Santa Fe, New Mexico
“The City Different” Continues to Stand Out from the Crowd in 2024
By Carole VanSickle Ellis
In 1912, when New Mexico became the 47th state in the United States, its capital city, Santa Fe (“Holy Faith,” an abbreviation for the original name La Villa Real de la Santa Fe de San Francisco de Asís, or the Royal Town of the Holy Faith of Saint Francis of Assisi), was already more than three centuries old.
Founded in 1610, Santa Fe boasts incredible weather with more than 320 days of sunshine each year, carefully preserved historic architecture, and a booming real estate market. However, while the city is still making lists for housing appreciation and even made the 2023 nSkope Predictive Analytics list of cities where retirees are most likely to sell their homes for a profit, the real estate market in the “City Different” appears likely to remain, well, a little bit different for investors interested in the American Southwest.
“We continued to see some price appreciation at the end of 2023 and into the first quarter of 2024, however…we are seeing pullback from buyers,” wrote Barker Realty analysts in the brokerage’s Q1 2024 Market Digest residential market report. The team noted Santa Fe “feeder markets” like Austin, Texas, have already begun to show signs of cooling and observed, “Santa Fe has typically lagged behind the major markets when these shifts occur, and, in March, we began to see the first signs of a cooling locally with homes staying on market longer than they have since before the pandemic.” Total units sold in Santa Fe County dropped by 28% year-over-year in March 2024.
By May of this year, the decline in demand seemed to be leading to a leveling off of home prices in the Santa Fe area as well, with home values hovering just over $580,000, a 4.2% price change year-over-year (vs. a 51.9% price increase since May 2019). In 2023, in response to skyrocketing home values during and after the COVID-19 pandemic, the Santa Fe city council had resurrected a Great Recession-era 3% tax on transactions for homes valued at $1 million or more. At that time, more than 400 homes priced higher than $1 million were being bought and sold annually in the Santa Fe area.
However, that effort was struck down by a First Judicial District Court judge in May. Interestingly, it appears nearly three-quarters of Santa Fe voters support the so-called “mansion tax,” so investors in the area should monitor developments around the policy.
Relaxed Building Codes Create a Friendly Environment for New Multifamily Construction
Another result of local concerns about the lack of affordable housing in the Santa Fe area has been the ongoing relaxation of regulations governing “vertical building” in the metro area. Vertical structures have multiple floors, and most people think of skyscrapers and high-rise multifamily condominiums or apartments when they hear this term.
In the Santa Fe area, there is a centuries-old trend of intense concern over the preservation of the city’s historic architecture, which is reflective of the low-slung (horizontal), adobe structures encountered by the Spanish when they began exploring the region in the 1500s. At that time, Pueblo Indians were living in much of the Rio Grande Valley in “multifamily” buildings that could house hundreds of households and were sometimes several stories high.
Spanish colonists used the same mud-earth-and-straw construction materials to make bricks for homes with round walls, corner fireplaces, flat roofs, and covered porches. These buildings were the predecessors of the Spanish Pueblo style that remains popular (and in the case of older buildings, protected) in Santa Fe today, and they played a key role in Santa Fe’s decision to dub itself “The City Different” in response to the “City Beautiful” movement of the early 20th century. Local planners at the time explained the city was already beautiful, so they would focus on elements that made it unique instead.
In an effort to protect historic buildings and cultivate architectural tourism, buildings erected in the original style and original “horizontal” height of just a few stories in the Santa Fe region are often protected by historic preservation policies. Santa Fe is one of the National Trust for Historic Preservation’s “Dozen Distinctive Destinations in America” as a result of this architectural heritage, and construction higher than 25 feet in height is still carefully regulated, although housing ordinances passed in 2016 did remove many roadblocks to developing multifamily residential development for builders willing to pay a fee to the Santa Fe Affordable Housing Trust Fund.
“Our version of density is three stories,” said then-mayor Alan Webber in a statement about the policy. He explained the move was designed to create more housing in the area while preserving “Santa Fe’s small-town feel, architectural heritage, and mountain views.” Because the fee negates developers’ obligations to preserve 15% of new multifamily units for affordable housing, the result of this policy has been a slew of mid-rise, luxury-living developments. Local investors report the most attractive of these are located in walkable areas, pet-friendly, and offer high-end amenities like quartz countertops, “wood-style” flooring, and high ceilings. These buildings offer high-end, multifamily living and cater mainly to affluent professionals and their families.
A Concerted Effort to Support Construction & Renovation
Since 2020, when Santa Fe was fully involved in the pandemic-era “zoom town” phenomenon, city planners and legislators have remained laser-focused on creating policies to support the creation and construction of properties priced in such a way as to be realistically available to buyers and renters in the area. Examples of these programs include $50,000 no-interest loans and grants for homeowners to renovate existing homes after purchase and financial support for developers building affordable rental units.
The local lack of affordable housing has impacted Santa Fe school systems because even with recent pay raises, many Santa Fe teachers say they cannot afford to live in the metro area unless they opt to rent with roommates. In response, the city’s branch of the National Education Association (NEA) is supporting a plan to develop staff housing between two local schools. “Housing can be seen as a necessary recruiting tool,” said NEA-Santa Fe president Grace Mayer, noting that currently the school system has “even more vacancies than we did last year, and this is after we all got a raise.”
The Santa Fe Public School System is, as are most systems, something of a mixed bag, with some schools listed among the top 10% in New Mexico and others flagged for intervention. Investors who identify ways to create housing options for educators could find a variety of public and private support programs available for those investments.
The pandemic also created a thriving short-term rental economy in Santa Fe, with the market leaping 30% between 2020 and 2022. Short-term rental-related monthly income still typically surpasses $4,000, and cash-on-cash returns are nearly 4% according to Mashvisor. In recent years, budget and economy properties have experienced growth rates in excess of 20%, and property owners are currently permitted to own more than one vacation rental in a residential area as long as all permitting requirements are met. While Santa Fe short-term rental regulations are not entirely easy to accommodate, as long as the area remains attractive and unique, investors will likely continue to find it is worth the trouble.
Thanks to a wide variety of industries and commercial activity in the area, including scientific research associated with the Los Alamos National Laboratory and technologies related with national defense, nuclear weapons and deterrents, energy production, health, and safety as well as emerging sectors like healthcare and light manufacturing, Santa Fe shows every sign of remaining an attractive market for short- and long-term rentals for years to come.
The city is also home to the Santa Fe Business Incubator, considered to be one of the best incubators of this kind in the country, and state programs and development projects supporting new and expanding businesses. State financial incentives include research and development (R&D)-related tax deductions, tax credits for businesses creating high-paying or tech-sector jobs, salary supplements for new hires, property-tax exemptions, and lab partnerships for small businesses. Overall, the “City Different” is clearly continuing to stand out in real estate in 2024.
SIDEBAR
Top Santa Fe
Regional Employers
» State of New Mexico
» Los Alamos National Laboratories
» Santa Fe School District
» City of Santa Fe
» St. Vincent Hospital
» Santa Fe Opera
» Santa Fe Community College
» College of Santa Fe
» Presbyterian Medical Services
» County of Santa Fe
» Cities of Gold Casino
» Camel Rock Casino
» Strategic Analytics
» Thornburg Companies
