## Facts

- Several New Jersey municipalities adopted ordinances requiring developers to pay percentage-based “development fees” as a condition of approving new residential and nonresidential construction or subdivision activity.
- The ordinances required that revenues be deposited into municipal affordable-housing trust funds and used only for affordable-housing measures (e.g., rehabilitation, construction, and participation in regional contribution agreements).
- Developers and builders’ associations challenged the ordinances, arguing municipalities lacked statutory authority and that the fees were unconstitutional or unlawful exactions.
- Lower courts generally upheld the ordinances as valid tools to support municipal affordable-housing obligations under New Jersey law.
- The New Jersey Supreme Court consolidated four related matters to address the legality and limits of affordable-housing development fees.

## Issues

1. Whether municipalities have statutory authority (under the Fair Housing Act, Municipal Land Use Law, or police power) to impose development fees to fund affordable housing.
2. Whether affordable-housing development fees are invalid as unauthorized taxes or unconstitutional/unlawful exactions, including whether they must satisfy a “rational nexus” to development impacts and costs.
3. Whether development-fee programs must be subject to review, approval, or regulation within the Council on Affordable Housing (COAH) framework.

## Decision

- The court upheld the general power of municipalities to impose development fees dedicated to affordable housing as part of implementing municipal fair-share obligations.
- The court rejected the claim that these fees were unauthorized general taxes when structured as land-use exactions earmarked for affordable housing through restricted trust funds.
- The court held that such fees are lawful only if they satisfy exaction limits, including a rational nexus between the impacts of new development and the affordable-housing need and costs being funded.
- The court required development-fee programs to operate within COAH’s Fair Housing Act framework, typically as part of a COAH-reviewed/approved housing element and fair-share plan.
- The court remanded for further proceedings to apply these standards to the specific ordinances and fee schedules at issue.

## Legal Principles

- Municipalities may use development fees as a land-use regulatory tool to help finance affordable-housing obligations, even if the enabling statute does not expressly list “development fees,” when the authority is implied as necessary to implement mandated housing responsibilities.
- A development fee dedicated to affordable housing and imposed through the development-approval process is treated as an exaction/impact fee rather than a general revenue tax.
- Exactions must bear a rational nexus (reasonable relationship) to the development’s contribution to the problem being addressed and to the cost and use of the fee; the allocation cannot be arbitrary or disproportionate.
- Affordable-housing development-fee ordinances must be coordinated with statewide administration under COAH to ensure consistency with the Fair Housing Act and to constrain local fee practices.
- Facial challenges to the concept of affordable-housing development fees fail where the program is limited to affordable-housing purposes and structured to meet rational-nexus constraints; ordinance-specific compliance remains subject to review.

## Conclusion

The court approved affordable-housing development fees as a permissible municipal mechanism when the fees are dedicated to affordable-housing uses, reasonably related to the impacts of new development, and implemented under COAH’s Fair Housing Act oversight, while remanding to ensure each ordinance and fee schedule met those requirements.


Holmdel Builders Ass'n v. Twp. of Holmdel, 583 A.2d 277 (N.J. 1990)