From the outside, it’s hard to tell how much Deborah DeMack’s home is worth. It’s a modest, two-bedroom adobe with a small backyard, sandwiched snugly between two matching houses in a quiet subdivision off Cerrillos Road. For $190,388, it’s a steal. For $314,090, you might say she paid too much.
Turns out it’s both.
Five years ago, DeMack bought her home for just under $190,388. She did so with help from the city’s affordable housing program in the form of a subsidy she’ll have to pay back if she ever sells the house. For the two years following the purchase, her home’s value didn’t change.
But in April 2009—with the Santa Fe real estate market in precipitous decline—DeMack received a notice from the Santa Fe County Assessor’s office. In the space of a year, the value of her home had shot up to $290,536. DeMack was alarmed.
“I thought, ‘This is crazy!’” DeMack tells SFR. “It just doesn’t make sense to me.”
DeMack talked to neighbors to determine if they had experienced the same increase in valuation. That’s when she first spotted the trend: Market-rate homes in her neighborhood hadn’t appreciated much. But for homeowners who claim an affordable housing tax break, property values were through the roof.
DeMack says she considered protesting but, after a discouraging conversation with an employee at the County Assessor’s office, she changed her mind. “I kind of just let it slide,” she tells SFR.
At $290,536, DeMack’s home value was already high above the average for Kachina Ridge, the neighborhood where she lives.
But this April, the value shot up again—this time to $314,090. Again, DeMack’s neighbors with affordable homes saw similar increases, while those in non-affordable homes didn’t. One neighbor, who lives in an affordable unit smaller than DeMack’s, clocked in at a whopping $321,100.
Kachina Ridge developer Arch Sproul is among those who see something fishy about DeMack’s tax assessment. Property tax assessments are supposed to be based on recent sales in the area, but Sproul says he doubts anyone in Kachina Ridge could sell an affordable unit for $314,090. Sales have been slow, he says, but he just sold one—for $210,000.
“The reality of the market today, for those units, is around $210,000 [or] $215,000,” Sproul tells SFR. “They’re basing [assessments] on the market at its peak, and things are not moving today,” he says. “Nothing is.”
According to New Mexico’s Property Tax Code, taxable property values cannot increase more than 3 percent each year (unless the property changes hands or the owner performs significant improvements). And DeMack’s taxable value did increase the full 3 percent both this year and last.
But the full market value of DeMack’s house has increased 65 percent in two years. Because of her affordable housing tax break, which has also appreciated, she isn’t paying a 3 percent increase on the full $314,090. But if it weren’t for the 3 percent limit along with the city’s affordable housing requirements, she’d be underwater.
She’s not alone.
SFR reviewed hundreds of county and city property tax records from the County Assessor’s files and databases. All show a similar trend: Across Santa Fe County, homeowners claiming an affordable housing tax credit have seen skyrocketing home values.
For people watching this unexplained trend—home-owners and affordable housing experts—the potential consequences are troubling.
“How can these people who asked for the affordable housing reduction have a home that’s worth more than their neighbor who didn’t ask for a reduction?” Melisa Dailey, a senior housing planner at the City of Santa Fe and manager of the Santa Fe Homes Program, wonders.
A 3 percent increase isn’t much, Michael Loftin, the executive director of the affordable housing provider Homewise, concedes. But, again, why are the increases only affecting affordable housing participants?
“It may not be affecting people negatively,” Loftin says. “But it just doesn’t make sense.”
In Santa Fe, an assortment of city and county ordinances and state laws govern the world of affordable housing.
First and farthest-reaching among them is the 2005 city ordinance that established the Santa Fe Homes Program. The ordinance requires that 30 percent of all homes in a given development be “affordable”—a definition that, in turn, depends on several different factors (area median income, buyer’s income, etc.).
Basically, it boils down to a promise that people who earn less than the area median income—$48,498 for the city as a whole—won’t have to spend more than 33 percent of their income on housing costs.
The ordinance also requires that affordable homes be scattered throughout even the highest-end subdivisions. Accomplishing this type of mixed-housing requires making, for example, a $300,000 condo affordable for someone salaried at $30,000 a year.
The solution comes in the form of a temporary loan from a public entity or nonprofit. The City of Santa Fe and affordable housing providers like Homewise and the Santa Fe Community Housing Trust all offer this form of affordable housing assistance, and Santa Fe County also has a newer, but similarly structured, program.
So suppose the “affordable” price for that $300,000 condo is $150,000. The city pays the difference but attaches a condition: Whenever the home buyer sells the condo, the city’s loan must be repaid, plus a share of appreciation.
Assessing property tax on home buyers who take advantage of these programs has been handled in different ways. When former County Assessor Benito Martinez Jr. departed office in 2007, he left behind hundreds of such homeowners who had been paying property taxes assessed on the price they had paid—not on the actual value.
But when recently re-elected County Assessor Domingo Martinez (no relation) took office, he made it clear that his predecessor’s informal tax break for affordable home buyers was on its way out.
Affordable homes, he told the Santa Fe New Mexican in May 2007, “are going to be put on the books at full value…[as] they should have been all along.”
