House Rule

House Rules


Santa Fe teeters between extremes as people with means flock to the city and those without face increasing financial hardship.

On one hand, the housing market is booming: Santa Fe ranked 12th on a list of the top 25 cities people moved to in 2020, and realtors report the combined median home price for the city and county soared to more than half a million by year's end.

On the other hand, locals are suffering: Up to 65% of Santa Fe residents cannot afford to purchase a market-rate home and half of renters are considered cost-burdened, meaning they pay more than a third of their income on housing, according to the Santa Fe Housing Action Coalition.

HEAR MORE: Reported Season 4 Episode 11: Affordable Housing, or the Lack Thereof - Learn more about the history of inclusionary zoning and affordable housing in Santa Fe, and how it’s led to the current shortage

While the COVID-19 pandemic has exacerbated housing inequality in Santa Fe, this polarized state of affairs was present even before the coronavirus hit, driven over the years by a steady influx of new residents and a shortage of available housing.

Local data released by real estate services company CBRE indicates the average cost of rent in Santa Fe rose 40% between January 2011 and January 2020, while the area median income rose only 14%. For comparison, census and real estate data show that nationally, both rent and income have increased equally by an average of 37% since 2011.

City leaders have long tried to mitigate the gaps, beginning in the 1990s with the adoption of some of the nation's most progressive inclusionary zoning laws at the time. A thriving ecosystem of nonprofits helps residents access benefits. These efforts have created affordably priced homes and helped finance other housing solutions for thousands of people.

But the laws also contributed to a supply-and-demand problem that sent rents skyrocketing as the population grew. Construction of new housing did not keep up. For nearly a decade, the regulations for rental projects were so restrictive that they prevented the construction of new market-rate rental housing entirely.

The city openly acknowledges the problem.

In 2016, officials changed the rules to allow rental developers to pay a fee into the city's affordable housing trust fund rather than building affordable units. This "fee-in-lieu" option is more cost-effective for developers and unleashed a tidal wave of new construction to meet the pent-up demand. After further tweaks last year, the city received a proposal for the first new rental apartments to include affordable housing on-site in almost two decades.

This week, in partnership with the Solutions Journalism Network, SFR explores the creation of the inclusionary zoning law that brought the city into – the national spotlight as a leader in affordable housing 30 years ago, as well as who ended up benefiting and who didn't. Next week, we return with a second cover story about other solutions, what's worked, and what could work to address both the historical impacts of a tight market and the current economic impacts of COVID-19.

READ MORE: Santa Fe's Affordable Housing Timeline – 30 years at a glance

How we got here

Santa Fe passed its first inclusionary zoning rules in the 1990s during what Joseph Montoya calls the "third wave of gentrification," when it became clear the city was becoming increasingly unaffordable for local people.

Today, Montoya works as the director of Santa Fe County's affordable housing department. But in the '90s, he was a city community development planner.

Back then, the city was making up everything from scratch, says Montoya.

Locals convened the Santa Fe Affordable Housing Roundtable, a coalition of city and county officials and nonprofits working collaboratively to stop rapid gentrification. The roundtable's goal was to ensure that half of all future housing would be affordable to low- and middle-income families.

"In a relatively short period of time, we were able to do lots of different things that had never been done," says Montoya.

He and his colleagues worked with local banks and real estate developers to create new financing mechanisms for affordable housing. They meshed more than a dozen existing programs into a comprehensive system that aimed to offer a solution for any housing topic where a resident might be struggling—including city-funded mortgage assistance, rental vouchers and first-time homebuyer education.

The city purchased 860 acres in Tierra Contenta southwest of Airport Road from foreclosure and created a new nonprofit organization to manage development according to a master plan that required at least 40% of all future homes to be affordable.

Within just a few years, Santa Fe became known as a national leader in affordable housing. The city won multiple awards, including the prestigious Innovations in American Government Award from the Harvard Kennedy School of Government for its work with the Affordable Housing Roundtable.

