What makes a city ideal for office-to-housing conversions?

Faced with an abundance of empty office buildings and a diminishing supply of affordable homes, local policymakers are considering renovating commercial facilities into living spaces to house more residents in need and revitalize their downtowns. 

But every city’s conversion journey will be different.  

A recent analysis from the Urban Institute identifies the U.S. cities where office-to-housing conversions, or adaptive reuse, could be most feasible. The analysis is based on data on office retail conditions, including office absorption, vacancy rates and changes in rent prices. It also factors in housing vacancy rates, changes in median rents and the difference between the number of new households and the number of new housing units over a decade. 

Five areas with high office real-estate distress and a pressing need to supply more housing rose to the top of the institute’s analysis: Atlanta, Phoenix, San Francisco, San Mateo County in California and Seattle. 

Many of the cities that the analysis suggests would benefit most from adaptive reuse are in California, said Jorge González-Hermoso, research associate at Urban Institute’s Metropolitan Housing and Communities Policy Center. But despite policymakers’ interest in housing conversions, “I don’t think we’re seeing that much activity yet.” 

That’s because housing development in California faces a whole host of rules and regulations that stymie progress, a challenge that rings true for other U.S. cities too. There are currently an estimated 58,000 housing units being developed from former office buildings across the country, but the growing number of conversions could face unnecessary burdens without legislative action that encourages adaptive reuse. 

Residential spaces often have more and different space and safety requirements than office spaces because individuals are expected to spend more time at home than at work. That means, going forward, local policymakers should consider reeling back or modifying restrictive building codes that limit an office’s potential to be turned into housing, González-Hermoso said. 

To tackle that work, New York City in 2022 launched the Office Adaptive Reuse Task Force to help inform and guide residential conversions to ensure the effective and efficient implementation of adaptive reuse of buildings. One issue the task force met head on was rooftop recreational space.

In the Big Apple, residential buildings have a decadeslong requirement to include recreational rooftop space for residents. But many office buildings that could potentially be renovated into housing don’t have open rooftops, González-Hermoso said, so they would be noncompliant as residential housing. 

Recognizing that open-rooftop requirements could limit adaptive reuse, the task force in 2023 called for conversion projects to be held to less stringent standards for recreation spaces. For example, the city’s Quality Housing Program, a set of zoning regulations to ensure effective housing development in the future, recommends new standards for common recreation space that accounts for the fundamental differences between the rooftops of office buildings and those of residential buildings. It recognizes that indoor recreation spaces are a viable substitute, as long as they comply with certain window and floor space measurement standards.

Ultimately, policymakers should “look at [their] own building codes and see just how restrictive it is. If there's any room to maneuver, that could be an opportunity to ease some of the barriers and restrictions that exist for turning more offices into apartments,” González-Hermoso said.

Local officials can also turn to financial incentives to spur office-to-residential conversions. “Everywhere, money is going to be a key issue,” he said. While adaptive reuse can help housing developers save on construction costs, renovation expenses can still be a barrier. 

Subsidies like tax credits are likely to appeal to developers, regardless of political will or market needs, he said, because they can help offset costs associated with retrofitting and other conversion-related efforts. In Dallas, for instance, the city’s Historic Preservation Program administers a tax incentive for property owners looking to convert historic buildings into residential facilities. 

The tax incentive gives developers a break on renovation, as the credit will cover a certain share of the total project cost, González-Hermoso said. Plus, by targeting historic buildings, the tax incentive helps revitalize the appearance and culture of communities amid widespread efforts to revitalize cities’ dying downtowns. 

Financial incentives are also “attractive on the side of government, because … they also need to worry about their own tax revenues for property taxes,” González-Hermoso said. “An underused office building is not going to have as high of an assessed value and is not going to contribute as much in property taxes as a fully used apartment building.”

Officials should also amend land use and permitting rules. In California, for instance, policymakers are leaning into mixed-use zoning to encourage housing development in traditionally commercial areas. 

“There is a trend happening, in general, [of] creating more flexible land-use codes … and this is definitely a response to our housing crisis,” González-Hermoso said. 

He pointed to two California bills passed in 2022 (AB-2011 and SB-6) that aim to promote commercial-to-residential conversions by allowing mixed-use zoning. It’s estimated the policies will create an additional 1.6 to 2.4 million housing units, with up to 400,000 units for low-income individuals. Last year, Gov. Gavin Newsom also approved a bill that limits the review process for adaptive reuse projects to 60 days for facilities containing 150 or fewer housing units. 

“Mixed use is really the key for any lively, vibrant community,” González-Hermoso said. “We don’t want only offices and nothing else. We don’t only want housing and nothing else. There’s definitely a balance that we need to strike.”