will continue past the terms of the Settlement Agreement. In fact, under state law a new round of affordable housing determinations will begin in July 2025. The addition of these 42 units to the 16 already built would mean 58 new affordable units since 2016, giving Summit an 8-unit head start as it enters 2025 and the new round 10-year affordable housing determinations. Summit would be in a strong position to maintain control over housing development in our city without interference from developers and the courts.

 

Regardless of whether Summit has or has not met the terms of the Settlement Agreement, it should support this 42-unit development. There is a tremendous need for affordable housing, our community wants it, and it is the right thing to do.

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Why 42 units for this project? 

A building of 42 units fits well with the federal low income housing tax credit program (LIHTC), which at $8.4 million, is the primary source of funding for this proposed project, while remaining at a density and height that blends with other buildings in the area. A development with fewer units would not be attractive to builders using the tax credit program. Further, Summit does not have a lot of buildable land, yet under the Mount Laurel court decisions, it has, and will continue to have, a constitutional obligation to facilitate the development of affordable housing. It makes good sense for the City to optimize the firehouse site by approving a 42-unit building, which will not only satisfy its obligation under the 2016 Mount Laurel Settlement Agreement, but also add 8 more units toward the next round of Mount Laurel obligation, which will begin in 2025. This will put Summit in a strong position and allow it to determine its future affordable housing obligation without interference from the courts or for-profit developers. 

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What is the timeline for this project?

To succeed, this project must be fast-tracked with all funding and approvals in place by the end of 2024. $6.4 M for the development will come from the NJHMFA Affordable Housing Production Fund (AHPF). This fund from Congressional appropriations is subject to federal recapture at the end of 2024; any funds not committed to a specific project before December 31st, must be returned. Accordingly, Summit must have a solid plan with all approvals in place in time to submit a funding application to AHPF and receive its commitment of funds before the end of this year.

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What will this project cost Summit taxpayers?

The acquisition and construction cost for this project will be financed by state and federal sources and by funds in Summit’s Affordable Housing Trust Fund, which is funded by developer fees and not Summit taxpayers. 

 

However, there will be costs associated with the proposal:

 

1. The cost of preparing the site for development, such as demolition of the existing firehouse building, although some funds ($300,000) are in the project budget, and the City would likely incur these costs if it were to sell the land for another use.

2. The $2M contract sales price is possibly lower than what the City would receive for the land if it were to sell it to a commercial or market rate housing developer. Under NJHMFA rules, the land is subject to an “as-is” appraisal, which will shed light on the land’s value. 

3. There will be cost associated with additional students in the public schools, which, based on census data and a Rutgers Center for Real Estate study, we estimate to be 27 scattered across elementary, middle and high school, which amounts to sixth-tenths of one percent of the total Summit school population of 3,900; and 

4. The City would probably receive more in tax revenue if it were to sell the property to a commercial or market rate housing developer than it would receive under this proposal. According to NJHMFA rules, the City must grant the project a PILOT (payment in lieu of taxes) because, as a condition of investing in the project, the State requires a budget with fixed, manageable cost for a period of 30 years. According to NJHMFA guidelines, the PILOT must be set at 6.28% of rent collected annually for 30 years. We estimate the PILOT for the first year will be $36,000; it will increase proportionally as rents increase annually. The firehouse site currently produces no tax income, but assuming commercial use or market rate housing, the PILOT is probably less than the annual taxes that could be generated by these uses. 

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How was the $2M land purchase price determined?

The project model’s $2M land purchase price represents an “informed estimate” and is based on the contract sales price. The contract sales price is derived from an analysis of the project’s other estimated costs and all available funding sources. Apart from the Summit Affordable Housing Trust Fund (SAHTF), the model’s project funding amounts will not vary because they are determined by government regulations. The SAHTF contribution, on the other hand, could be higher or lower than the estimated $2M and could in turn increase or decrease the contract sales price. However, under New Jersey Housing and Mortgage Finance Agency (NJHMFA) rules, the price could not be higher than the “as-is” appraised value of the land, which is unknown until the land is appraised.

  

NJHFMA rules preclude the developer from “lowballing” the contract sale price; the developer is required to maximize project debt based on NJHMFA’s assessment of what it can reasonably carry.  NJHMFA has “cost caps” for total development costs and will scrutinize all costs, including land costs. 