Santa Fe passed its first inclusionary zoning ordinance in 1997, which required all new developments to sell a percentage of homes at affordable prices to income-qualified buyers. Two years later, the city adopted a master plan that established overarching values and a vision to guide future development, as well as the zoning regulations that still dictate density and development patterns today.

Hoping to build on its success during the height of the 2000s housing boom, the city overhauled its affordable inclusionary zoning ordinance in 2005, renaming it the Santa Fe Homes Program.

Under the new rules, the percentage of required affordable units in for-sale developments went up, and for the first time the law also required rental developers to reserve 15% of units at affordable rates for people earning up to 100% of the area median income. These affordable rates, determined by the US Department of Housing and Urban Development (HUD), are designed so that renters who qualify do not spend more than 30% of their income on housing.

The success of the new program was short-lived.

After the global market crash in 2008, development in Santa Fe slowed to a crawl. For nearly a decade, no new market-rate rental developments were built.

Nationally, the bottom had fallen out of the financial market. It hit the real estate sector, which drove so much of the boom-and-bust nature of the American economy, especially hard. Banks sought to tighten their lending practices, and contractors and builders went out of business.

"There was almost no construction going on," says Max Myers, Northern New Mexico market president for New Mexico Bank and Trust. Back then, he worked for the bank as a commercial lender. "It was like all the contractors and all the labor for the contractors moved out of town. We used to see them in the restaurants in the morning having a big breakfast before they went to work, and suddenly a lot of the faces I'd recognized over the years were gone."

Santa Fe was shielded from the most extreme fallout of the crisis, says Myers, but even after other cities began to recover, Santa Fe lagged behind. Myers attributes the stunted local recovery to its reliance on tourism—an industry that typically lags until other parts of the economy are back up to speed and people have extra money to spend.

In 2016, in recognition that fewer than 400 new apartment units had been built since the economic downturn, the city created a fee option for multi-family developers for the first time.

Construction has ticked up since, spurred by both a growing economy and, on the rental side, looser inclusionary zoning requirements.

The rules as they stand now require for-sale developers to sell 20% of their units at affordable rates. Multi-family rental developers have options: build 15% of their units on-site in exchange for multiple incentives from the city such as waived permit fees; pay a fee; rent 100% of the units at moderate rates below market rate but above the definition of "low income;" or propose some combination.

Data Dive

Once we got into the weeds of Santa Fe's housing data, we discovered numerous small inconsistencies between datasets, charts and graphs created by different organizations and departments at different times.

For example, a housing trends report created by the Land Use Department lists 92 permits for affordable units in 2012, while a report released by the Santa Fe Association of Realtors last year only lists 32 affordable units in the same year.

SFR found these kinds of small inconsistencies in dozens of documents, so we asked the city's Land Use staff to help us try to wrap our heads around our findings.

Urban Planner Carlos Gemora and Planning Manager Noah Berke say there are multiple factors at play.

To start, two documents that seem like they are explaining the same thing might actually be using different sets of data, such as city versus county data. When it comes to housing units, one document might be referring to the number of permits issued in a given year while another document might be counting the actual number of units constructed. A third document might be counting the number of units in early stages of approval that had not yet gone through the permitting process. Some documents from both the city and local organizations don't make it clear what exact data they are using.

Then there are also actual inconsistencies—when both documents are measuring the same thing but producing different numbers.

Gemora and Long tell SFR it's partly an issue with tracking data between multiple old-school record-keeping systems, and partly it's the loss of former long-range planning staff and their institutional knowledge.

"There's just so many different ways to handle this data in so many different systems that have been used, it's hard to have 100% consistency," says Gemora.

"There are inconsistencies in some of these numbers," he says, but "the nice thing is the difference is usually small and there aren't huge shifts in the general trend."

