Introduction and summary
The COVID-19 pandemic has considerably altered how and where people work. Office closures, lockdowns, and social distancing measures—along with the availability of remote work technology—triggered an increase in vacant office space in U.S. cities as many employees began and continued to work from home offices. Hybrid work is now a more widespread practice. Office vacancy rates in some cities rose to historic highs after the abrupt changes to work locations in 2020.1
This has placed many commercial building owners in a position of financial distress. Nationally, in the third quarter of 2023, commercial real estate firms had $5.8 trillion in outstanding debt, with $544.3 billion projected to be due in 2024.2 Regarding office mortgages alone, $150 million in debt is due by 2024.3 At the same time, high interest rates have made it difficult for office building owners to refinance their properties.4 Many owners of office space have begun to sell their properties at discounted prices.
Given the severe shortage of affordable housing—the United States is short 3.8 million housing units5 —and the urgency to tackle high office vacancy rates in U.S. cities affected by the coronavirus pandemic,6 there is growing support for converting offices into housing, including from the Biden-Harris administration. One advantage of doing so is time and cost savings: The structure, elevators, stairs, and parking lots of the building can be reused rather than built from scratch. This can help property owners save money, extend the lifespan of existing buildings, and curb urban sprawl. In addition, the adaptive reuse of vacant office buildings can potentially help address the financial solvency of commercial real estate lenders, especially regional banks that risk incurring major losses.7 Finally, the conversion of office buildings can improve energy efficiency and reduce existing buildings’ emissions.
Yet many challenges persist in making office-to-housing conversions viable, including financing, building layout, and the state of the local market. This report discusses the extent of post-pandemic office vacancies in U.S. cities and the challenges associated with converting office buildings to residential use. It also offers three recommendations to help make the conversion easier: integrating office-to-residential conversions in downtown mixed-use development plans, using climate-focused financial resources, and exploring all viable options to increase overall housing supply.
The impact of the COVID-19 pandemic on commercial real estate
Remote work has become a consistent trend, despite many employees returning to a modified in-office schedule in recent months.8 According to U.S. Census Bureau data on workers’ means of transportation to work, the percentage of the U.S. workforce working from home peaked in 2021 at 18 percent and declined in 2022 to 15 percent.9 However, in 2022, the percentage of workers working from home was still much higher than that recorded in 2019, when 5.7 percent of the U.S. workforce worked from home. (see Figure 1) The U.S. Survey of Working Arrangements and Attitudes indicates that in January 2024, nearly 13 percent of full-time employees worked fully remotely, whereas approximately 30 percent of employees engaged in hybrid work—a combination of remote and in-person time.10 Working remotely is most prevalent among professionals, managers, and employees in the technology, finance, and professional business services sectors, according to the same survey. In contrast, while some high-education sectors such as health care and education require consistent on-site work, those working on-site consist predominantly of lower-paid workers with lower educational attainment, employed for the most part in retail, transportation and warehousing, and hospitality and food services.11 Furthermore, about 22 percent of the workforce is projected to work remotely by 2025, a much larger percentage of workers compared with prior to the pandemic, when the survey showed that between 9.7 percent and 10.7 percent of all workers did some teleworking.12
The 2020 economic downturn and behavioral changes caused by the pandemic—such as reduced office attendance and increased out-migration from cities—significantly hurt commercial real estate markets.13 Commercial real estate investment has declined in some large metropolitan areas, both in the United States and around the world, due to the decreasing demand for office space—particularly for lower-quality Class B and Class C office buildings—the rise in interest rates, and declining office building property values.14
The asset classes of office buildings
Office buildings are usually classified as Class A, B, or C buildings, depending on parameters such as age; location; building infrastructure; the quality of heating, ventilation, and air conditioning; maintenance; and amenities.15
- Class A: High-quality and prestigious large office buildings placed in a central market location, such as a central business district. These buildings typically feature high occupancy rates, premium infrastructure and technological capabilities, and first-class amenities that demand higher rents.16 Class A office buildings tend to have been built or renovated after the 1980s office building boom.17
