Santa Fe is considering a tax on mansions as housing prices rise

SANTA FE, N.M. (AP) — Voters are deciding whether to tax mansions to pay for affordable housing initiatives in a state capital known for its desert mountain scenery, vibrant arts scene and stucco architecture rooted in American and Spanish colonial traditions.

The tax on homes sold for more than $1 million is being introduced as a lifeline for teachers, service sector workers, single parents and young professionals who can’t afford local mortgages or struggle to pay rent amid a national housing shortage and people’s access to homes. Santa Fe is a high-income digital nomad and wealthy retiree.

The Nov. 7 ballot measure is the latest indicator of the popularity of so-called mansion taxes to fund affordable housing and stave off homelessness. This comes on the heels of a voter-approved initiative in Los Angeles and new proposals from Chicago to Massachusetts.

Suggestion or offer

If approved, the measure would add a 3% tax on residential property sales worth $1 million or more — with no tax on the first $1 million in value.

For example, for a $1.2 million home sale, the new tax would apply to the $200,000 value. The buyer will pay $6,000 to the city’s Affordable Housing Trust Fund.

The city estimates the tax would generate about $6 million annually for the fund, which guarantees affordable housing, down payment assistance for low-income homebuyers, and rental assistance to stave off financial hardship and evictions.

The fund awards money each year to affordable housing providers who can secure matching funds from other government and nonprofit sources, explained Alexandra Ladd, director of Santa Fe’s Office of Affordable Housing.

But Santa Fe voters have shied away from high-profile tax initiatives in the past, rejecting a similar proposed 1% tax on high-end home sales in 2009, and rejecting a tax on sugary drinks to expand early childhood education in 2017.

Affordability crisis

Second-term Santa Fe Mayor Alan Weber, a Democrat, supports the tax and says rising housing costs threaten the “heart and soul” of the city.

“We’re attracting people who can use Zoom to work somewhere else and live in a great place with a great climate, culture, history and food,” he said. “We’ve become an attraction, and we don’t want to lose the local community that has lived here all their lives, or for generations, and suddenly see diversity only give way to people with higher incomes.”

The proposal has received support from a group of local businesses, labor unions, school board members, former mayors and Democratic US Senator Martin Heinrich.

“The housing crisis in this city is atrocious,” said Susan Coulter, a retired scientist, who supports the tax despite concerns about the city’s fiscal controls.

Mansion taxes

Cities and states are showing renewed interest in taxes on high-value real estate transactions to address housing affordability, according to Samantha Waxman, deputy director for state fiscal policy at the Washington, D.C.-based Center on Budget and Policy Priorities.

Los Angeles voters last year approved a graduated tax on residential and commercial property sales — starting at 4% for sales over $5 million — to address the housing shortage. Chicago may ask voters next year whether to raise taxes on real estate transfers, starting with sales over $1 million, to combat homelessness.

An October proposal from Democratic Massachusetts Gov. Maura Healey would allow local governments to impose a real estate transfer fee of up to 2% on property sale proceeds exceeding $1 million — or the median home sale price in the county if it is greater.

“We’re looking at these high-value homes that are being bought and sold,” Waxman said. “Then there are also these challenges of affordable housing, increasing housing prices in general, difficulty affording rent and difficulty buying.”

Building prosperity

Located at the southern tip of the Rocky Mountains, Santa Fe is in the midst of a building boom, with thousands of recently approved housing units gradually coming online within city limits since 2021 — including a host of multifamily housing projects.

Subsidized housing advocates say that has not translated into accessible prices, as most new units are rented at free market rates that can strain personal or family finances.

Meanwhile, the city’s median home price has nearly doubled since 2017 to about $600,000, an analysis commissioned by the city found.

“People are moving here with wealth that far exceeds the purchasing power of local workers, which lowers housing costs for these workers,” said Daniel Werwath, executive director of New Mexico Interfaith Housing, a low-income housing nonprofit. “I think we got into a pretty crazy feedback loop.”

Skeptics

The Santa Fe Association of Realtors says the proposed tax exceeds the city’s authority under state law, and has filed a preemptive lawsuit to block it.

Drew Lambrich, the association’s president, says the change will impact home sales and, ultimately, the local economy.

“There will be people who decide to buy elsewhere and don’t like the split on that item,” he said.

At an early voting polling station downtown, retired architect Rita Meek said she feared the tax would heighten tensions between relatively wealthy enclaves and mostly working-class neighborhoods.

“I think we should be more united,” she said.

But her husband, Peter Meek, supports the tax.

“We are losing a lot of our workforce: teachers, police officers, construction workers,” he said. “People who can afford a million-dollar home should want to help.”