In 2016, the City of Santa Fe revised its inclusionary zoning program by offering a fee-in-lieu-of payment from a developer so that the rental project no longer had to meet on-site rent-restricted units. The city adopted the revision as the current program proved to be unfeasible in the current market and from an operational standpoint. The law change resulted in generating 1,100 rental units after a decade in which no units at all were produced in the city. However, the revision sunsets at the end of this year.
Therefore, the City of Santa Fe is currently proposing to amend its existing inclusionary housing ordinance. The stated intent of the proposed amendments is to provide developers with a “menu of compliance options to incentivize a market-driven solution” to create rent-restricted units on-site in newly developed rental housing projects. The menu of options would include a fee-in-lieu-of (FILO) option, a low-priced dwelling unit (LPDU) option, and an on-site affordable housing option. The fee-in-lieu amount would increase from the current base fee by about by 20 percent each year over a five-year period until the fee reaches $2,335 per unit on July 1, 2024.
While it is a worthy goal to avoid reverting back to an inclusionary program that did not work, the city is not simply proposing to extend the 2016 revision; it is also proposing significant changes. The Santa Fe Association of Realtors strongly supports the desire to continue to provide a FILO option for multifamily rental development. However, the association does not support the proposed increases in the existing fee-in-lieu payment schedule.
SFAR remains concerned that the amendments could have a significant negative impact on rental production if the added cost of the higher fee-in-lieu amounts make multifamily development in the city less profitable or financially infeasible. And unfortunately, the city is relying on “unofficial opinions” from unnamed developers that the fee-in-lieu amount could double and still be financeable. There is no evidentiary support for the proposed increase in fee-in-lieu amounts.
Additionally, the proposal for 20 percent increases annually over a five-year period has been publicly criticized for being overly aggressive. A former executive officer of the Santa Fe Area Home Builders Association explained that the proposed five-year schedule is “too quick” for the following reasons: “With the draft’s aggressive timeline, any developers starting the application process today could be assured of paying double because the process of getting all the approvals necessary simply cannot be done in one year. Even two years is ridiculously fast for Santa Fe, but at least it is feasible.”
Lastly, Santa Fe County does not have inclusionary zoning mandates on multifamily rental development. There remains a concern that city mandates may have the unintended consequence of en-couraging multifamily rental developers to move their economic dvelopment to the county, near fringe areas of the city, to avoid fees or requirements. Building costs continue to escalate which play a further significant factor in any development.
The association believes the rationale to retain the existing policy and fee structure should be the same as made by city leaders in 2016.
Paco Arguello is chief executive of the Santa Fe Association of Real-tors. Contact him at 982-8385 or firstname.lastname@example.org.