- Class B: Older office buildings, generally constructed since the 1950s but prior to the 1980s.18 These buildings usually have been previously occupied by different office tenants. Their quality, design, and infrastructure are functional but of lower quality compared with those of Class A buildings. Their rents are usually lower, and although they may be in prime market locations, they are typically placed on a side street.19
- Class C: Obsolete buildings, older than Class A and B buildings, with a long history of occupancy by other office tenants. These buildings feature minimal amenities, and their infrastructure and furnishings need significant upgrades. They typically rent at below-average market rates.20
Office space demand also depends on the building’s location: Cities with a high density of office buildings in their central commercial district or in commercial office parks but with little mixed-use development (defined as a combination of residential and nonresidential buildings), as well as minimal green space, tend to have declining demand because these features often make a place less attractive for working, living, and shopping. Furthermore, cities with a higher percentage of employees in the professional services, information, and finance industries; a greater number of large companies; a higher ratio of commuters to residents; and an increased cultural acceptance of remote work have experienced a greater change to norms around in-office work and therefore have also seen more office space vacancies.21
Office vacancy rates—which have increased, particularly in the central business districts of cities, such as in San Francisco and Portland, Oregon (see Table 1)—have important implications for the U.S. economy. Empty office spaces trigger a decline in shopping, supportive services, and small businesses in office-heavy downtown areas, leading to the erosion of cities’ tax bases.22 Empty or unoccupied buildings also can negatively affect the value of nearby real estate properties.23 At the same time, vacant offices represent a threat to financial services, particularly regional banks, that are owed an estimated $1.2 trillion in outstanding office loan debt because office building landlords cannot collect the rents needed to keep up with mortgage payments.24
The U.S. office vacancy rate approached 18 percent in the fourth quarter of 2023, according to the real estate firm Colliers International.25 Vacancy rates in central business districts have climbed continuously from 10 percent in the fourth quarter of 2019 to nearly 18 percent in the fourth quarter of 2023. Meanwhile, suburban office vacancy rates have risen from 12.1 percent in the fourth quarter of 2019 to 16.4 percent in the fourth quarter of 2023. (see Figure 2) Since the first quarter of 2022, office vacancy rates have increased more steeply in downtown areas than in the suburbs.26 The cities with the highest downtown office vacancy rates include San Francisco, where the downtown office vacancy rate increased from 4.5 percent at the end of 2019 to 29 percent in the fourth quarter of 2023; Portland, Oregon, with a vacancy rate of 30.2 percent in the fourth quarter of 2023, up from 14.8 percent in 2019; and Dayton, Ohio, with the highest vacancy rate at the end of 2023 at 33 percent.27 (see Table 1)
By the end of 2029, there will be an estimated excess of 330 million square feet of vacant office space, and the level of office vacancy will be 55 percent higher than prior to the pandemic, according to projections by the real estate services firm Cushman & Wakefield.28 Furthermore, demand for space per office worker is projected to decline from 190 square feet prepandemic to 165 square feet over the next few years.29 Cushman & Wakefield also estimates that approximately 25 percent of the national office stock is undesirable, as the inventory has not kept up with modern trends of space utilization.30 And as the normalization of hybrid work and the demand for prime, high-quality, and flexible office space close to amenities will continue to limit the demand for obsolete office space in downtown areas, a high proportion of obsolete office buildings will likely undergo significant change.31
The adaptive reuse of vacant office buildings
Because of the increase and persistence of high office vacancy rates, cities, building owners, and potential investors are exploring different options to utilize empty commercial real estate space. These options include keeping a building’s status quo, renovating or adding onto the building, and demolishing it. Another form of sustainable development for vacant office buildings that have outlived their original use and become obsolete is to convert or adapt an existing building to a new use. Conversion, or adaptive reuse, is considered sustainable, as rehabilitated sections of buildings do not add to overall energy usage, and adaptation measures improve a building’s performance.32
Office conversions to housing are not new