When looking back at historical trends, SFR stuck to data for housing permits issued within the city. For years where the data didn't match up, we've used a line of dots on our chart above.

A solution for some, a problem for others

It's been 18 months since Kimberly Gallegos purchased a home in the Casa Bonita neighborhood with a lien from the city to cover the difference between what she could afford and market rate. Some days she still can't believe it's real.

"Sometimes I'll hug the wall, I'm just so happy and grateful," she admits, laughing on a phone call with SFR. "I love my little house.…It's not super huge but it's not super tiny—it's big enough for my daughter and I. We have air conditioning; we have a double garage.…I just love everything about it."

Ivette Ortega shows SFR where friends, family, and other Habitat for Humanity volunteers signed their names and wrote notes of encouragement on the frame of her house. (Leah Cantor/)
Gallegos and her daughter, who will graduate from Capital High School this spring, are among the more than 1,000 households for which the Santa Fe Homes Program helped pay for mortgage assistance. Theirs came from the Santa Fe Community Housing Trust.

Gallegos was born and raised in Santa Fe and has worked as a stylist for the last 20 years. It's a good job and one she enjoys, but still, as a single mom she earns well below the area median income for a family of two.

"I was living in an apartment for 13 years and the rent just kept going up higher and higher and higher," she says. "I was pretty much rent-broke."

The Housing Trust worked with her on and off throughout those 13 years to help her improve her credit and become an expert on the home-buying process as she waited for a home that would perfectly meet her needs.

"It takes courage," she says. "Buying a house is the all-American-dream. It can seem like it's so far from being a reality but [the Santa Fe Community Housing Trust] can help make it a reality."

Mortgage assistance is one of several ways the city works with local nonprofits to make homeownership more accessible to locals, in addition to the requirements for developers to build affordable units on-site.

At Habitat for Humanity, another organization that puts city housing funds to good use, future homeowners must complete hundreds of "equity hours" in construction as part of the program to purchase an affordable home.

Ivette Ortega, 24, takes SFR through the home she's spent the last year building from the ground up. Workers outside cement and stucco the walls, while inside the three-bedroom house, Ortega points out messages of encouragement and love written across the bare wooden frame by friends, family, neighbors and Habitat volunteers in a ceremony to celebrate all the long hours she has put into making this place her own.

Later today, says Ortega, the crew will begin to put up the drywall and insulation, sealing this good will into the walls. Soon, they will finish the floors and hook up the solar panels on the roof, and by the end of spring, she hopes, she'll get to move in.

Ortega has worked on five other Habitat homes in the same subdivision near the Santa Fe Community College since she was approved for the program two years ago.

"I think it's been really great for getting to know some of my neighbors," she says. Some also have kids around the same age as her 6-year-old son. She says he's excited to move to a new neighborhood where he knows he'll have other kids to play with. Her own excitement is infectious.

Ortega says the Habitat program has helped her feel empowered as a homeowner in more ways than one. She works at a local car dealership, but says she's never taken out a loan before, not even for her own vehicle. Habitat's financial fitness classes helped her understand interest, budgeting and smart financing decisions.

Two years ago, she had also never held a power tool or done anything in construction.

"Now I know everything that's going on behind the walls. I feel much more confident in maintaining my home, and as a woman I also feel that I know enough to get a good price when I need to hire people for repairs," she says.

The Santa Fe Homes Program is most effective for new homeowners like Ortega and Gallegos, and developers of homes for sale have accepted the requirements with little fuss.

Santa Fe Office of Affordable Housing Director Alexandra Ladd tells SFR almost every new for-sale development has adhered to the Santa Fe Homes Program rules and sold at least 20% of its homes at affordable prices to income-qualified buyers.

Markana de Santa Fe Apartments is under construction behind the Office Depot on Richards Avenue. The 180-unit project is slated to open later this year. (Leah Cantor/)
Ladd has worked in affordable housing for the city since 2012 and has spearheaded efforts to make the rules more effective.

