Jan. 17 (Bloomberg) -- New Jersey towns have figured out a way to tame the highest property taxes in the U.S.

Keep kids out.

Educating a child in New Jersey costs an average of $12,567 a year, the most in the nation and more than double the property tax parents typically pay. So local governments have hit upon a way, short of handing out contraceptives, to expand the tax base without the expense of higher enrollment: age-restricted housing.

New Jersey developers have responded by building an estimated one-fifth of the country's adults-only housing, making the state the leader in a national trend fueled by baby boomers seeking new homes after their children move out. In New Jersey, where schools can eat two-thirds of a municipal budget and state officials have failed to provide tax relief, building communities that don't allow kids has as much to do with reducing taxes as it does with serving older homebuyers.

``It's frustration on the part of some communities,'' said New Jersey Governor Jon Corzine in a Jan. 12 interview. ``The real problem is we have too much reliance on property taxes in how we finance public education.''

Nationwide, 2.8 million households were part of age-restricted communities in 2005, up 29 percent from 2001. The number in New Jersey grew 37 percent in the same period. More than half the housing units started in the state in the past two years have excluded children, data compiled by the New Jersey Builders Association show.

Densely Populated

In one New Jersey town, Monroe Township, population 28,000, half the housing units are limited to senior citizens.

As many as 95,000 such units will be built in the U.S. in 2007, according to an estimate from the National Association of Home Builders. New Jersey developers will build about 20,000 of them, the state builders group said.

Towns support their school systems mostly with property tax revenue, pushing the average tab to $5,153 in 2004, the highest in the U.S. New Jersey residents are older than in most states --12.5 percent are 65 and older, compared with the 12.1 percent average in the U.S. -- and it's the most densely populated state, with 1,165 people per square mile. New York has 408 people per square mile; Wyoming has five.

Some homebuilders see ``vasectomy housing,'' as Massachusetts State Senator David Magnani calls it, as protection against the wider housing slump. The National Association of Homebuilders estimates that profit from age-restricted housing was $1.2 billion in 2006.

Boom in Restricted Homes

For Pulte Homes Inc., the largest U.S. homebuilder by market value, 39 percent of its homes sold in 2005 had age restrictions, up from 33 percent in 2004, said company spokeswoman Caryn Klebba. In 2001, Bloomfield Hills, Michigan-based Pulte was selling homes in 15 age-restricted communities in seven states, Klebba said. Today, Pulte has 56 such developments in 20 states, with eight more scheduled to open in 2007.

``Age-restricted housing is growing more than the general housing market,'' said Ara Hovnanian, chief executive of Red Bank, New Jersey-based Hovnanian Enterprises Inc., the state's largest homebuilder.

Hovnanian will have 16 adults-only developments on the market this year, including 309 condominiums overlooking the Hudson River in the town of West New York, New Jersey.

About 8 percent of homes sold by Horsham, Pennsylvania-based Toll Brothers Inc., the biggest U.S. luxury homebuilder, are in age-restricted communities, said Frederick Cooper, senior vice president for finance and investor relations. That number has doubled in the past five years.

`Cold-Weather Markets'

``We see it as a growing part of our business, especially in cold-weather markets in the Northeast that you wouldn't necessarily see as traditional places for people to retire,'' Cooper said.

The square footage of homes in adult communities has grown steadily and the demands are increasing, said Elinor Ginzler, the director for livable communities at Washington-based AARP, the 34- million-member organization serving retired people.

``Seniors are saying, `I want the bells and whistles, I don't have kids with me anymore, I want granite countertops and golf,''' Ginzler said. ``You're not just buying a house, you're buying a lifestyle.''

Exclusionary zoning is legal in the U.S. A 1998 exemption to the federal Fair Housing Act allows age restrictions if homes in a development are intended solely for residents age 62 and older, or if 80 percent of the units are occupied by one person who is at least 55.

Pollution, Traffic, Kids

The New Jersey Supreme Court ruled last month that towns could condemn land for open space under eminent domain laws to stop development that might result in ``overcrowded schools.'' That put schoolchildren on a par with pollution and traffic congestion as valid reasons for seizing property.

