Looking across America’s major cities, researchers say there’s a wide swath of aging and under-used office buildings that are ripe for reinvention as energy-efficient apartments.
That, they say, could ease the country’s housing shortage.
Roughly 11% of office buildings in big cities and surrounding areas are prime candidates for conversion to apartments, according to a working paper released Monday by the National Bureau of Economic Research.
That equates to 214 million square feet that is ready for a do-over at a time when remote and hybrid work keep hobbling office occupancy, and while housing choices are scarce, per the study, which was authored by researchers at New York University and Columbia University.
The great conversion could produce 171,470 new apartments, each sized at 875 square feet, the researchers said. To be eligible, the criteria included buildings created before 1990.
For context, the study said builders have created roughly 260,000 apartment units in an average year over the past two decades. (An 875-square-foot apartment is just a bit larger than the average size of most new one-bedroom apartments, according to RentCafe.)
“‘We are seeing strong activity from a lot of different policy makers to facilitate these conversions.’”
There’s currently a shortfall of 6.5 million single-family homes, according to Realtor.com. Mixing in multi-family residences, there’s still a 2.3 million shortfall in homes.
(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.
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Meanwhile, a record-high 21.6 million renters paid more than 30% of their monthly income on housing in 2021, Harvard University researchers recently concluded.
“We are seeing strong activity from a lot of different policy makers to facilitate these conversions,” said Arpit Gupta, associate professor at NYU Stern School of Business, and one of the authors of the study released this week. He said that includes officials in major metropolitan areas, including New York City, Washington D.C. and Boston.
There are more than 630 buildings in New York City and the surrounding area that could be ripe for overhaul under the researchers’ criteria, while the Washington D.C. area has more than 150 buildings, and Boston has over 70 buildings. San Francisco and the surrounding Bay Area have more than 350 buildings that could be good candidates, the study concluded.
It’s not a new idea turning industrial and commercial buildings into residential space, Gupta noted. What’s brought the issue into hard focus is the rise of remote and hybrid work, he said.
So what’s the hold up? “There are a variety of sticking points here,” Gupta said.
The interest rates are high for developers who want to finance the purchase and conversion of sites, the study said. There’s an array of zoning and building codes that, in their current form, might not allow the flexibility to switch. And with the financial pressure on commercial real estate due to fluctuating vacancy rates, sellers may have to take a loss if they agree to hand over the keys, they wrote.
Incentives to convert office space to apartments
At the local and state level, the study suggests changes to zoning and building codes, in addition to direct subsidies.
There are also pots of federal government money for possible use, they said. The Inflation Reduction Act, a tax and climate package passed last August, earmarks $369 billion over a decade for clean energy and pollution reduction.
The law “never explicitly mentions green office conversions” the authors said, but they said several parts could be applicable. That includes a $27 billion fund for greenhouse gas reduction which could help pave the path for conversions, they said.
Across the country, officials face a “unique challenge” but also have “a unique opportunity to promote a once-in-a-generation investment in the urban environments of the future,” Gupta and his co-authors wrote.
In major cities, the repurposing efforts continue. In January, a task force from New York’s City Hall released recommendations to change the state and city zoning requirements that would make it easier to switch from office space to residential space.
Those changes could make up to 136 million square feet of office space eligible for conversion to residential living, yielding approximately 20,000 new homes over a decade. A proposed state-level tax incentive would ensure that there are affordable units too and not just market-rate apartments, the report said.
Of course, passing new laws is easier said than done. New York City Mayor Eric Adams said that, in order to turn offices to apartments, he needs lawmakers in the state capital of Albany to pitch in.
“We can’t do without Albany. We need some form of tax incentive to turn offices into affordable housing,” Adams said at a press conference last Thursday on the approximately 27,000 affordable housing units in the city that were produced or preserved.
This fall, Boston’s city officials will start accepting applications to convert office buildings to immediate residential use. In exchange, officials are dangling the promise of property tax-rate reductions that could reduce the rate by 75% and stay that way for up to 29 years.
“We must take every possible action to create more housing and more affordability so that Boston’s growth meets the needs of current and future residents,” Boston Mayor Michelle Wu said in a statement last month.
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