Build it and the rents will drop.
That was the well-worn theory before the pandemic.
But Santa Fe’s apartment building boom — at least 15 projects have started since 2018 — hasn’t led to the expected drop in rates. In fact, due to various factors exacerbated by COVID-19, they have increased.
Rents have soared across the country and in Santa Fe, even with five new apartment complexes and 867 units open or set to open in the city over the past year.
The reason: Experts say Santa Fe’s demand continues to outstrip its availability, regardless of how many units are open.
“It’s really a function of supply and demand,” said Billy Eagle, senior vice president of commercial real estate services firm CBRE in Albuquerque. “Rents will continue to climb as job growth continues and supply remains below demand at this time.”
The job growth is largely tied to the Los Alamos National Laboratory, which plans to create 500 jobs in Santa Fe and has hired 3,679 people in Los Alamos since 2019. The lab plans to add more to the least 1,200 per year until at least fiscal year 2024.
The lab already has about 2,900 employees living in Santa Fe, according to a LANL economic impact report for fiscal year 2020.
Los Alamos-bound employees have been prime candidates for Santa Fe’s newest apartments, where the starting line for rent is nearly $1,700 a month.
“A lot of it was Los Alamos, 30-40%,” said Joshua Rogers, senior vice president of Titan Development in Albuquerque, which built the 188 Broadstone Rodeo apartments (since renamed Olympus Rodeo) and 139 Capitol Flats on Road to Cordoba.
“We had people from Las Vegas, Española and Albuquerque working in Santa Fe,” Rogers said. “Less than 10% came from out of state.”
People have recently started moving into Santa Fe’s 180 Markana apartments on Richards Avenue. The tenant mix is expected to be young professionals, Los Alamos professionals, retirees, and empty nests.
Elevation in Vizcaya off St. Francis Drive near Interstate 25 is a balance between young professionals and seniors who are downsizing, said Santa Dettore, director of development at Northland Investment Corp., which owns and operates the properties of Vizcaya.
Of the 15 apartment complexes in various stages of construction and recent completion, only two qualify as affordable housing: Siler Yard with 65 units and Soleras Station with 87 units.
Almost all other recent apartment projects are opting to pay city fees instead of meeting the 15% affordable unit requirement.
In May, the city increased its Affordable Housing Trust Fund from about $600,000 to $3 million.
The trust fund provides down payment assistance to eligible home buyers as well as rental assistance for very low income tenants and real estate and infrastructure financing for non-profit developments.
But some market experts say more needs to be done to ease the pressure on tenants and buyers.
“I think $3 million is woefully insufficient,” said Jen Erixon, senior vice president of Los Angeles-based Alliant Capital, an affordable housing investor. “I think you need double that, and you need it year after year after year. The words I use are that the funding must be permanent and reliable. The city must identify a reliable source.
Councilwoman Renee Villarreal, who heads the city’s Community Development Commission, wants to see a general duty similar to Albuquerque’s Workforce Housing Opportunity Act, where a certain percentage is set aside for housing of the work force.
“The city needs to spend at least $3 million a year to deal with the scale of the problem,” Villarreal wrote in an email. “I would like us to prioritize any city-owned land for affordable housing development, even if that means we donate portions to secure affordable housing.”
Villarreal, like Erixon, wants to see more money in the Affordable Housing Trust Fund.
“We absolutely need to identify revenue streams that would provide sustainable, predictable, equitable and consistent funding for the [trust fund] with the aim of expanding access to housing opportunities for all residents, especially the most vulnerable and precarious,” Villarreal wrote. “We need… a long-term solution to finance the [trust fund] annually.”
But money alone can’t solve the problem, said Daniel Werwath, chief operating officer of New Mexico Inter-Faith Housing, an affordable housing developer and property management company that recently completed construction of Siler Yard. , the affordable housing complex that targets artists.
Werwath is on a crusade to change the zoning to allow for the construction of smaller multi-family dwellings in residential neighborhoods. The apartments are considered commercial — not residential — projects in Santa Fe, he said.
“We need to build 200 affordable homes a year and we need to do that for 10 years,” Werwath said. “We don’t have the tools to do it. We don’t even have the land zoned for it.
The solution Werwath envisions is no more than 200-unit apartment complexes.
“I want to legalize up to four rental units in residential neighborhoods,” he said. “This would help strengthen the offer. No one wants a ton more of these great rental properties.
Construction costs across the country have risen 18% over the past year and had already increased by double digits in previous years, according to Associated General Contractors of America.
Siler Yard cost $18.77 million to build and was funded by a competitive $10.4 million federal low-income housing tax credit and other funding from HUD, the Federal Home Loan Bank of Dallas, fee and permit waivers and the donation of city-owned land valued at $1.1 million.
This allowed monthly rents ranging from $427 to $985, depending on income restrictions.
“My quick math using Siler Yard’s development costs means you need to charge over $2,000 a month to cover development and operating costs to such a level that a bank will finance a project,” without all the grants received by the project, Werwath said.
Alliant has invested in affordable housing projects in every state, but is wary of New Mexico.
“One of the challenges of so little affordable housing being done in Santa Fe is the limited resources from city, state and federal sources,” Erixon said. “It’s New Mexico. We have a small population here. Federal funds are allocated based on population rather than housing need. Other states have implemented state tax credits for affordable housing. There are very few tax credits in New Mexico compared to other states.
Santa Fe’s apartment woes match the entire country, with an overall rental vacancy of just 5.8%. That’s the lowest point since the mid-1980s, according to America’s Rental Housing 2022 report, compiled by Harvard University’s Joint Center for Housing Studies.
“As a result, charging rents for all professionally managed apartments [in the U.S.] soared in the third quarter, driven by a 13.8% jump for units in higher quality buildings,” the Harvard study reported.
The Harvard researchers also found that 23% of households with annual incomes below $25,000 were behind on rent, as were 15% of renters with incomes between $25,000 and $50,000.
But there’s an additional factor in Santa Fe: For 15 years, the only apartments that were built were the 176-unit San Isidro Apartments and the 58-unit Railyard Apartments after the city’s 2004 ordinance requiring that 15% of units follow affordable housing guidelines. .
“We haven’t even closed the gap of the last 20 years,” Werwath said. “We have a lot of market-priced apartments coming in at the same time.”