When it comes to building more housing to meet New Mexico’s great needs, we seem to get in our own way.
Recently, affordable housing developers – two for-profit and one non-profit – told a legislative interim committee that the market is paralyzed for a host of reasons.
The Housing Abundance Coalition (members include industry, housing and legislators) documents the need at 34,000 units statewide, an $11.9 billion problem, although Mackenzie Bishop of Abrazo Homes was quick to say, “Money alone won’t solve the problem.” He also said, “Government alone can’t fix it.”
Hence, the coalition.
Developers primarily described conditions in Albuquerque and Santa Fe, but discussion afterward made it clear that the situation is far worse in rural areas.
At a meeting of the New Mexico Mortgage Finance Authority Oversight Committee, Bishop described 20 years of underbuilding in New Mexico.
Why? Because approvals from local governments take so long (in Santa Fe, up to four years) that it drives up costs, uncertainty and risk for developers. As they wrangle approvals, they’re also competing for financing against less risky projects in other states, so capital costs rise.
It will take 12 months and $2 million to get permits and close on financing, said Felipe Rael, of the nonprofit Sol Housing. “We need certainty. When we get a no, that’s $2 million our organization is out. We can’t deliver units if we don’t start them.”
If developers get a project off the ground, they will face a shortage of contractors and subcontractors. With no subs bidding against each other for work, costs go up. And nobody has enough skilled workers.
New Mexico’s gross receipts tax on materials AND labor makes the developer’s sales tax burden twice as high as other states and adds $32,000 per unit, said Bishop, which is passed to renters or buyers. Costs have spiraled for insurance premiums and materials. Local impact and utility fees are up, along with the demand for off-site infrastructure, such as roads and water mains.
“We’re not looking for a free lunch,” said Bishop. “We just can’t keep buying everyone else’s lunch.”
When the project is finished, developers get hit with tax lightening. That’s when the county recalculates property taxes to correct for years of undervaluation and levies a giant tax increase. The owner then has to increase rents or sales prices to compensate.
“The market is frozen,” said Josh Rogers of Titan Development. “We’re not building and no one’s selling.”
Three alarming statistics: Between 2017 and 2023, the state increased homes by 2.9% while the nation added 5.1%. Rents here increased by 60% while the nationwide increase was 29%. And homelessness increased in the state by 87% compared with 40% nationally.
Legislators have spent $500 million in the last few years to help, but “one-time funding doesn’t allow us to make investments,” said Rael, and the program’s deadlines and restrictions are unworkable. “We need consistent, dependable funding grants.”
This year legislators passed SB 151 to remove gross receipts taxes on affordable housing projects, but the provision hasn’t yet taken effect and it sunsets in three years. Two bills that tried to address tax lightning failed and will be reintroduced in 2027.
Sen. Nicole Tobiassen, R-Albuquerque, said: “No developer in their right mind is going to invest in New Mexico when they risk losing everything. It’s the reason I’ve pushed the tax lightning bill for two years. We are in a downward spiral.”
She added: “I’ve noticed that if a bill is deemed an Albuquerque bill it doesn’t get a lot of traction, but if the largest city can’t figure it out, how will the rest of the state figure it out?”
Rural lawmakers observed that their communities had no new housing, and contractors and subcontractors were few and far between.
“We don’t build in rural communities,” Bishop responded. “It’s a huge risk,” meaning he was at risk personally.
The coalition proposes to help to get renters and buyers into affordable housing and into the next tier, workforce-priced homes, or what we used to call starter homes. These homes are the hardest to build profitably, so local developers build fewer every year; as inventory drops, prices spike.
Bishop doesn’t believe subsidies need to last forever and talks about subsidizing “to sustainability” and then phasing out subsidies.
Other proposals: Exempt workforce housing as well as affordable housing from gross receipts taxes. Municipalities must streamline processes, reduce risk, re-examine zoning, and see that fees are reasonable. Educators must rebuild the base of skilled trades. The state should follow other states’ lead in addressing tax lightning and adjust its financing program to operate effectively.
The developers deserve credit for making a clear, candid statement of obstacles to new housing. They’ve opened the door to problem solving.
Sherry Robinson is a longtime New Mexico reporter and editor. She has worked in Grants, Gallup, the Albuquerque Journal, New Mexico Business Weekly and Albuquerque Tribune. She is the author of four books. Her columns won first place in 2024 from New Mexico Press Women.
