Affordability Rx: U.S. Government Is Now Funding Office-to-Home Conversions

As our readers know, the pandemic changed the way we work and live. Remote and hybrid working are now common ways of earning a living.

We’ve also noted how repurposing empty offices could ease the housing crisis. Commercial areas contain more and more vacant space, more of the time. This fact holds true across the entire country.

So, we’re gratified to see the White House now guiding and funding conversions of business properties into homes. The idea is to increase the supply, and help out ordinary people. After all, most new home creation tends to target high-income buyers. But with the appropriate government support, some of the country’s new housing can be accessible to the people who need it most.

Not a New Idea

There is precedent for repurposing office space. Consider Philadelphia’s high-profile projects. By offering get-out-of-property-tax free cards that are good for an entire decade, Philly has created a slew of homes from disused office space. This increased the number of central Philly residents by more than 50%.

New York City has accomplished its own feats. Look at 1 Wall Street. It’s become a condo property atop a grocery store. It used to be filled with upscale offices.

Policymakers in most major cities are embarking on similar large-scale business-to-home property conversions. In a nation that needs all the residential units it can get, this should surprise no one.

Scaling Up

Now, this grand repurposing is happening on a federal scale. It dovetails nicely with the White House Housing Supply Action Plan. Under that Plan, the Department of Housing and Urban Development (HUD) is allocating $3 billion per year to support homeownership for households with modest earnings.

So now, with this new office space conversion initiative, planners in the 30 largest U.S. cities are establishing business-to-home conversion initiatives.

The first meeting in a series of planning sessions took place in October. Advisers are coming in from several policy groups, and the Harvard University Graduate School of Design.

Developers, Take Note

The administration is incentivizing developers to buy surplus government buildings, and revamp them. Tax deductions are available. To complement this work, the White House is spending $10 billion to get developers linked up with affordable housing grants, also from HUD.

CBRE — a real estate business that’s active in more than 100 countries — says this is a climate-conscious way to build housing. CBRE researchers claim the newly formed homes emit far less carbon dioxide than the underused business units they replaced.

The benefits don’t stop there. Converting is faster than carrying out a new construction project. And it’s cheaper to convert than to knock down and rebuild.

All that said, conversion is…

No Piece of Cake

Commercial-to-residential conversion projects (a form of adaptive reuse of properties) are still famously tricky — and pricey — to pull off. Homes must have windows that can be opened from the outside. The new living spaces need individual plumbing and heating systems, and everything else it takes to make a building into a home.

Adding to these challenges is the erratic ways empty offices show up. They may be concentrated or scattered. They could be new construction or old. So there’s no uniform way to convert them.

Then There’s Zoning

Commercial-to-home conversions are often forbidden by city zoning ordinances. Developers that can repurpose office buildings need to get variances from the ordinances. This adds to the logistical issues that make transitions a challenge.

Often, updating the ordinances makes sense. There’s a lot of potential square feet of housing out there. The National Bureau of Economic Research found some 11% of U.S. office spaces suitable for office-to-apartment conversions.

With official support, determination, and funding, conversion initiatives can turn city residents into home buyers.

Government Buildings in Play

Meanwhile, the U.S. government is creating a public inventory of its own real estate holdings that could be suitable for conversion. There are around 1,500 government-owned buildings across the country. But with so many people now working remotely, a lot of those buildings are not being put to good use.

The government is on a mission to change this. But funding potential conversions appears to be the big issue. Congress needs to pass a budget that directs money into conversions. The budget item would pay off. CBRE says getting it done could save us all a $1 billion over the coming decade. Plus, people would have homes where there used to be empty rooms.

Ours is not the only government on this mission. Canada’s government, for one, hopes to turn six of its federal buildings into 2,800 homes by March. Imagine all those new home deeds getting filed!

Homes Connected to Everything

The U.S. Department of Transportation is lending the project $35 billion, so that the federal government can build housing units around mass transit systems. Low government interest rates will maximize the power of this financing.

When combined with an awareness of local transportation options, conversions can solve multiple problems at once. Housing affordability, mobility, and a pressing need for clean energy transitions — all are advanced when housing is created in synch with public transportation systems.

Clearly, government efforts to repurpose commercial and federal property presents opportunities for development that brings benefits to people and whole cities.

Buyer Be Aware

Yes, some of the conversions will turn into rental homes. Would more rental homes help or hurt buying?

Meeting the demand for rentals can keep rising rents in check. That helps residents save to buy homes, should they choose to own. And buying homes should become easier to manage as interest rates ease.

Light at the end of the rental tunnel matters so much to so many. Recent figures show nearly half of renters shell out more than they can reasonably afford — paying more than 30% of their earnings on rent.

Our Takeaway? It’s Progress

The federal government is looking to developers to take some underused real estate off its hands, convert it to homes, and help ease our current housing crisis. Financial incentives should attract companies that can turn underused office buildings into housing.

Directly and indirectly, the plan is bound to create many new homeowners. As a method to jumpstart deed transfers in 2024 and beyond, this is progress.

Supporting References

The White House Briefing Room via WhiteHouse.gov: Fact Sheet – Biden-⁠Harris Administration Takes Action to Create More Affordable Housing by Converting Commercial Properties to Residential Use (Oct. 27, 2023).

The White House Blog via WhiteHouse.gov: Commercial-to-Residential Conversion – Addressing Office Vacancies (Oct. 27, 2023).

U.S. Department of Housing and Urban Development (HUD): The Community Development Block Grant (CDBG) Program.

CBRE Group Inc. via CBRE.com: U.S. Office Demand Remains Sluggish (Q2 2023; internal citations omitted).

Joy Wiltermuth for Morningstar via Morningstar.com: White House Opens $45 Billion in Federal Funds to Developers to Convert Offices Into Homes (Oct. 27, 2023; published independently from Dow Jones Newswires and The Wall Street Journal through MarketWatch).

Molly Weisner for FederalTimes.com (Sightline Media Group Federal Times, owned by Regent): Congress – GSA Bid to Shed Empty Federal Office Buildings Slowed by Budget Fights (Nov. 15, 2023).

And as linked.