The economic recession of the early 1990s spurred the conversion of vacant and obsolete office space into residential units in many U.S. and international cities, where residential values were increasing while the value of office assets was declining. As demand for housing was increasing and residential prices exceeded those of offices in most locations, downsizing and repurposing office buildings into residential units gained traction as the preferred cost-saving strategy for developers and landlords.33
Domestic examples: Large-scale conversions of office buildings took place in Manhattan in the late 1980s and early 1990s because of the high vacancy rates caused by the economic recession and the relocation of financial services to new Midtown buildings.34 In 1995, through the Plan for the Revitalization of Lower Manhattan, the New York City government combined zoning changes, tax abatements, and historic preservation initiatives to encourage owners to convert obsolete lower Manhattan office buildings built before 1975 into low-rent apartments,35 resulting in more than 6,500 housing units being created from 1995 to 2004.36 In Los Angeles, the Adaptive Reuse Ordinance of 1999 led to the production of approximately 20,000 housing units by relaxing zoning and code requirements for conversion projects.37 More than 12,000 housing units were produced in downtown alone.38 In the 1990s, Class B and Class C conversions stimulated by tax abatements took place in Boston and Philadelphia.39 Kansas City, Missouri, has experienced several phases of downtown revitalization efforts since the 1950s, with adaptive reuse projects playing a vital role since 2000.40 The 16-story Professional Building Lofts represent a notable example of successful conversion. Partly funded through federal and state low-income housing tax credits and historic tax credits, the conversion of this building resulted in 132 affordable apartments above a first-floor commercial space.41
International examples: London and Toronto both experienced an office construction boom in the 1980s followed by an economic recession in the 1990s that led to rising unemployment rates, the collapse of the office market, and a drop in office rental values below those of residential units.42 High office vacancy rates and the subsequent erosion of the tax base in both cities spurred central and local government officials to incentivize downtown redevelopment activities, including office conversions to residential use through zoning changes, building code amendments, and the relaxation of development permit standards.43 Since 2013, it has been possible to convert office buildings into residential use in England without planning permission. This was a change to the requirement that had been in place since 1948.44 In 2015, the U.K. government introduced a prior approval right for office-to-residential conversions to deliver more homes, provided that the buildings had been built before March 2013, were not of special architectural or historic interest, and were not located in a safety hazard area.45 The results of this provision were controversial in that some developers took advantage of this laissez-faire approach to produce small dwellings without windows that are unfit for living.46 Because of the housing shortage, many people had no other choice than to live in these units. It was not until 2020 that the U.K. government required all dwellings produced using permitted development to have natural light. Further, national space standards such as square footage for rooms and storage, ceiling heights, and occupancy standards began to be applied to converted office space in 2021.47
In the late 2000s, population growth, the declining demand for office space, and the scarcity of building space in Frankfurt, Germany, spurred the large-scale conversion of the Niederrad Office City into a mixed-use area.48 More than 3,000 apartments were built or were in the planning pipeline by summer 2015, with the addition of child care facilities, supermarkets, and other amenities.49 In Brussels—historically characterized by a prosperous office sector and an important political and economic role in the European context—office conversions gained ground since the 1990s, driven predominantly by factors such as population growth; increasing housing demand and increasing residential property values; office vacancy rates and corporate downsizing, particularly during economic downturns; and the decentralization of offices. In recent years, the repurposing of aging office buildings to residential use has also been adopted in several Asia-Pacific cities.50 Urbanization and a high demand for urban living from young professionals who could not afford to buy homes, for example, has driven the conversion of aging office buildings into rental units in Beijing and Shanghai—both of which have a shortage of rental housing and high construction costs.51
Current state and local initiatives to support conversion
Since 2020, some local and state leaders have proposed initiatives to support office-to-housing conversions as a supply-side solution to tackle the shortage of affordable housing and the increasing number of vacant office spaces. The various government-enabled incentives range from financial incentives—direct grants, loans, and tax breaks—to land-use and zoning regulations. In most cases, proposed initiatives include a mix of these incentives.
