What is taxed?
This is a one-time tax on homes within city limits that sell for over $1m at the time of purchase, with the fee paid for by the buyer. The tax is ONLY on the amount over $1m, so a $1.1m home has a $3000 tax and goes into effect July 1, 2023 and will not retroactively impact anyone. Only new home purchases after that date are eligible for the tax.
Where does the funding go?
The funding generated from this goes into the City’s Affordable Housing Trust Fund, which has existed since 2007 and has an excellent track record of impact and leveraging of outside funds. More about the trust fund and how it works can be found here:
Why the $1m threshold?
The $1m threshold was designed to impact local Santa Feans as little as possible. It takes about 3x the median family income in Santa Fe to afford a $1m home. Moreover, Santa Fe has seen an unprecedented influx of wealthy homebuyers over the last few years who’s capacity to pay for housing far exceeds that of local workers. This increased competition for already scarce housing opportunities makes home prices reset to the highest capacity to pay. The larger group of high-end buyers, the more prices escalate and the larger the group of families that are left out at the bottom of the income spectrum. This can be seen in the unprecedented increase in median home prices over the last few years.
And home sales data.
In just the last four years, homes in the City limits under $250,000 have gone from over 450 sold in 2018 to just 69 last year. In that same time period, homes over $1m went from 193 sold in 2014 to over 400 last year, nearly half of all single-family home sales.
What is the City’s plan to invest the money?
This city has both a five-year strategic housing plan and an annual plan with HUD. But the Trust Funds has a very sophisticated process where each year a citizen board- the Community Development Commission- sets funding priorities. The city then releases a competitive request for applications that invites anyone to submit proposals for how to address those priorities. This allows us to do things like pivot during the pandemic to provide emergency rental assistance to keep people in their housing. The CDC then scores the application and makes recommendations for funding that then go to the City Council for a public hearing process. More information about the CDC and its membership is available here:
How much of this money will pay for salaries and administration?
ZERO! The New Mexico Affordable Housing Act governs local government’s ability to invest money in housing. As part of that law, no housing funds can pay for staff salaries or services, only direct housing assistance and construction subsidies are allowable uses.
Will it actually build new housing?
Yes! Even in the last couple of years, with about half the funding we anticipate coming from this tax, and during a time when we were prioritizing pandemic driven urgent housing issues, the Trust Fund subsidized the construction of over 100 affordable rental units and 94 affordable homeownership units. This number will grow exponentially with more funding. In the last three years, the AHTF has invested nearly $9m in total funding generating over $27m in additional affordable housing investment, impacting more than 2500 households. Specific investments include:
- 40 Households bought homes made affordable with mortgage assistance to lower their monthly mortgages
- 122 Homeowners avoided foreclosure during the pandemic
- 1,451 Renters were helped with rents, utility bills, deposits and back rent
- 110 Rental homes were constructed
- 274 Rental homes were rehabbed or upgraded
- 288 Households with special needs were supported in short term rental situations
- 94 Affordable homeownership unit received development subsidy
- 150 Unhoused people were served at Consuelo’s Place
Will that housing actually be “affordable”?
The city has very strict definitions for affordability that are part of a framework required by state law to invest local funding in housing. These definitions include both income limits and affordable rents/home prices that are updated annually. The current income/home price definitions can be found here:
Will the housing build be sustainable?
Affordable housing in Santa Fe is some of the most environmentally sustainable in our town, including some of the first net-zero energy housing built in our community. Because nonprofits are concerned with the long-term financial sustainability of their clients, and not working from a profit motive, they invest more in energy efficiency and amenities to work ensure long-term operating costs will be as low as possible and provide a high quality of life for residents.
Is this just replacing existing funding sources?
No! The only existing statutory funding sources for the Trust Fund are recycled funds from past housing investments, fee’s paid in lieu of building affordable units, and 50% of the proceeds of land sales within the Tierra Contenta project. The most this has ever created was $1.2 million in a single year. During the pandemic the City allocated general fund monies to get the balance to $3m a year, which was possible in part from one-time covid relief funds. For comparison this proposal would have generated around $5-6m this year and $9m last year.
What about misuse of funds?
Grantees must report to the City Office of Affordable Housing quarterly and all funding through the Trust Fund is 100% provided on a reimbursement basis. That means grantees must provide evidence of who they served and what that family income level was, as well as receipts for funds expended to access City funding. In this way, no public money goes out beforehand and there is no chance of it being misallocated. All Trust Fund investments are reviewed by the New Mexico Mortgage Finance authority for compliance with the NM Affordable Housing Act.
Will this hurt home values or slow down the real estate market?
It’s very unlikely, this tax is similar to many one-time charges associated with a home purchase and is far below what is typically charged for a realtor commission. For example the tax on a $1.5m home is $15,000 while the a typical realtor commission on the same home is $90,000. In addition, median home sales prices have gone up 67% since 2020, and that hasn’t seemed to slow anything down from the demand side.
Why not tax second homes instead?
The State Constitution prohibits differential property taxes for different types of homes. Also, very little property tax actually flows to the City, around 11%, so increased property taxation doesn’t really impact City funding significantly.
Why not tax everyone equally?
The current median priced home in the City of Santa Fe is over $600,000. With a mortgage amount of $4400 before taxes and insurance, this if far out of reach of the median income family, which can afford around $250,000 mortgage at current interest rates. Adding costs to entry level homeownership just creates another burden for working families that are already struggling with an ever-growing cost of living, sky high home prices, and unprecedented mortgage interest rates.