``Exclusionary zoning is most prevalent in New Jersey, but it's pervasive in a lot of parts of the country, especially in the Northeast, where there isn't a lot of land to build on,'' said Robert Puentes, a Washington-based fellow with the Brookings Institution's Metropolitan Policy Program. ``With property tax being such a big issue now, it's much more front and center.''

Still, elected officials are reluctant to link age-restricted development to taxes, mindful that voters may view them as anti- child.

`Backroom Taboo'

``It's a backroom taboo thing that everybody talks about but nobody talks about,'' said Douglas Steinhardt, mayor of Lopatcong Township, which limits new housing to two bedrooms.

Lopatcong's zoning restriction is intended as a density control measure and ``not to keep kids out,'' Steinhardt said.

Age-restricted housing does help reduce property taxes, according to the State Department of Community Affairs. In Monroe Township, which has 8,878 age-restricted units, the most in the state, the property tax averaged $4,327 in 2004, the latest year statistics are available. That was 16 percent lower than the rest of Middlesex County and 22 percent less than the state average.

By comparison, South Brunswick, Monroe Township's neighbor, has just 731 units of age-restricted housing and an average property tax of $5,782.

The towns with the next-most age-restricted units in the state are Berkeley Township, with 7,054, and Lakewood Township, with 3,409, both located in Ocean County. Berkeley Township property tax averaged $2,842, about half the county and state averages. Lakewood Township averaged $3,624, about a third less than the county and state averages.

Lakewood Township has one of the oldest age-restricted housing complexes in the state, 1,000 single-story homes connected in clusters called Original Leisure Village. It opened in 1961. Mayor Ray Coles said the town has enough age-restricted housing.

`Disaster for the State'

``The unbalance that age-restricted housing brings is going to be a disaster for the state in the long run,'' Coles said. ``New Jersey seems to be looking for ways to turn families away. Some day my own kids, who are teenagers now, might have to move out of state to raise their families. I don't want to have to hop on a plane to visit my grandkids.''

Lakewood Township plans to break ground this year on 400 units of affordable family housing, Coles said.

Other mayors, including Scott Rumana of Wayne, reject the idea that exclusionary zoning saves money, because having more senior citizens pushes up emergency response costs.

Most seniors who move stay in the same towns, according to data from the AARP. They usually sell the homes in which they raised their families to homebuyers with children, negating any tax benefit. And seniors have expenses of their own, Rumana said.

`First-Aid Squad'

``If you have a volunteer first-aid squad all of a sudden become a $15 million item in the budget, that's what I'm worried about,'' Rumana said.

Monroe Township, where half the residents are senior citizens, benefits from its older population, said Irwin Nalitt, who's 89 and has been a councilman since he was 70.

Seniors volunteer at the recreation center, the library and in the schools. The financial boon is just too tempting, he said.

``We've entertained applications from developers for regular non-age-restricted housing, but we've steered them to senior housing,'' Nalitt said.

Developers, which can make more money building unrestricted housing, sometimes find it's more difficult to get those plans approved, said Patrick O'Keefe, chief executive officer of the New Jersey Builders Association.

``It's almost a prerequisite that a project pass the child- exclusion test before a planning board will consider it,'' O'Keefe said.

In Peapack-Gladstone, population 2,465, the land-use board twice denied Dennis Townsend permission to build 18 multimillion- dollar homes on 13 acres across a dirt road from his Hamilton Farm Golf Club.

On a tour of the land, Townsend, chairman of the Towson, Maryland-based Townsend Capital LLC, pointed to the woods behind his proposed lots, where Peapack-Gladstone recently approved 55 duplexes a stone's throw from where Townsend wants to build.

The duplexes will be age-restricted.

Townsend didn't need a map to show him where to go.

``If the people of this town want age-restricted homes, we'll give them age-restricted homes,'' he said.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: January 17, 2007 10:07 EST