The state Taxation and Revenue Department agreed that Benito Martinez’ informal tax breaks hadn’t been legit. But affordable housing advocates—and homeowners—were riled.
The debate eventually reached the state Legislature, where, in 2008, House Speaker Ben Luján, D-Santa Fe, carried a bill that required county assessors to calculate affordable housing property taxes only on what the homeowner had actually paid.
When affordable homes sell, “You don’t get the full value of [your] house,” Loftin explains, “because it’s restricted.” (In other words, you have to pay back the loan.) The logic of the 2008 law, then, is that an affordable home owner should only have to pay taxes on the part of the home he or she actually owns.
Subsequent news coverage characterized Domingo Martinez as reluctant to implement the new law. Today, he tells SFR that the notion that he’s anti-affordable housing is “absolutely false,” although he notes that the myriad of programs are difficult to implement. And, he says, they cost the county revenue.
“[The affordable housing programs] decrease the amount of taxes the county, the school districts, the city, the community college [receive]—all those entities that get a piece of the property tax, they get to collect less because the base goes down,” he says.
But, he adds, “…overall, I think it’s a good program…I’m for affordable housing. But I’m for making sure that each affordable house, like every other house, is valued correctly so that they pay the correct amount of tax.”
When it comes to recent assessments, however, affordable houses weren’t valued in line with “every other house.” They were valued higher.
According to SFR’s analysis, of the more than 300 households in the city of Santa Fe that claimed the affordable housing credit, all but 53 have seen their values increase. They’re not small increments, either: The overwhelming majority of such homeowners saw increases of more than 5 percent in their home values. In extreme cases, home values doubled or tripled over just two years.
And all are outpacing their non-affordable equivalents.
SFR specifically examined current property tax assessment records for two subdivisions: Kachina Ridge in the city of Santa Fe and Aldea de Santa Fe in the county. Both mix affordable homes in with market-price units and, in each, the records reveal the same phenomenon: stagnant or decreasing values on market-price houses; astronomical increases for affordable homes.
In Kachina Ridge, a small subdivision with nine market-rate and 17 affordable homes on the tax rolls, the valuation differences are stark.
In 2008, not a single affordable home in Kachina Ridge was worth more than $200,000; developer Sproul says the affordable homes in Kachina Ridge shouldn’t be valued above $220,000. But the County Assessor’s office puts homes in Kachina Ridge claiming affordable housing tax breaks at approximately $295,000, on average. Market-rate homes, meanwhile, have stayed at approximately $220,000—and the affordable homes that didn’t claim a tax break are valued at less than $200,000.
To DeMack, that’s particularly odd given the similar features, floor plans and identical locations of market-rate and affordable homes in Kachina Ridge—not to mention Santa Fe’s stagnating real estate market.
Lois Sury, the president of the Santa Fe Association of Realtors, says that decline began in 2007 or 2008—and that two or three years is plenty of time for assessments to catch up with declining market values.
“On a whole, the real estate market isn’t appreciating,” Sury says. “Individual houses here and there, maybe, because people have improved them, but the trend has been that things have been going down.”
(DeMack says she hasn’t done anything to improve her home—“unless you count that $5 plum tree I planted.”)
Aldea, too, has its share of mismatched valuations.
On one particular street, Vista Precioso, four homes claiming the affordable housing tax credit have appreciated 6 to 7 percent since 2008, according to the County Assessor’s tax records. Three are valued at $419,860 and the fourth at $488,980. The market-rate homes around them are valued between $344,790 and $380,970—less than they were worth last year.
A fifth affordable home on the same street—valued at $419,860—is on the market for $279,110. (As it happens, that home is listed under Santa Fe Realty Partners with Paul Duran, one of two Democrats who ran against Domingo Martinez in the primary for the office. Benito Martinez, the other candidate, lives in affordable housing in Kachina Ridge, but does not claim the affordable housing credit.)
An Aldea resident, who asked that her name not be used because her property tax is currently under protest, says the only difference between the affordable and market-rate homes on Vista Precioso are their finishes—two-car garages, granite countertops, etc.
Loftin, who became acquainted with Aldea when Homewise helped fund approximately 20 affordable units there, tells SFR he’s surprised to hear that affordable homes of the same size, type and location would be valued so much higher than their equivalent market-rate properties.
“An affordable home, if it’s the same square footage and similar lots, it should be appraised at the same value,” Loftin says. “It certainly can’t be higher.”
SFR also spoke with residents at ElderGrace, a new Santa Fe Community Housing Trust affordable development off of Cerrillos Road that is not yet listed in the County Assessor’s database.
Home prices in ElderGrace range from $193,000 to $228,000. Most homeowners are retired or semi-retired. And many are seeing a time-compressed version of the same phenomenon that has played out in Kachina Ridge and Aldea over the past two years.
In Dorothea Matheny’s case, a $33,000 increase in her home’s value from the assessor is particularly galling.
Before she secured a loan, Matheny paid a total of $1,150 for two separate professional appraisals. Both were within $2,000 of her home’s sale price—$227,000 for a modest two-bedroom in a cooperative-living retirement community.
