In the years since Santa Fe began requiring rental housing developers to make 15 percent of units in any new development priced at an affordable level instead of the market rate, only one multifamily housing development has been built: the San Isidro Apartments near Cerrillos Road and Zafarano Drive.

So Santa Fe City Council has voted to change the definition of "extreme hardship" and amend the requirements for rental units to allow developers to pay a fee-in-lieu of building those affordable units. The hope is that by loosening these requirements, Santa Fe will see more rentals built and the basic economics of supply and demand will take over to rein in runaway rental prices in Santa Fe and make it possible for more of the city's workforce to afford living here.

"The more we try and tighten it up, to where it becomes so onerous to a developer, the less supply that's going to go out there and ultimately I think we have to try to find that right balance so that a development is reaching the intended individual who needs access," said Mayor Javier Gonzales, who worked with Alexandra Ladd, housing special projects manager for the city, to bring the measure forward with a goal of reducing barriers to increasing the supply of housing in Santa Fe. "We have to find a way to get more, to encourage more apartments to go up and more rental housing to go up into the community but also figure out how to generate a source of funds that can help individuals needing access to down payment assistance or just needing to hold on, needing some rental assistance or payment assistance."

As written now, the Santa Fe Homes Program requires developers to build homes priced for those who make as little as 50 percent or less of area median income. When developers approach banks asking for money for a housing development, they have to factor in that 10 percent of units may be unoccupied at any given point in time, and when you add to that 15 percent of units that won't ever make money, Ladd told council, banks simply don't see a financially viable project:

"They're kind of dead in the water with this requirement in place as written," she said. And it's not just the cost of building these units, but of running them. "You've got a hit on your operating budget year after year after year."

A fee up front is a more absorbable soft cost, and so the ordinance will now allow developers to instead pay a fee, which could be rolled into the city's rental assistance fund to help people in financial crisis cover their rent for a few months while they get back on their feet or help fund a 100 percent affordable housing development. Developers could also donate a parcel of land or contribute some other kind of resource to the city that meets a demonstrated need to be determined by the governing body. The Community Development Foundation makes the first recommendation on how funding would be spent, though the New Mexico Mortgage Finance Authority makes the ultimate decision on whether a specific allocation is allowable and a list of allowable resources are outlined by the New Mexico Affordable Housing Act.

The Santa Fe Association of Realtors and representatives from Titan Development and Tierra Concepts spoke in support of the rule change, which they said was a step toward jumpstarting development in Santa Fe.

Since 1993, employment and population in Santa Fe have grown by about 14,500 people, said Josh Rogers, director of multi-family projects for Titan Development, and about 15 percent of those people would be expected to live in rental housing—a demand for an increase in rental units by 2,550.

"Obviously, that has not happened," Rogers said. "Due to this shortage, there's a classic case of supply and demand. If supply is fixed and demand is increasing … the average rental rates will increase."

And they did in Santa Fe by 6.25 percent last year, causing more people to move out of town and need to commute back in. And because aging apartment complexes have little new competition, they haven't been subject to the normal depreciation as newer developments come online, and that evolution alone could bring their rents down to $500 or $600 a month, from an average that now hovers in the mid-$800 range.

"We know from the last census how profoundly we're losing people, our workforce, in Santa Fe … and it's an economic and social impact we just can't sustain," said Keith Gorges, a partner with Tierra Concepts, drafter of the El Rio development on Agua Fria proposed and voted down earlier this year, who also spoke in favor of the bill. "We also know the housing needs assessment study we did a couple years ago showed the cost of housing is one of the biggest contributors to the exodus."

He characterized the current housing ordinance as producing the unintended consequence of actually exacerbating that problem, rather than alleviating it, and pointed to the experience with El Rio as an example of that. The nearly 400-unit apartment complex was voted down in part over objections to its size, which was required as an economy of scale to cover losing money on those the 15 percent of units rented below market rate, he said, and because those units would be set apart—"that's because the bank would not bank us. It's not a matter that we didn't want to [integrate] it, it's that it's not possible economically."

This measure wouldn't cure the serious and growing problem, but it would help, he said.

Opponents of the bill charged that it will increase segregation in the city, allowing all affordable housing to be built away from market rate apartments, rather than integrating them.

"I'm not really in support of this amendment, however I do see that it's almost inevitable and I say that because the city has not approved very many affordable rental housing projects," Stephanie Beninato said during public comment. "I understand the problems with that—getting financing—however I am also concerned that the affordable housing becomes segregated into certain parts of town."

With developers able to pay a fee instead of shouldering the long-term costs of maintaining affordable units, she asked, is the affordable housing component being short changed?

Councilor Joseph Maestas echoed that concern, questioning whether this one-time fee would allow developers to circumvent permanently affordable housing, ultimately making a negligible increase in the city's affordable rentals.

The expectation, according to Ladd, is that as supply increases throughout the city, prices should come down in every neighborhood, which could decrease segregation.

"If there's more of an overall market benefit, because the more unite that come online will bring down rents, and will open up choices in different parts of town," she says. Though there's only so much that can be done in some places, she said: "Quite honestly, most of us in this room can't afford to live in every neighborhood. That ship has sailed, in terms of home ownership at least."

Gonzales said at this point, the council needed to do more than "sit up here and say 'I wish it was this or I wish it was that, because all we're going to get is the same old thing," and called that "the definition of insanity."

"The more we create barriers to where they can't access housing, the more they're going to take their money and spend it elsewhere," Gonzales said, a reference to the problem with decreased gross receipts tax collection in the city, a model that relies on those who work in Santa Fe to stay in Santa Fe to spend their disposable income on taxable goods and services. The hoped for result of this measure is that it will both increase the number of people who can work and live in Santa Fe, but provide some money for city residents at their neediest times, when rental assistance can keep them in their homes.

Councilors voted 6-1 in favor of the bill, with only Maestas opposed.

Before casting his vote in favor, Councilor Ronald Trujillo said, "I think we all have reservations … and I guess my concern is, if we do pass this, you guys say you're going to come build these apartments, I can already tell you where they're going to be built—two districts. … Because there's two districts in this down that are pretty much sacred."

The amendment has a sunset date set in four years, with staff review scheduled in three to see if the change has had any affect on bringing multifamily units to Santa Fe.