A set of initiatives aimed at facilitating the transformation of vacant office properties into residential units was announced by the Biden-Harris administration last month. CBRE data indicates that in the second quarter of this year, the nationwide office vacancy rate reached its highest level in 30 years, at 18.2%.

Simultaneously, the United States is experiencing a severe shortage of available housing. According to Freddie Mac's estimations for the fourth quarter of 2020, there is a deficit of 3.8 million units necessary to meet housing demand and maintain the target vacancy rate. The National Low Income Housing Coalition also approximates that there is a shortage of 7.3 million affordable rental homes for extremely low-income renters in the country.

Providing federal funding and guidance to support office conversions appears to be a potential solution for both issues. However, numerous challenges make it impractical to convert many commercial properties into residential buildings. Even if it were feasible, both logistically and financially, to repurpose every office building, it would only contribute a small portion of the housing needed in the country. While the newly allocated funding, low-cost financing, and guidance may facilitate the redevelopment of some vacant properties, additional measures will likely be necessary to significantly increase the housing supply.

 

Plans of the Biden-Harris Administration


In order to support the revitalization of office buildings, the following measures will be taken:

Providing affordable financing for housing developments in close proximity to public transportation: The Department of Transportation has issued guidelines on how to access $35 billion in loans for housing projects near public transit, including the repurposing of office spaces. The fact sheet from the White House highlights that the affordable financing on offer may encourage state and local governments to make improvements to zoning regulations.


Facilitating the transfer of properties from transit agencies to affordable housing developers at no cost: Transit agencies, which frequently own real estate near transportation hubs, will be permitted by the DOT to transfer unused properties to affordable housing developers free of charge.


Allocation of HUD funds for converting office spaces into residential units: Through a new program, $10 billion of funding from the Community Development Block Grant will now be made available for the acquisition and conversion of commercial properties into housing and mixed-use projects. Furthermore, conversion projects can now benefit from the Pathways to Removing Obstacles to Housing program, which has allocated $85 million to eliminate barriers to the development of affordable housing.


Provision of resources, training opportunities, and technical support: The White House has published a guidebook called "Commercial to Residential Conversions," which outlines 20 federal programs that can assist developers with grants, low-cost loans, loan guarantees, and tax incentives to make conversion projects financially feasible. This fall, accompanying training workshops will be organized.

Additionally, a report from the Treasury provides information on available tax incentives for redevelopment, including deductions for energy improvements. However, the incentives currently available do not go as far as offering a credit for conversion expenses, as previously proposed in the Revitalizing Downtowns Act, which failed to pass in Congress.