Court gives Santa Fe’s ‘mansion tax’ the green light. Can it make housing affordable?

The city of Santa Fe’s newly legal “mansion tax” on luxury real estate is a step in the right direction to redistribute wealth, experts say, but the city still has a long way to go to solve its affordability crisis.

The tax applies to homes sold for more than $1 million within Santa Fe city limits, adding a 3% charge to the amount of the sale price that exceeds the million-dollar threshold. A house priced at $1.5 million would be subject to a tax of 3% on $500,000 under the law.

The money will go into the city’s Affordable Housing Trust Fund, which provides housing support to Santa Feans in the form of rental assistance, down payment assistance, foreclosure prevention and help for those experiencing homelessness. Advocates say the measure could net as much as $6 million annually for the fund.

“Any money that flows to increasing any units of housing is helpful,” said University of New Mexico finance professor Reilly White. “To really make a dent in the affordability of Santa Fe, you have to be talking about tens of thousands of units that won’t be encapsulated by this tax alone.”

The mansion tax moved forward after a New Mexico Court of Appeals ruling on Monday. City officials and advocacy groups celebrated the ruling as a victory for housing affordability, but the Santa Fe real estate agents who oppose the tax say the fight isn’t over yet.

Santa Fe voters approved the tax by a margin of 73% in a 2023 election, though the vote kicked off a lengthy legal battle by a group of Santa Fe real estate agents, who sued the city on the basis that the tax is a violation of New Mexico state law, which dictates that cities and counties cannot set their own property taxes. Last May, Judge Bryan Biedscheid ruled in favor of the real estate agents that the tax was unlawful.

City attorneys challenged the ruling, arguing the tax was on the sale price of the home, rather than the value of the property. Monday’s ruling means the city of Santa Fe won its appeal, after the court found the plaintiffs lacked the standing to challenge the ordinance. Plaintiffs could potentially challenge the ruling in state Supreme Court.

“This is another landmark win for the city in addressing affordable housing needs,” Santa Fe Mayor Alan Webber said in a statement. “It will go a long way to providing funds to build more affordable housing units. People working in Santa Fe deserve to live in Santa Fe.”

The median sales price of a home in the city of Santa Fe is $612,500, according to the most recent data from the Santa Fe Association of Realtors. Santa Fe’s median household income was $70,110 in 2023, according to census data.

“With these costs so high, it’s just really difficult for anyone to be able to get into home ownership,” said Veronica Toledo, director of policy and advocacy at Homewise, a nonprofit that supported the measure.

One in three people who work in Santa Fe live outside of Santa Fe County because they can’t afford housing there, Toledo said, citing data from the U.S. Census Bureau.

“We are thrilled that the court upheld the tax, affirming, really, the will of the people,” she said. “People who can afford a million-dollar home can afford this 3% tax.”

The city of Los Angeles implemented a similar “mansion tax” in 2023, imposing a 4% tax on real estate sales between $5 and $10 million, and a 5.5% tax on sales above $10 million.

Since it began, the measure has raised around $830 million for affordable housing construction, CalMatters reported, though its opponents have been fighting it since it went into effect.

A “mansion tax” is essentially a tool for redistributing fiscal burdens away from people with lower incomes towards those with higher ones, said White.

There is the potential for homebuyers and sellers to engage in “transaction distortion,” White said, by delaying listings, offering lower bids, or pricing homes just under the threshold in order to avoid the tax, though the concerns are relatively minor, he said.

The Santa Fe Association of Realtors — which was among the plaintiffs in the suit, along with real estate agents Kurt Hill and Richard Newton — said it was “disappointed” by the court’s decision in a statement Monday, and said that the organization will “continue to argue” that the tax is “unlawful.”

Despite its opposition to the tax, SFAR “strongly supports housing for all,” the organization said.

“Affordable housing is good for the community, good for the local economy, and good for the real estate industry,” the statement said. “The association stands ready to work with all elected leaders to identify viable, equitable and effective ways to fund and grow affordable housing for all.”

Richard Newton, one of the plaintiffs in the lawsuit to block the tax and a Santa Fe real estate broker, said he was opposed to the measure because he felt the tax was too high and because he doubted the city’s ability to manage the money effectively.

“My concern about this tax was that I felt it to be an overreach — greedy,” Newton said. “My perception is simply that it was a money grab.”

Newton — whose own Santa Fe home, listed for $3.5 million, recently sold — said he would have reacted differently to the law if the tax had started lower, at 1%, and increased gradually as the years went by.

“I’m hopeful, even though I haven’t seen it, that the city will come up with some creative ideas and some well-designed ideas to let that money positively impact the housing situation in Santa Fe, but time shall tell,” he said.

He anticipates the impact of the tax on the real estate market within the city to be negligible.

“Obviously, it will have some impact, but I’m not sure it’s going to be the kind of impact that really changes buying and selling patterns dramatically,” Newton said.

Most of the transactions on houses over $1 million in Santa Fe are paid in cash, he added.

“People paying cash typically have resources that enable them to absorb these kinds of financial hits,” he said.