Some cities and states offer developers attractive grants and tax incentives to encourage them to convert obsolete office buildings into affordable housing:52
- In July 2022, the state of California announced the allocation of $400 million in incentives for the conversion of commercial spaces into affordable and market-rate housing units. By early March 2023, about 55 applications had been filed for $105 million in grants to fund the adaptive reuse of commercial space, including office buildings.53
- In June 2023, Wisconsin lawmakers passed a bipartisan bill aimed at helping developers convert vacant commercial buildings into affordable or senior housing. Under the law, a loan fund has been created that will provide interest-free loans of up to $1 million to cover the costs of converting such buildings. However, the housing created using these loans will be required to remain affordable or senior housing for at least a decade.54
- In Boston, a pilot program for converting downtown office buildings to residential apartments will offer tax reductions of up to 75 percent for a period of 25 years.55
- Washington, D.C., has introduced a 20-year tax abatement program worth $2.5 million. The program is designed for property owners who add a minimum of 10 housing units and change the use of a building located in the downtown area. As part of the program’s requirements, 15 percent of the new units must be allocated for affordable housing purposes.56
- In San Francisco, Mayor London Breed’s (D) ballot proposal to waive the city’s transfer tax on office-to-housing conversions passed in March 2024.57 The transfer tax, which can be up to 6 percent on transactions that exceed $25 million, will not be applicable to such buildings.58
- In Chicago, the LaSalle Street Reimagined initiative was launched in September 2022 to repurpose vacant office buildings in the pandemic-affected historic financial district and produce more than 600 affordable housing units.59 The initiative, funded predominantly through a tax increment financing (TIF) district’s balance of approximately $197 million collected from local property taxes and other proceeds, requires developers to add retail amenities that support mixed-use development as well as minority- and women-owned businesses.
- The Pittsburgh Downtown Conversion Program was launched in April 2022 as a response to high vacancy rates in the central business district, commonly known as the Golden Triangle. The initiative supports converting vacant and aging Class B and C office buildings to new workforce and affordable housing use through tax abatements and through allocation of the American Rescue Plan Act’s Coronavirus State and Local Fiscal Recovery funds to projects that reserve 20 percent of their units for low-income families.60
Other local and state government incentive programs that can facilitate building conversions include easing zoning and density restrictions, adjusting building codes—for example, determining whether codes relating to the location of front doors and staircases are appropriate—and waiving or redistributing infrastructure upgrade costs over a longer period:61
- In New York City, where the downtown office vacancy rate was 13 percent in the fourth quarter of 2023, Mayor Eric Adams (D) has announced the City of Yes for Housing Opportunity plan with the goal of creating 500,000 new homes in the city over the next decade, including rent-restricted units.62 Of these, 20,000 units will be the result of commercial conversions.63 To facilitate the adaptive reuse of office space, the plan legalizes zoning conversions for buildings built before 1990 in any area of the city where residential uses are allowed.64 The plan will also allow commercial buildings to convert to a wider range of housing types, including shared housing.
