Ask someone looking to rent a reasonably priced apartment in Santa Fe to describe their experience and they will likely sum it up this way: Frustrating.
Apartment complexes have waiting lists. The few that do have openings aren’t always ideal or affordable. One-bedroom apartments with popcorn ceilings, for example, can go for $1,350 a month.
Homeowners rent out rooms, but even those aren’t cheap. Last year, a man offered to rent his shed for $575 a month and wanted to require tenants to abstain from eating red meat, among other conditions.
“We effectively have full occupancy of our rental stock, so if we want to reduce the pressure on upward rents, it is a matter of producing more supply,” Mayor Alan Webber said in a recent interview.
As the city continues to grapple with a shortage of multifamily rental projects, the Webber administration is getting ready to roll out a “menu of options” designed to give builders choices and flexibility while still providing incentives to add affordable units to their developments.
“It’s the next increment of legislation that will be coming to the City Council,” said Webber, who has made Santa Fe’s shortage of affordable housing a top priority.
The proposed legislation invokes the concept of inclusionary zoning, a way to create affordable housing through the construction of market-rate housing. In a nutshell, it requires a certain percentage of new construction be set aside as affordable housing, with rents set below market rates.
Three years ago, with little construction underway in the apartment market, the city began allowing developers to pay a fee in lieu of meeting a requirement to set aside 15 percent of the units in their projects as affordable housing. The fee-in-lieu provision, which proved popular with developers and lenders, is due to expire at the beginning of the year. This is prompting the Webber administration to propose a number of options the mayor says are designed to encourage development of affordable units.
The first option would be to continue to allow developers to pay a fee instead of adding affordable units into their projects, but the fee would increase 20 percent each year for five years until the fee is doubled.
Builder Kim Shanahan, a former executive officer of the Santa Fe Area Homebuilders Association who writes a weekly column for The New Mexican, said the city’s proposed five-year schedule is too quick.
“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,” Shanahan wrote in a recent column. “Even two years is ridiculously fast for Santa Fe, but at least it is feasible.”
The second option would be to accommodate development of “low-priced dwelling unit” projects in which renter incomes couldn’t be more than 120 percent of the area median income. The city would reduce development fees for builders by 15 percent under that option.
“The idea behind the second option was, if you’ve got a developer who maybe has a really great cheap piece of land, has a product that they can construct at a moderate cost, then let’s reward them for producing that as a moderately priced product on the market, so they would receive some incentives for that, a 15 percent density bonus and partial fee waiver and reductions,” said Alexandra Ladd, director of the city’s Office of Affordable Housing.
The third option would require builders to set aside 15 percent of their units for people with low to moderate incomes, a requirement similar to the city’s original inclusionary zoning program.
“The incentive would be that development fees … would be waived by 30 percent,” Ladd said. “Also, the remaining 85 percent of units are completely unrestricted when it comes to rental levels.”
Inclusionary zoning has produced mixed results for Santa Fe.
The city’s first inclusionary zoning program was established in 1998. The number of units that would have to be set aside as affordable housing varied by each project.
“There are other inclusionary zoning programs around the country, but we are one of the earliest, and there aren’t that many of them,” Ladd said.
The program didn’t work as intended and forced the city to implement a new and less nuanced program with a standard requirement that 15 percent of rental units be set aside as affordable. But that didn’t work out as envisioned either.
“In 2005, everybody had thrown up their hands and said, ‘It’s too complicated,’ so the city simplified it into the Santa Fe Homes Program,” Ladd said.
But after a decade, Santa Fe didn’t see any new rental housing projects, with the exception of low-income housing tax credit projects.
“Remember 2005?” Shanahan wrote in his column. “It was a peak boom year of building nationally and locally. Easy development money was readily available everywhere. But no market-rate apartments were built in Santa Fe because no lender would touch a project with 15 percent of the product being money-losers.”
In 2015, former Mayor Javier Gonzales asked the City Council to allow developers to pay a fee in lieu of adding the affordable housing units in their projects. His proposal, which the council approved, was designed to pave the way for more market-priced apartments while generating revenue for a fund the city uses to provide rental assistance and to help finance affordable housing projects.
The fee-in-lieu-of “was never an option before unless the developer chose to ask the governing body for an alternate compliance and could demonstrate that there was either a financial hardship or that the project wouldn’t happen if the onsite [affordable] units had to be included,” Ladd said.
The change spurred development in Santa Fe.
“It was a sweet enough deal to see developers of some 2,500 units apply for and get the waiver — but with a big if,” according to Shanahan. “The big if: The gift will expire if the property owner does not secure a vertical building permit by the last day of 2019. That means probably half of those entitled will miss the deadline because if they don’t have a project in for permitting today, they’re not likely to make the deadline.”
Webber said his administration has been hearing from developers who want to know what the city plans to do.
“If this sunsets,” he said of the current scheme, “and there’s no new program or structure in place, they’re in limbo.”
Josh Rogers, director of multifamily development at Albuquerque-based Titan Development, which is building the 188-unit Broadstone Rodeo apartment complex on Rodeo Road, said builders are likely to continue to opt to pay the fee, which is what most have been doing since the city offered the choice.
Like Shanahan, Rogers said the proposal to double the fee in five years is too fast.
“The fact of the matter is the fee in lieu is expensive today, and they’re just making it worse,” he said. “It’s going to make the numbers tighter, and it’s going to make developers question whether they want to do anything.”
Rogers, who has been working with Ladd on the menu of options, said the city would have to offer sizable incentives for developers to choose the two other options.
“As it stands today, no developer is ever going to choose option two,” he said. “The reality is with two is that the city has to come to the table at a significant amount to make option two work, and what I mean by that is they’re going to have to abate the impact fees.”
Rogers said the city — and renters looking for a place to live — would be better served if Santa Fe’s inclusionary zoning program was eliminated altogether.
“Santa Fe needs to open up the supply gates,” he said.
“It’s great that they’re working all three of these options and giving developers a choice, but at the end of the day, the real solution is to do away with all of it and let the market fix itself,” Rogers said. “Adding additional costs to Santa Fe is not a good thing.”
The proposed amendments are scheduled to go before a number of city panels and committees this month, starting with the Community Development Commission on Oct. 16 and ending with a public hearing before the full City Council on Oct. 30.
Follow Daniel J. Chacón on Twitter @danieljchacon.