But when she got her notice of value this April, Matheny says the house’s value had jumped to $260,000.
“That was a shock,” Matheny says, shaking her head. “We moved into affordable housing because that’s what we could afford!”
Marty Carroll, another ElderGrace resident, saw a similar increase between her fall 2009 purchase price (and appraisal) and 2010 assessment.
Carroll wonders at the rapid increase, especially when many of the homes in ElderGrace aren’t selling.
“If the price for these units was way under, they would be completely sold out by now,” Carroll says. “They’ve been on the market since October, and they’re not!”
Community Housing Trust Executive Director Sharron Welsh tells SFR she’s received several calls from residents in ElderGrace (and other developments) who are concerned about their property valuations.
In ElderGrace, she says, people who had recently closed on their homes then received assessments and “saw significant increases over the cost they paid.”
Having increased assessments so soon after closing, Welsh says, is hard to understand. Mortgage lending appraisers operate under strict rules and regulations, she notes, so appraisals like Matheny’s are conducted in person and based on each unique property.
“Unless someone goes and conducts that kind of in-depth analysis, I don’t know how [one] could produce a better report than the actual appraisal performed for that house,” Welsh says. Every home sold in ElderGrace, she says, had an appraisal consistent with the selling price.
“I felt like I was ripped off, to pay for two appraisals,” Matheny tells SFR. “It sounds like [the county assessor’s staff] never even looked at the house. It’s ridiculous.”
That the county’s assessments are so much higher than all of the professional appraisals in ElderGrace, Welsh says, may be nothing more than an accounting glitch—but it stands to affect some of Santa Fe’s most vulnerable residents.
At ElderGrace, she says, “They’re seniors, and they’re on fixed incomes, and they didn’t count on significantly higher taxes than they originally estimated.”
Abnormally high home values aren’t limited to Kachina Ridge, Aldea and ElderGrace. All over Santa Fe, from Zocalo to Rancho Viejo’s Windmill Ridge; from Centex Homes’ Colores del Sol to the San Isidro Village Condominiums and the Plazas at Pecos Trail, homeowners who are claiming their affordable housing tax breaks are watching their home values surge.
And though their taxes may only be rising by the legal 3 percent, their property values are out of step with the reality of the Santa Fe real estate market.
“The assessments are too high across the board,” Sproul tells SFR. “Things are not moving today—nothing is. Houses are coming down, and the appraisals are based on when Santa Fe was at its peak.”
To observers like Kathy McCormick, who directs the City of Santa Fe’s Office of Affordable Housing, these abnormalities are evidence of the same problem affordable housing advocates saw two years ago.
“What we’re having is a problem in implementation,” McCormick tells SFR. “The county still isn’t getting their act together, frankly.” Over the past few weeks, McCormick says she’s received several calls from affordable homeowners concerned about their property
SFR had one interview with Santa Fe County Assessor Domingo Martinez about these findings, but he said he was unwilling to speculate about the cause without seeing the documentation. Subsequent attempts to reach him for follow-up questions were unsuccessful prior to press time.
“I don’t know that [the valuation] increased; I’d have to take a look at the actual home and agree with you,” Martinez told SFR.
Inaccurate assessments were a focal point of the recent three-way Democratic primary election for the assessor’s position. None of the three candidates disputed that the roles are not up to date. Assessor Martinez committed, while campaigning, to reassessing all properties next year in person—but for now assessments are done by computer unless it’s a new home or the property changes hands.
The specific issue of the rise in values for affordable housing owners, however, wasn’t raised in the election debate.
In a recent conversation, Martinez told SFR the recourse for such home-owners is to file a protest.
“Then we will take a look at it and, if indeed it was a computer problem or a manual problem, that protest will allow us to decrease the value to where it should be,” he said.
In one sense, a protest is the only option for homeowners. Under New Mexico’s disclosure laws, the criteria a county assessor uses to calculate property values aren’t public record until a particular case is protested. And even then—as with the Internal Revenue Service—the burden of proof is on the citizen protesting, not on the County Assessor’s office.
Last year, the office received approximately 1,400 protests—approximately 420 of which the office contested. Domingo Martinez says this is a normal figure given the size and number of units (approximately 87,000) in Santa Fe County.
Once they learned a protest was their only course of action, Matheny, Carroll and several other ElderGrace residents went to the county’s downtown offices to protest the new assessment. Like DeMack, they’re waiting to hear back from Martinez.
But to Loftin, the responsibility to ensure that home valuations are correct shouldn’t be solely theirs.
“If the assessments are not passing the smell test, then [Martinez] should want to know,” Loftin says. “The only check on that should not be someone protesting; there should be some kind of quality control.”
DeMack, meanwhile, is plowing through public-records requests in an attempt to get to the bottom of her home’s high value. But the more research she does, the more questions arise.
“Why is my valuation—or anyone’s—jumping by leaps and bounds?” DeMack still wonders. “Why this disparity in this tiny little subdivision? The homes could hardly be more comparable. If those who claimed the affordable housing [tax break] are the only ones going up, why is that? Is it just sheer coincidence?”
For DeMack, that’s a $314,090 question.