Flagstaff has a huge college (23k students), and is 1.5 hours from the nearest major population center, Prescott and Cave Creek (a Suburb of Phoenix).
Quick comparison of populations:
Flagstaff - 73,000 with a college of 23k.
Santa Fe - 83,000 with college(s) under 5k.
As you can see, Flagstaff's Northern Arizona University both provides lots of jobs, but also puts lots of pressure on the city.
In the west, you either live in a huge city like Phoenix, Denver, Salt Lake, Tucson, Albuquerque or so forth, or you live outside of a comfortable commute to those metropolitan areas. In this regard, Flagstaff is isolated, as many people don't commute to-from Flagstaff. If they do (as some of my coworkers do) they must be comfortable with an hour+ commute. It doesn't make any sense to live in a remote mountain town and drive that far to work, especially when our pay scales pale in comparison to that of metropolitan areas, and our housing prices are among some of the highest in the state.
By comparison, Santa Fe is not as isolated. It only takes about an hour to go from downtown Santa Fe to downtown Albuquerque. Suburb to Suburb is about 30 minutes. That mean you can technically live in the outskirts of Santa Fe and commute to a job in the outskirts of Albuquerque.
The other major difference concerning the two towns is that of the National Forest and State Trust lands surrounding each, and the demand on privately owned land in relationship to the downtowns of each city. Santa Fe is only bordered on the east side by National Forest, and it's got about 13 miles to the west before it hits a reservation. Due south of Santa Fe is all privately owned land. While there is certainly pressure on Santa Fe for development by vacationers and retirees, it's nearby or in-town colleges have total enrollment under 5k.
Compare that with Flagstaff, which is surrounded on all sides by Coconino National Forest. There is National Forest land within 1/4 mile of downtown! The only "gap" of substantial size is that of Doney Park, out towards Sunset Crater National Monument. It takes about 25 minutes to commute from that area of the county into downtown Flagstaff, but the housing is cheaper. Windows, Munds Park, Bellemont, Williams are all bedroom communities with slightly cheaper housing, but 30-45 minute commutes.
The biggest influence in Flagstaff is Northern Arizona University. It adds 23k in seasonal population, and estimates say we've got about 13,000 students living off-campus. That's 13,000 people who may not be residents, who may not be year-round, who come into town every year looking for an apartment. They bring Mommy/Daddy Money, they bring OPEC Wealth, they bring California Equity. Obviously, investors see this as a goldmine. As a result, housing within a 3-mile radius of the campus is astronomical. It's not just the prices, it's the demand - anything "decent" gets bought up quick, all cash, and flipped into student housing. it's amazing how many Phoenicians (people from Phoenix) buy property up here just to park their wealth, and beautiful houses in great neighborhoods sit vacant because they bought when housing was cheap (10 years ago) and will make money on those houses even without renting. Want a fixer upper for cheap (by cheap I mean under $200k)? You've gotta look outside of that 3 miles radius, into neighborhoods where your neighbor might use his front yard as a junkyard, or the guy across the street is a drunk, or your commute is 25 minutes.
Now, this wouldn't be a big deal if it weren't for the fact that most people who live in Flagstaff (or Santa Fe) want to live where the action is. You don't move to a hip mountain town in the Southwest to live 10 miles outside of town. You live here because you want to keep active, you want to be involved, you want to be able to walk or ride downtown. You want to know your neighbors and be apart of the community. There are far cheaper places than either Santa Fe or Flagstaff if you want to have cheap rural living. People live in these towns to be apart of the outdoor/active/community-oriented/progressive demographic, but in the case of Flagstaff, the pressure from investors onto the housing market makes it near unaffordable for most to live that lifestyle.
My wife and I have very specific career experience (me in utilities/mapping and her in social work) and neither pay enough to live on a single income. That being said, if someone offered me a job for roughly what I make now in Santa Fe, I think I'd probably spring for it, just simply because we could live in a much nicer neighborhood for roughly the same price that we're paying in less nice neighborhood in Flagstaff.
The only "downside" to Santa Fe and Albuquerque is their relative isolation from the rest of the country. ABQ/SF are hours from the nearest major population centers. There is plenty to do if you're an outdoor person, but I know many go a bit stir crazy in "Island" of New Mexico. ABQ Airport is getting better, but it's no hub. Prices are higher than Denver or Phoenix, mostly connecting flights, limited schedule, etc.