Only two for-sale projects have been granted an exception by the City Council, says Ladd. The first was started before 2008, and afterwards the developer could not finance the affordable units. In the other project, several lots were washed out in a flood and were ultimately left as open space. In both cases, the developers paid a fee.

For-sale projects also provide a small stream of revenue to the Affordable Housing Trust Fund, which is partially used to help bring down the cost of market-rate homes for people like Gallegos.

Developers of large projects are required to build a certain percentage of units at affordable prices; they pay a fee in addition. For-sale projects with less than 10 units pay a fee instead of building affordable homes on-site.

When Gallegos pays back the lien on her property, the cash will go back into the fund, helping to replenish the money.

In partnership with Homewise, the Santa Fe Community Housing Trust and Habitat for Humanity, the city has used this money to create a system for supporting low- and moderate-income renters and homebuyers that could be easily scaled up to help thousands more—with proper funding.

These nonprofits are under contract with the city to maintain lists of income-qualified homebuyers and renters, manage assistance programs, and build affordable units using money from the Affordable Housing Trust Fund, the general fund, and the US Department of Housing and Urban Development's Community Development Block Grant program.

Mortgage assistance eats up 35% of the money. Another 25% pays for rental assistance, and 15% helps low-income homeowners with home improvements; another 15% is used to build affordable rental units; the remaining 10% goes toward homeless shelters and affordable rental housing upgrades.

Ladd says the amount spent each year depends on how much comes into the trust fund from homeowners repaying their loans, land sales in Tierra Contenta and developers paying fees. Between 2011 and 2017, the trust fund's annual revenue averaged less than $200,000. This has changed dramatically in recent years as development picked up. In 2020, the trust fund collected over $700,000.

Because the nonprofits are able to use city funds to leverage more money from private donors and federal programs, they can make the city's dollars go a lot further than if the city were managing these programs by itself, says Ladd.

It's progress, but it's not enough to meet the need.

According to the Santa Fe Association of Realtors 2020 State of Housing Report, 5,328 of 13,500 2019 renter households in the city are eligible for downpayment assistance because of their income levels.

A separate report by the Housing Action Coalition estimates 9,700 families paid unaffordable rents or mortgages in 2018, and families on wait lists for affordable rental housing and rental vouchers sometimes wait up to six years for a spot.

Santa Fe's inclusionary zoning rules put in place for market-rate rental developers in 2005 arguably worsened the housing shortage because they were so restrictive that they prevented any new rental projects for nearly a decade after the 2008 financial crash.

The rules weren't working for developers of rental housing, and therefore weren't working for most renters who had to compete for increasingly expensive, aging units with newcomers to the city.

In 2016 the city allowed rental developers to pay a one-time fee into the trust fund instead of renting affordable units on-site. The change ushered in a dramatic increase in construction. In just a few years, the city has approved more than a dozen new apartment projects.

Rush to build

Now that the city has changed the rules, as many units are being constructed in one year as were built in nearly a decade.

A recent report by the city's Land Use Department shows 1,800 units of housing are currently under construction in the city. Another 1,600 units have been approved but haven't yet broken ground.

Even Albuquerque doesn't come close to averaging 1,800 new units a year, says rental developer Josh Rogers. The number of new units under construction currently rivals that of much larger metropolitan areas such as Colorado Springs—a city nearly six times the size of Santa Fe with a population of 490,000.

"The change in 2016 was pretty monumental.…You never would have seen this building boom in Santa Fe without that change," Rogers says.

Broadstone Rodeo Apartments began renting new market-rate units in 2020. (Leah Cantor/)
Rogers is the vice president of development with Titan Development, an Albuquerque-based company that has advised the city of Santa Fe on its inclusionary zoning policies in the past. Titan began construction on Broadstone Rodeo Apartments shortly after the change to the inclusionary zoning rules in 2016, making it the first new market-rate rental building the city had seen in a decade.

