The City of Santa Fe wants to tweak its inclusionary zoning laws in an effort to better meet the challenges of a tight housing market—particularly for people looking to rent.

The Office of Affordable Housing says it wants to craft affordability requirements that are both attractive to the industry and meet the city's crushing housing needs. Developers are still skeptical, but some are working with the city to evaluate ideas.

Anyone renting in Santa Fe knows from experience how hard it is find a space that meets one's budget, needs, and desires in a city where occupancy rates remain around 98% and rents continue to rise. Yet the situation has proven difficult for city officials to fix. The inclusionary zoning laws currently on the books have not exactly worked as hoped or planned.

Currently, developers who want to build multi-family rental complexes must either set aside 15% of units for qualified low-income tenants while the rest are rented at market rate, or they must pay a fee-in-lieu to the city that is put towards 100% affordable developments built by nonprofits or the local housing authority.

The proposed amendments to the law, however, would keep the fee-in-lieu option while incrementally increasing the amount. They also stand to create a new option to encourage developers to build rent-stabilized developments aimed at middle-income renters, and add extra incentives for developers to include affordable units for the low-income bracket.

The high-end Railyard Flats apartment opened last year.
The high-end Railyard Flats apartment opened last year.

These changes, Office of Affordable Housing Director Alexandra Ladd explained at a Community Development Commission meeting earlier this month, attempt to create "market-based solutions" to a supply and demand problem that has left the average Santa Fean scrambling to put a roof over their head.

The current 15% affordable unit requirement, implemented in 2006, was intended to discourage gentrification and create more diverse, multi-income communities by incorporating affordable units into every new rental development. But in reality, the regulation and its timing just a few years before the bottom dropped out of the real estate market stopped developers from building any new for-profit rental complexes at all for a whole decade.

Ladd notes that 100% affordable housing developments built by nonprofits or government agencies to serve very low-income tenants were the only new rental units added to the market. But for the majority of residents, rising demands and a fixed supply of apartments meant that landlords could keep raising rents.

In 2016, the city implemented the fee-in-lieu as an incentive for developers to start new construction.

"What sparked that change was that for 10 years we had not had a single market rate multi-family rental proposed for our market. And part of that was because of the recession, but the other piece of that was that the 15% on-site requirement was impossible [for developers] to finance," Ladd tells SFR.

The fee-in-lieu regulation did encourage new development: 2,000 units have been approved since 2016 and roughly 1,000 are currently under construction or awaiting permitting. But none of these new complexes include units that are affordable by definition.

Josh Rogers, director of development at Albuquerque-based company Titan Developments, consulted with Ladd about the proposed amendments.

"The goal is to create three options that all look equally appealing to developers, so that we can create a healthy housing market in Santa Fe," Rogers tells SFR. "From our standpoint it would be great to provide a mixed income community in the city of Santa Fe. Affordability is such a huge challenge in Santa Fe and so if developers come to the table wanting to do this, the city needs to come meet them half way."

Titan is building the Broadstone Rodeo development off St. Francis Drive on the southeast end of town. With 188 apartments, it's the biggest new project under construction in Santa Fe and units should be available as early as November at market rates that will be determined 60 days in advance. Titan paid a fee of approximately $235,000 to avoid doing affordable units.

Even with the amount of the fees set to double by 2021 as per the new amendments, Rogers says the fee-in-lieu would still be the most attractive option for operations like his.

He's skeptical of the second option aimed at middle income tenants in which all units in a development would be rented at HUD's "fair market rent" for the area. Renters would have to earn below 120% of the area median income to qualify. Units would be cheaper than market rate, but more expensive than official affordable housing, and in exchange the city would reduce the costs of all other fees and permits for construction by 15%.

Rogers says the city would have to waive a greater percentage of fees and lower the percentage of low-cost units for this second option to work for developers.

He's much more optimistic about the third option, which keeps the requirement for 15% of units to be affordable, but waives 30% of permitting fees and includes a contract with the Office of Affordable Housing to pair developers with local organizations such as The Life Link to find and manage qualifying low-income tenants, causing less of a hassle for developers.

It's still not a perfect solution from a development perspective, says Rogers, but it's close.

The proposed amendments are still being modified and must be presented to city committee meetings open to the public before a public hearing and final vote from City Council, tentatively scheduled for Oct. 30. The next presentation is scheduled for Sept. 19th at 6 pm at the Planning Commission meeting. A summary of proposed amendments, upcoming meeting schedule, and contact info can be found at the city of Santa Fe Office of Affordable Housing website under the Santa Fe Homes Program.