- The California Legislature is considering the Office to Housing Conversion Act, which was introduced in February 2023. The bill would restrict local governments from imposing fees on office-to-residential conversions and from blocking or delaying such projects as long as 10 percent of the units are affordable and buildings do not exceed standard height and density limits.65
Some states offer a historic tax credit, which, along with federal tax credits, can be utilized to convert old offices into residential buildings. For instance, in Dallas, office conversions that are expected to create around 1,500 new units are possible through the historic tax credit available in the state.66
Current federal initiatives to support conversion
At the federal level, the Biden-Harris administration released a guidebook in fall 2023 illustrating federal programs that have been used in the past, as well as new tools that could reduce office conversion costs and accelerate the process of converting underutilized office space to housing by ensuring that residential properties are both affordable and energy efficient. The support includes both expanding existing programs and issuing new grants, low-interest loans, and tax incentives.67 The White House’s plan directs the U.S. Department of Housing and Urban Development (HUD) to expand federal funding to states and localities to support office-to-residential conversions.68 Funding opportunities include the Community Development Block Grant Program and HUD’s new Pathways to Removing Obstacles to Housing Program.69 The plan also directs the U.S. Department of Transportation (DOT) to make office-to-residential conversion projects near public transit eligible for below-market loans that are commonly used to finance rail infrastructure. Office property owners, however, have been voicing some concerns about the workability of the DOT’s funding opportunities, citing such barriers as lengthy loan approval processes, strict environmental reviews and credit criteria, hefty deposits, and the requirement that projects be located within a half-mile radius from a train station. The latter, in particular, has disqualified projects such as the conversion of the Gulf Tower in downtown Pittsburgh as well as projects in cities outside the Northeast where rail stations are typically located outside the urban core or where passenger rail is limited, such as in Columbus, Ohio, and Las Vegas, among others.70
It is still too early to evaluate the outcomes of these initiatives and assess their impact on the housing stock of the various localities where plans have been introduced since the pandemic, as most projects are still either planned or underway. The United States is short 3.8 million housing units,71 and conversion projects that have been completed so far have yielded a trivial number of apartments compared with the number of units needed to meet housing demand. However, there may be specific local markets in which conversion could be a valuable tool in a broader toolbox for creating a stronger housing market and more vibrant business districts.
In a September 2023 report, the commercial real estate services and investment company CBRE found that since 2016, nearly 20,000 housing units have been created through office-to-residential conversions nationwide.72 Only about 1 percent of new multifamily projects were converted from office space to homes.73
There may be specific local markets in which conversion could be a valuable tool in a broader toolbox for creating a stronger housing market and more vibrant business districts.
In 2022, with 692 apartments completed, Los Angeles topped the list of cities with the most office-to-housing conversions. In the same year, Alexandria, Virginia, added 435 apartments, followed by Baltimore, which added 395 apartments.74 (see Figure 3) Although 151,000 office-to-residential-apartment conversions are in the pipeline nationwide,75 it is unlikely that the production of these apartments will significantly add to housing supply on their own, given the severe shortage of housing that is needed to meet demand nationwide. Early information about 2023 production and 2024’s pipeline indicates that hotel conversions may play an increasing role in the overall transition to residential units.76
It is also not guaranteed that the units either planned or underway will have any significant impact on the nation’s affordability gap, especially in downtown areas where high residential rents usually make conversion projects financially viable. There are some skeptics around speed of production and desirability of units: The Deloitte Center for Financial Services estimated that by 2030, only around 14,700 affordable housing units can be added in central business district areas across the country. This assumes that 20 percent of the converted square footage can be allocated for affordable housing.77
Challenges
The process of converting an office space into a residential area is often complicated and expensive. Office conversion projects require two phases of financing: one for purchasing the property and one for financing construction.78 The difference in rent prices between office spaces and apartments is a crucial factor in determining whether office-to-housing conversions would be feasible. If the rent for an office space is significantly higher than that of an apartment, building owners might decide that, financially, it is not worth converting to housing.79
Office buildings and multifamily housing differ fundamentally in their design, and successfully converting office buildings into apartments can be a challenge due to physical limitations. Some of the issues in office buildings include the lack of access to natural light and air. Office buildings with large floor plates—the amount of rentable square footage on one floor of a commercial building—make it difficult to bring natural light to the core of the structure.80 Although some historic office buildings have narrow floor plates that are suitable for conversion, many modern office buildings—particularly large glass and steel office buildings—do not. These buildings may need significant structural interventions to bring enough natural light into the living space, require significant plumbing changes to accommodate multiple apartment units on each floor, and may lack windows that open.81 Most office buildings do not have balconies, and many are constructed with just two large bathrooms per floor, which is not sufficient.82
Usually, buildings with residual outstanding leases are not viable candidates for conversion.83 When an office building still has some residual tenants, it may be necessary for the owner or developer to buy them out in order to proceed with the conversion.