 

Ultimately, NJHMFA, the developer, and the City of Summit will jointly negotiate every component of the development budget.  The Common Council will approve the contract sales price at its sole discretion.  The Council will have to consider the financial, legal, and social costs of supporting or not supporting the project and will make the final call regarding the contract sales price. 

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Who will live in this housing? Will Summit be overburdened with poor people?

No, Summit will not be overburdened by this development. Thirty-six of the 42 apartments will be rented by working families with a range of incomes. The residents of The Crossings, the recently completed Habitat for Humanity development of 12 affordable, owner-occupied homes on Morris Ave., work in a range of fields, from education and construction to nonprofit work and delivery services, to healthcare. Two of the families were already Summit residents and the rest were from surrounding communities. We can anticipate that the affordable building on the firehouse site will draw a similar group of workers and families.

 

Under the City’s Mount Laurel Settlement Agreement, 48% of the building, 20 units, must be rented to moderate-income individuals and families. Moderate-income under New Jersey affordable housing standards is defined as income at 60% of Area Median Income (AMI); for example, an annual income of $58K for a household of two and $73K for a family of four.  Further, 16 units must be rented to low-income households, defined as income at 50% of AMI; for example, an annual income of $49K for a household of two and $61K for a family of four.

 

These will be 36 working households; they will not be “poor” families by any measure. Their incomes would not be anywhere near the federal poverty level and their children would not qualify for the reduced lunch program at Summit public schools.

 

The Mount Laurel settlement agreement stipulates that 13% of units in the building, or 6 apartments, must be rented to very low-income households, defined as 30% of AMI. Under NJHMFA regulations, 5 of the 6 very low-income units must be rented to “special needs” populations and these individual/families must be referred by and receive services from a Union County social services organization. 

 

All tenants will be fully vetted by the project owner for their ability to pay the rent and succeed as tenants in the building.

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Why do we need affordable housing when Summit is already an economically and ethnically diverse community? 

True, Summit is a diverse community, but this does not mean all residents have a secure, decent, and affordable home. Also, under state law, a municipality’s affordable housing obligation is based on the regional need for affordable housing, not the municipal need. (Summit is in Region 2, consisting of Union, Essex, Morris and Warren Counties.) According to State guidelines and the Settlement Agreement entered between Summit and Fair Share Housing Center, Summit has an “unmet need” of 663 affordable housing units.

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Does this project comply with Summit’s Master Plan and zoning ordinances?

The project not only complies with the Master Plan, it furthers one of its explicit goals: “Goal 4: Promote a City that is Welcoming to Residents of All Ages, Races, Ethnicities, Abilities and Income Ranges,” noting that [w]hen housing options are expanded for low and moderate-income families, the young and seniors also benefit.  Objective 4.01 calls on the City to “Promote the Development of a Variety of Housing Types” and explicitly states:

Providing a more diverse supply of housing at a range of price-points can help retain and attract empty-nesters interested in down- sizing their dwelling, first time home buyers interested in planting roots in the community, low and moderate-income residents and people employed in Summit who find it difficult to find appropriate housing in the community. 

 

Further, Objective 2.01 states: “Promote Mixed Use and Residential Development Downtown,” noting that “[a downtown] residential population encourages the consistent and stable use of downtown, enhancing vibrancy and economic sustainability.

 

The firehouse site is currently zoned for business. The City would need to amend the zoning to multi-family residential or designate the firehouse site as an overlay zone, which would allow a 42-unit affordable building.

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Wouldn’t it be better to build a mixed-income building that combines market rate housing with affordable units?

There is no available funding to support a mixed market rate/affordable development that could produce enough affordable units to meet the need. There are fundings sources to support 100% affordable buildings, but the only way to fund a mixed development is through the “set-aside” requirement, which is insufficient in Summit case. 

 

New Jersey standards and Summit ordinance requires market rate developers of more than five rental units to set aside 15% of all units as affordable housing; there is a 20% set aside requirement for home ownership developments.  Since 1987, 24 affordable rental units have been produced in Summit under this approach, less than one unit per year for 37 years. There is little turnover in this housing. (1 affordable apartment became available in 2023.) 

