New Jersey has doomed itself with short-sighted zoning decisions, says real estate expert Jeffrey Otteau. Otteau, the founder of the 30-person Otteau Valuation Group in East Brunswick, says suburban communities, which have used zoning to restrict apartment buildings, are to blame for many of New Jersey’s economic woes.
Otteau argues that municipalities, in a misguided effort to reduce the number of schoolchildren in their towns, have restricted development to large lot sizes in many areas. The result of these long-standing policies has been suburban sprawl, expensive housing, high taxes, and a high cost of doing business.” The high cost profile of our state makes it inhospitable for business,” he says.
Otteau will speak at the PlanSmart NJ Regional Planning Summit, held Friday, June 13, from 8 a.m. to 3 p.m. at the War Memorial in Trenton. For more information, visit www.plansmartnj.org/2014-summit/. Tickets $75 for PlanSmart NJ members, $125 for nonmembers.
On paper, the state’s economy has a lot going for it. Its geography, at the doorstep of Manhattan and Philadelphia, its educated and highly productive workforce, and its long list of high-profile corporate employers should make the state an economic powerhouse. “There is all of that, but it is no longer enough,” Otteau says. According to the New York Federal Reserve Bank, New Jersey lags its neighbors in economic recovery from the Great Recession.
Otteau says there are several problems keeping New Jersey’s economy from realizing its full potential. First is the evolution of the global economy, which has driven business to low-cost areas. With the rise of industry in places like China and India, companies have built factories where they can hire workers at a pittance. For many businesses that require low-skilled workforces, there is little reason to locate in pricey New Jersey.
Secondly, job creation and real estate demand are leaving the suburbs and heading to the cities. Otteau cites nationwide trends. “People and jobs are leaving the outlying suburban areas as fast as they can and heading to the inner ring suburbs and urban places. The evidence of this is in population trends, real estate demand, and household formation.” The newest generation of homeowners, Otteau says, have no interest in living in the single-family suburban homes they grew up in, preferring instead to live in smaller homes located in vibrant cities where there is plenty to do.
Otteau believes employers, seeing this trend, are moving their offices to places where they can appeal to talented young workers. “Their future success is tied to young workers,” Otteau says. “The next innovation, or strategy, or product, or efficiency, will occur on the backs of 30-year-olds. Baby boomers no longer have much to offer in terms of innovation,” he says. “So employers are now moving to the places where young people want to live, and where housing products that 30-year-olds desire exist.”
For example, the Swiss drugmaker Roche closed its sprawling campus in Nutley and Clifton that it had occupied since 1929, and where it had once employed 10,000 people. Replacing it will be a research center in Manhattan.
“Generation Y, the leading edge of which is now turning 35, are unwilling to relocate to get a job. You need to bring the job to them. We cannot create jobs in those places that do not have an abundance of the housing product and lifestyle that smart 30-year-olds want to live,” says Otteau.
So if hip, high-density properties are highly in demand, why doesn’t the marketplace just provide them? Blame government interference, says Otteau. “New Jersey’s suburban municipalities have universally down-zoned their towns over the last 20 years to reduce density by increasing minimum lot size,” he says. The reasons for downsizing are astonishingly short-sighted. “The calculus in doing that is that children are toxic because when you build small lots that are affordable for young households, you end up with children coming into the school system, and property taxes rise to pay for the schools.”
The unintended consequences of trying to keep children out have turned out to be quite toxic, too. Says Otteau: “Most towns do not allow for the lifestyle and housing choices that young people can afford, which means that we made ourselves an inhospitable place to do business.”
When Otteau speaks to the planning conference, he hopes to convince planners to make wiser decisions in the future. “Their future prosperity in fact, their survival, hinges on taking a fresh look at planning and zoning, because what happens if you don’t? Young people won’t live there, and the older people will die. What happens next is that your commercial tax base withers on the vine and disappears, which in turn shifts the tax burden increasingly onto residential taxpayers, with makes those places more expensive to live in and less attractive to business.”
Even before that destructive cycle completes itself, the lack of the feared apartment buildings makes housing everywhere more expensive. Because builders can only build on large lots, they have to charge more per home, making the cost of housing in New Jersey extremely high. Employers find they can offer their workers a higher standard of living, with lower wages, by relocating to some place like Texas or Atlanta, where houses are hundreds of thousands of dollars cheaper.
“High real estate prices are the direct result of restrictive zoning. Those high home prices are a secondary tax on business,” Otteau says.
Otteau grew up in Nutley, where his father was a mechanical engineer and his mother was a homemaker. He has been in real estate since 1974, when he started out as a salesman. He then moved into the real estate management and valuation business, and then consulting. His firm, Otteau Valuation Group, provides expert testimony to a variety of groups, including local governments.
Otteau doesn’t see all doom and gloom in the municipal housing policy news, however. He believes transit villages, like the Main Street North Brunswick development being constructed at the old Johnson & Johnson site on Route 1, are a forward-thinking way to meet the state’s real estate needs. Main Street North Brunswick will have 1,900 housing units, a train station, and half a million square feet of retail space by the time it is completed.
The state will need more Main Street North Brunswick-type developments if it is to thrive, he believes. “To accomplish this, we need to either do a better job educating our municipalities as to the urgency and benefits of planning and zoning for the economic realities, or we need to find some alternate means of governing development. The latter is not likely to happen.”