It also may be necessary to make additional changes to ensure that a building complies with different building codes for offices and residential buildings.84 In addition, the process of converting office buildings into housing may take between eight and 16 months, although conversions typically take less time than new construction.85
It is also important to note that converting a commercial office building into a residential one not only involves physical alterations, but also requires zoning variance approvals. This is because many areas that are zoned for commercial office buildings do not allow residential buildings. Obtaining a zoning variance approval can be a lengthy process and could discourage office-to-housing conversions.86
What makes office buildings good candidates for conversion?
A National Bureau of Economic Research study found that 11 percent of office buildings in the 105 largest U.S. cities’ downtowns are suitable for conversion to residential use, after excluding properties that still have a large share of long-term tenants in place and after removing energy-efficient buildings from the list.87 The researchers also estimated that the adaptive reuse of Class B and C office buildings that are suitable for conversion to residential use would add about 400,000 additional apartments to the existing national housing stock.
Specific factors can make some office buildings good candidates for conversion:
- Market conditions: Typically, conversion projects are favored in markets with a significant demand for multifamily housing and in markets where government incentives are widely available.88
- Office building class: Obsolete and underused Class B and C office buildings typically feature lower acquisition costs than Class A buildings.89 If an office building can be purchased at a low price, converting it into a residential building can be economically attractive and can be more suitable to the production of affordable units rather than luxury apartments.90
- Location: Typically, aging Class B and C office buildings located in downtown areas are considered prime candidates for conversion in contrast with downtown Class A buildings and office buildings located in suburban areas.91 Many suburban office buildings are functionally obsolete and have lower property values and conversion costs, which may make them attractive for owners and developers interested in converting them. However, apartment rents in these areas may be lower as well, making conversions not viable from an economic point of view. In downtown markets, in contrast, apartment rents are typically high enough to cover the purchase cost of the office building and conversion. Furthermore, office buildings located in mixed-use and walkable locations with access to jobs, services, and amenities are better suited for conversion to residential use.92
- Structure: The adaptability of office buildings is critical for feasible conversion. Office buildings suitable for conversion are typically midsize, midrise structures with at least two sides facing open areas or streets close to downtown, but not directly in it. Narrow office buildings with more perimeter windows transition better to residential use than deep, rectangular-shaped ones.93 Buildings constructed before World War II were designed with numerous windows to allow plenty of natural light and ventilation. However, in the mid-20th century, the widespread use of fluorescent lighting and air conditioning enabled commercial buildings to expand in width. As a result, the areas near the windows became more valuable, while the windowless middle areas were used as cubicles or storerooms.94 It may also be feasible to add floors on top of an existing building.95 Furthermore, office buildings that need renovation or upgrade can be suitable for conversion. For example, If the building’s heating, ventilation, and air conditioning; plumbing; and electrical systems need to be replaced regardless, the conversion becomes more cost-effective.96
- Zoning, public approvals, and parking: Renovating existing buildings typically does not provoke opposition from local residents, and offices are not subject to tenant protections. In addition, commercial zoning regulations can be more lenient than residential ones.97 Compared with renovating existing apartments or constructing new ones on vacant land, developers may find it less challenging to obtain public approvals for gut rehabbing an office building. Since apartments take up more space than office cubicles, they require fewer parking spaces. This makes it possible to replace underutilized parking lots with new buildings.
