Why are New Jersey housing costs continuing to rise — and who should pay for affordable housing?

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On Monday, the New Jersey Legislature is expected to give final approval to the state’s fiscal year 2026 spending plan. The $58.8 billion budget is more than 2.5% higher than last year’s spending plan.

Part of the proposal calls for an increase in the real estate transfer fee for homes that sell for more than $2 million. If approved, sellers will pay $20,000 on  properties that are sold for $2 million. That fee will increase 2.5% on homes that sell between $2.5 million and $3 million.

The argument in favor of N.J.’s real estate transfer fee hike

Peter Chen, senior policy analyst for New Jersey Policy Perspective, said this increase makes sense at a time when housing costs are pricing many people, particularly low- and moderate-income residents, out of the state, and a lot of the funding for affordable housing already comes from the realty transfer fee.

“So increasing those funds to ensure that more people can actually afford to live in New Jersey who aren’t in the top 15% of home sales in the state, that’s important for ensuring the state is affordable for all,” he said.

The argument against N.J.’s real estate transfer fee hike

Douglas Tomson, chief executive officer of New Jersey Realtors, said increasing the real estate transfer fee would be a serious mistake.

“A million-dollar home is a middle-class home in many parts of our state, so we’re talking average New Jerseyans that would be affected,” he said.

Tomson argued increasing the fee would hurt the state real estate market.

“It would definitely give a lot of buyers and sellers pause before they want to make an investment or before they get off the fence,” he said.

Grant Lucking, chief operating officer for the New Jersey Builders Association, agreed.

“It impacts the market and it’s just not something that lends to additional affordability in the state, which is something that the legislature has been working on,” he said.

Why is housing so expensive?

Rutgers University economist James Hughes, dean emeritus of the Edward J. Bloustein School of Planning and Public Policy, said New Jersey is the most densely populated state in the nation, and that land is scarce, expensive and extremely regulated.

“All these regulations are needed in terms of environmental protection, public health and the like, but at the end of the day, they have a significant cost attached to them,” Hughes said.

He said between 1950 and 1970, a million housing units were constructed because land was abundant and cheap throughout the Garden State and very few environmental regulations were in effect, but that almost the exact opposite situation exists today.

New Jersey housing costs could go from bad to worse

Hughes said if federal immigrant deportations continue, home construction costs could soon rise even higher in the Garden State.

“The builders are heavily dependent on immigrant labor, particularly roofing, so they’re facing significant labor shortages,” he said.

He said tariffs could also cause housing price increases, depending on how they ultimately wind up.

“We import a lot of lumber, we import a lot of drywall, a lot of washing machines, appliances and the like,” Hughes said.

Location, location, location

He said because of its proximity to New York and Philadelphia, New Jersey has a very high demand for housing, especially from millennials.

“This is true for those now in the family-raising stage of the life cycle, desiring to have child-rearing environments, which New Jersey specializes in,” he said. “We have superb K–12 school systems, we have single-family housing which is ideal for raising children.”

Lucking said his group is not to blame for the high cost of housing, and that one of the missions of the New Jersey Builders Association is to create an affordable marketplace for New Jerseyans.

“The fact of the matter is in New Jersey, we’re dealing with a lack of supply, that’s the bottom line, that’s the reason costs are so increased, it’s exacerbated in New Jersey because there is a lot of bureaucracy and red tape,” he said. “The population is growing and our housing population just hasn’t kept pace over the last couple of decades.”

He said getting a simple permit takes longer in Jersey than in other states, and that many times that creates an extra cost that’s passed along to the consumer.

Tomson said a significant number of homes along the Jersey Shore would be impacted by a fee hike.

“There’s so many people that want a vacation, want to stay in New Jersey, and all these taxes do have ripple effects and do affect the overall well-being of our economy,” he said.