Even though the New Mexico Legislature has made historic investments of roughly $500 million in recent legislative sessions to address the state’s housing shortage, prominent New Mexico affordable housing developers told lawmakers Monday they are having trouble accessing the funding and building new homes.
The interim legislative New Mexico Mortgage Finance Authority Oversight Committee invited the developers to outline challenges they face building new housing in a state that lacks at least 34,000 units. The developers described a frozen housing market in Albuquerque and elsewhere, driven by uncertainty in funding, property tax hikes and inflated construction costs.
To thaw the market, developers said, the Legislature should ensure that developers can count on future funding through recurring, rather than one-time, affordable housing funding; consider statewide legislation to prevent surprise property tax hikes on multifamily developments; and expand tax breaks on sales taxes for construction materials.
“This lumpy, one-year funding makes it really difficult to plan as an affordable housing developer because of just the restraints and restrictions we have,” Felipe Rael, executive director of nonprofit developer Sol Housing, said, noting that predictable funding could have helped his organization finalize a project to bring 280 new units to Bernalillo County.
Other developers, including Mackenzie Bishop of Abrazo Homes and Josh Rogers of Titan Development, pointed to property tax reassessments as imposing huge uncertainty on developers. They recommended the Legislature create laws similar to those in Texas or Washington that enable counties or cities to waive property taxes for developers who agree to build more housing.
Without such a change, developers are reluctant to build new properties for fear of a sudden, sharp property tax increase.
“So the market has frozen. We’re not building, no one’s selling and so we’ve got a real problem in our hands,” Rogers said.
The developers also asked the Legislature to expand a new gross receipts tax deduction the Legislature included in this year’s tax package. The deduction allows contractors and builders of affordable housing to deduct sales taxes for affordable housing projects.
While the credit doesn’t go into effect until next year, the developers said they have seen signs that it is already factoring into cost assessments for new projects, and they asked the Legislature to expand the deduction to other housing types, including middle-income housing.
“I do think that the projects that are in the queue are going to benefit greatly from that. Hopefully, that return of capital will spur developers to reload and hopefully do another project,” Bishop said.
Unlike neighboring states like Arizona and Texas, New Mexico has never returned to its housing production from before the 2008 financial crisis, according to data Bishop presented. The result is an “underbuilding gap” of roughly 66,000 units accumulated in the years since the economy recovered from the crash.
“We’ve been not building enough houses by a pretty significant margin for 20 years,” Bishop said. “Despite this housing shortage and this gap, we’re building less houses every year. We’re getting further away from the solution.”