Spotlight on cities that led in office conversions in 2022
Los Angeles: With a 26 percent office vacancy rate, soaring housing costs, and one of the largest homeless populations in the nation,98 Los Angeles led the country in office-to-residential conversions in 2022. The city’s conversions have been possible through the adaptive reuse ordinance, which has been modified since its 1999 introduction. The updated ordinance streamlines approvals for conversions and broadens eligibility on a rolling basis to include any office building constructed and occupied in the previous 15 years. Prior to 1999, only buildings built before 1975 were eligible for a streamlined review process.99
Alexandria, Virginia: The city of Alexandria follows Los Angeles in the number of completed office-to-housing conversions in 2022. Its success is attributed to a series of factors including location and some structural characteristics of the city’s office buildings. In particular, the city tends to have office buildings featuring smaller floor plates compared with other major cities. In addition, most office buildings in the city stand alone, rather than joining together with other buildings, thus making conversions much easier. Location represents a major benefit for buildings in Old Town Alexandria, which is characterized by a mix of residences, retail, and restaurants, as well as proximity to public transit.100
Cleveland: Cleveland is among the top U.S. cities with most completed office-to-residential conversions in 2022. (see Figure 3) It is also among the top 10 cities with most planned conversions, despite current high costs and a lengthy zoning and permitting processes.101 A soft office market and a significant presence of historic buildings that do not meet the changing needs of companies are among the catalysts of office conversions in the city.102 Cleveland has a long history of adaptive reuse of office space that precedes the pandemic.103 Pioneering projects in the central business district were financed by various funding sources including the carpenters’ union pension fund and unused Urban Development Action Grant Program grants.104 Property tax abatements and tax increment financing have also made several projects possible over time.
Recommendations
Construction costs, regulations on residential construction, and office building structural characteristics limit the feasibility of conversion projects and their impact on the overall housing supply. In addition, many downtown districts, where the bulk of conversions are concentrated, lack basic amenities and services that downtown residents need, such as midsize grocery shops, affordable child care facilities, and green space.105 Nonetheless, if supported by government incentives and planned sensibly, the adaptive reuse of untapped smaller and obsolete office buildings has the potential to complement new construction by adding much-needed affordable housing units to high-demand multifamily markets. The Center for American Progress offers the following recommendations.
Integrate office-to-residential conversions in downtown mixed-use development plans
For the adaptive reuse of underutilized office space to be successful, it is important to provide residents with access to services, amenities, public safety, transport, and green space. Office conversions should be part of comprehensive mixed-use development plans that states and localities could encourage adoption of through zoning changes, streamlining, public-private partnerships, land value capture instruments, and the coordinated utilization of existing federal funding opportunities such as those listed in the White House guidebook.106
Utilize climate-focused financial resources
Office conversions represent a timely opportunity to invest in strategies that promote energy efficiency and the achievement of zero emissions for obsolete buildings. Cities and states should require that commercial buildings converted into residential use have efficient features that lower energy bills and emissions. Such features need to at least meet or exceed local building energy codes. Localities should tap into existing climate-focused financial resources such as the range of incentives provided by the 2022 Inflation Reduction Act. Federal agencies, for example, could fund office conversions with below-market loans and guarantees designed to finance zero-emissions buildings.107 Office conversions can be more financially viable through these financial resources. At the same time, using these resources to convert buildings rather than constructing new ones can lead to reduced construction-related emissions.
Explore all viable options to increase the overall housing supply
Office-to-residential conversions alone cannot solve the housing supply problem. In addition to new and existing funding opportunities supported by the Biden-Harris administration, policymakers at the federal, state, and local levels should explore all viable options to increase the overall housing supply by allocating funds to new construction, preservation, and the adaptive reuse of existing buildings not just in downtown areas, but also in surrounding districts where jobs are concentrated and public transportation is widely available. Government incentives and zoning reform—especially with regard to density bonuses and parking requirements—should target not only the conversion of vacant office buildings but also the adaptive reuse of other types of vacant real estate.
Conclusion
The demand for housing far outpaces the supply of housing units in cities across the country.108 At the same time, office vacancy rates have continued to increase after the COVID-19 pandemic, especially in the downtown districts of large metropolitan areas, with profound implications for the overall economy. There is growing support, including from the Biden-Harris administration, for converting offices into housing, especially into affordable housing opportunities. Conversions alone, however, are unlikely to revitalize entire downtown neighborhoods or to solve the housing supply problem, as they add just a fraction of the housing that cities need.109 Without government incentives and comprehensive planning, the amount of housing produced through the adaptive reuse of underutilized office buildings risks being simply a drop in the bucket.