 

The BSW development proposed 140 units and would have set aside 21 affordable apartments, half of what is proposed in this all-affordable building, and at far greater density (87.5 units per acre vs. 49 units per acre).  The Ivy, a development of 245 apartments in Chatham, resulted in a 37-affordable unit set aside. Summit does not have enough buildable land to produce this number of affordable units. Moreover, the community has made clear it does not want a large-scale development.

 

Since market rate development in Summit cannot generate enough affordable housing to meet the need, government funding sources must be used to create affordable housing. The two main funding sources for this proposal ($8.4M from the federal tax credit program and $6.3M from NJHMFA’s Affordable Housing Production Fund) are only available to100% affordable developments; they do not fund affordable units within market rate developments. 

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Will an all-affordable rental building stigmatize the residents? 

No, the building will not stigmatize the residents. It will be high quality, attractive, located in our downtown, and incorporated into our community, not isolated from it. The tenants will appreciate the overall pleasant surroundings and the wonderful things our town has to offer, including the Y and library just across the street. The residents will be choosing to the live in the building because they want to be in Summit and enjoy the benefits of our town; they are not being consigned to some lesser dwelling or low-resourced neighborhood. If anything, being a part of our community will likely enhance their sense of well-being, not diminish it.

 

Imagine a Summit teacher who drives over an hour in each direction to work in one of our public schools because her income it too low to buy or rent a home in our town. Once living in Summit, she would gain two hours each day, which would mean less stress and more time to spend with her children. Or imagine a health care worker in one of Summit’s two assisted living facilities who travels 45 minutes by bus in the early morning, five days a week, and then back home again in the evening to an apartment where the rent is too high relative to his salary and he’s barely making ends meet. It’s easy to imagine these two individuals would feel fortunate to live in Summit, not stigmatized.

 

This proposal is primarily funded by the federal housing tax credit program, which means the housing will be produced by the private sector and market forces will apply. The tax credit program was enacted by Congress in 1988 to replace the housing authority or “public” housing model of affordable housing, where the housing was created, funded, and managed by the government. In many cases, housing authority housing was underfunded, unattractive, built in the roughest city neighborhoods, and segregated from the rest of the community. In addition, housing authority tenants were required to report any change in monthly income and monthly rents were adjusted to equal 30% of income, so tenants had no incentive to increase earnings. For all these reasons, the old system of government-funded housing could cause tenants to feel stigmatized. (Fortunately, Summit’s housing authority housing was done well and provides decent, safe, and secure housing that is integrated into our community.) 

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Research shows that tenants in tax credit affordable housing do not feel stigmatized by the housing.  The family income is evaluated only when the tenant moves in. That income must be below an income that is specific to the unit as established by the tax credit program regulations (60% of Area Median Income). The tenant is offered the unit only if family income is high enough to pay the rent on an ongoing basis. Family income is not monitored, and monthly rent is not raised or lowered based on income changes. Rent is increased annually under a formula tied to the rate of inflation and tenants can be evicted if they fail to pay rent. The tenant experience in tax credit housing is like that of tenants in market-rate housing, with the exception that rents are kept affordable by the deep capital subsidy generated by the tax credit program. 

The tax credit program shifts ownership, and the assumption of financial risk, from the government to the private sector. As with market-rate housing, tenant satisfaction and low tenant turnover are key to financial success. Several studies show that the financial performance of tax credit housing, as measured by loan delinquency and foreclosure rates, is significantly better than any other type of commercial real estate (leased residential, office and industrial properties), a strong indication of tenant satisfaction. 

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It’s important to remember that this proposed affordable development is for hard-working families who can afford to live in the building and want to be in Summit. The owner of the property is incentivized to maintain a high-quality building that makes the tenants happy. This arrangement works and tenants in tax credit buildings have a high level of satisfaction. There is no reason these tenants should be viewed or feel different from other residents of Summit. 

 

At the end of the day, it will be up to us, the residents of Summit, to welcome our new neighbors into our community. Children will judge and invoke stereotypes against their classmates only if they hear their parents doing the same, so it will be up to parents to not differentiate Summit residents based on their address. We all will have a duty to speak up to counter disparaging or stigmatizing remarks against newcomers simply because they live in an affordable building. Summit has a history of being an inclusive, welcoming community. There is no reason to think we cannot continue this tradition.

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