Governor Murphy wants to provide money to build affordable housing in backyards and basements in New Jersey

Several New Jersey cities could receive funding to encourage the development of affordable accessory dwelling units – smaller, self-contained buildings on the same lot as a single-family home – under a pilot program proposed by Gov. Phil Murphy in his fiscal year 2025 budget address on Tuesday.

Advocates hail the practice as part of a solution to address the state’s affordable housing shortage.

Under the $10 million proposal, 10 or more municipalities would receive up to $1 million through a competitive grant process.

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Cities that partner with nonprofits can provide up to $100,000 in interest-only principal loans and construction financing for homeowners who want to build or renovate additional housing units, such as a basement apartment, a backyard tiny house or an apartment above the garage.

In return, homeowners receiving the assistance would have to have at least a 10-year restriction in place to reserve the unit for renters or buyers who make less than 80% of the area median income.

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There is no guarantee for the program. After Murphy submits his budget proposal, the Senate and Assembly draft their budget proposal, which may differ from the governor’s announcement. Murphy has until July 1 to sign a bill aimed at preventing a government shutdown.

Although New Jersey does not have a statewide law allowing ADUs, some cities such as Princeton, Montclair, Maplewood and East Orange have local ordinances regulating or restricting their operation. The Murphy administration hopes this program will inspire more cities to adopt ADU ordinances so they are eligible for the funding.

Money from the Affordable Housing Trust Fund

Murphy’s proposal is based on an $85 million program in New York state and aid offers in Boston and San Diego.

In New Jersey, the money would come from the state’s Affordable Housing Trust Fund, which is funded by a portion of the property transfer fee paid by real estate sellers when they transfer deeds to homebuyers.

The fund is intended to finance the construction of new affordable housing units for families making up to 80% of the area’s median income.

Under Murphy’s proposal, homeowners who want to build ADUs would also receive technical assistance for the permitting, design and construction phases. Priority would be given to cities that provide further development incentives in their program proposals.

“Our budget will increase funding to build new affordable housing units across New Jersey,” Murphy said in his budget address Tuesday. “We have to keep building. Because New Jersey is popular – and demand for housing continues to outpace supply.”

Dozens of advocacy groups, developers and individuals signed a letter to Murphy in December 2023 urging him to prioritize creating more housing options using ADUs.

“ADUs can provide homeowners with a new source of income, create more housing options to relieve our overburdened rental market, and enable multigenerational living,” wrote the authors, who include AARP New Jersey, the Housing & Community Development Network of New Jersey and the belonged to the regional planning association.

“They create more affordable housing units and enable seniors to age in place by giving older homeowners the option of having a caretaker or more income to cover their expenses,” the group wrote.

Affordable Housing Zone Revision Process

Murphy’s proposal comes as the Legislature is debating an overhaul of the state’s process for zoning and creating affordable housing statewide ahead of the summer of 2025, when cities are constitutionally required to begin figuring out how to cover their “fair share” of affordable housing obligations under the Mount Laurel Doctrine, a series of significant state Supreme Court cases that began in 1975.

Bill S50/A4 would create a process through the Department of Municipal Affairs to assign obligations to cities. It passed the Assembly in mid-February and remains stuck in the Senate, where it would need to be approved by the Senate Budget and Budget Committee and the full chamber before being sent to the governor’s desk.

Opposition has primarily focused on overdevelopment, as developers often build units at 80% market rate to cover the cost of the 20% affordable units. The bill includes incentives for redevelopment, and advocates and supporters stress that the bill is just one piece of the puzzle to address the shortage of 200,000 or more affordable housing units needed across the state.

This article originally appeared on NorthJersey.com: Affordable Housing in New Jersey Backyards? Phil Murphy wants to give out grants