Rogers says the company would not have considered the project without the change to allow a fee-in-lieu payment.

He explains it this way: A developer of for-sale homes only loses money once when it sells homes at affordable rates. A rental developer, on the other hand, loses money on its affordable units every month, and that cost adds up quickly.

Say, for example, Titan built 100 one-bedroom units, with an average market rate rent of $1,500 a month—which is about what Broadstone Rodeo charges for a one-bedroom apartment. To fulfill the city's on-site affordability requirement, the company would have to rent 15 of those units for a maximum of $950 a month to people making up to $33,300, or 65% of the area median income. Titan would miss out on $550 a month per affordable unit, which comes out to a loss of $99,000 over the course of a year. Over the 10-year compliance period, the developer would lose $990,000 on those units.

On top of that, the affordable units also impact how much the developer is able to borrow at the outset for construction of the project, says Rogers. That's because banks lend developers money based on the projected cash-flow, or the amount of money the project expects to make each month. In the above example, the 15 affordable units would cost the developer over $100,000 in the total amount they might be able to get in loans from the bank.

Once you add up these costs, says Rogers, the entire project may no longer be profitable enough to make it worth building.

"That's the definition of a bad regulation—that you make something so expensive to do that no one is going to do it. So that's exactly what happened in Santa Fe," says Rogers.

In addition, the market-rate developer would be required to find and monitor income-qualified tenants for those apartments, which is something most don't have experience doing, says Ladd.

"To expect a market-rate developer to undertake the very complicated process of providing rent-restricted units to income-eligible, certified renters is sort of like expecting your dentist to give you a knee replacement," she said at a recent city meeting. "They might know how to work the anesthesia OK, but they are really out of their element."

With 2016's change to a fee-in-lieu option, the developer in the example above would only have to pay $128,520 in total for the entire project. Rogers says this is why the city suddenly saw a flood of applications for new developments as soon as it changed the rules.

Since June 2018, the fees paid by these rental developers have brought $1.5 million into the city's Affordable Housing Trust Fund, which has vastly increased the city's ability to offer affordable housing support such as rental vouchers and mortgage assistance.

The city made further changes in 2020 that steadily increase the fees rental developers will have to pay going forward, and offer multiple incentives that make it cheaper for developers to build affordable units on-site. These new incentives include the elimination of multiple fees charged by the city and density bonuses, which allow the developer to build more units than they are technically zoned for.

"The theory behind all of this is that…if you put enough units on the ground in Santa Fe it should help the affordability question over time," says Rogers, because older units that are currently being rented at jacked-up prices due to the high demand and short supply will no longer be able to compete with all the brand-new market-rate apartments.

However, Daniel Werwath, executive director of New Mexico Interfaith Housing and the developer of the most recent 100% affordable projects in Santa Fe, says that though luxury apartments will eventually ease the city's supply-and-demand problem by providing ample options for those at the top half of the income scale, they will never meet the need for affordable housing for people at the bottom.

What's more, Santa Fe is losing qualified affordable housing at an alarming rate as older developments that used federal income tax credits to build affordable housing reach the end of their 15-year compliance period and raise the rents or sell apartments to private homeowners at market rate.

To adequately address the problem, Santa Fe will need to get creative and employ a much broader set of solutions than those provided by its inclusionary zoning rules—even when they are working as intended.

"We need to create an ecosystem where housing can have the best chances of thriving in all conditions. And that means we do lots of little things like auxiliary dwelling units; funding our trust fund; inclusionary zoning; making it easier for market rate developers. And then together the whole solves the problem," Werwath says. "But that whole has to include building more affordable units too. We need to build 250 units a year of affordable rental housing to solve this problem, and we need to commit to finding the funds to do it."

In next week’s cover story, SFR looks at what the city needs to do to maximize its affordable housing capacity and out of the box solutions already on the books.