Commercial to Residential? White House Highlights Programs that Could Help Vacancies in Downtowns

In the face of the well-documented housing crisis, and amidst a changing landscape for office and commercial buildings due to the COVID-19 pandemic, the White House released a guidebook of programs that would assist commercial to residential conversions. As local government leaders, developers, policymakers, and other stakeholders debate strategies to revitalize their downtowns, this guidebook is a nod toward the massive opportunity available to address the low housing supply by converting commercial spaces to residential use. 

An image of the US Capitol buidling

 The U.S. Capitol Building. (Lara Eakins via Flickr)

The Biden Administration recently released a guidebook detailing the federal resources available for commercial to residential conversions, which are an important tool to address the country’s current housing shortage, especially in the more connected and walkable central business districts where many underutilized commercial spaces are sited. In Foot Traffic Ahead 2023, our analysis shows that price premiums for housing remained high and demonstrates the continued demand for housing in compact, connected areas, despite the pandemic-induced shift in activity. As such, investment in commercial to residential conversions offers strong potential opportunities for developers, keeping in mind some of the well-documented design challenges. 

According to the guidebook, if only a few commercial building conversions occurred, thousands of multi-family units could be created which would increase the housing supply, and could also drive down prices, making housing more attainable and providing additional benefits to families, local businesses, and community tax-revenue. 

As local government leaders, developers, policymakers, and other stakeholders debate strategies to revitalize their downtowns, this guidebook is a nod toward the massive opportunity available to address the low housing supply by converting commercial spaces to residential use.

What’s included in the guidebook

The White House guide showcases a range of federal programs designed to support developers in undertaking commercial to residential conversion projects and also underscores the ability to combine existing tools and newly introduced programs. This guide details strategies to reduce financing costs by offering grants specifically targeting pre-development, acquisition, construction, and associated costs.

Notable tools include:

  • The Department of Housing and Urban Development’s (HUD) Community Development Block Grant Program allocates funding that can help with the financing of acquisitions and rehabilitation with commercial to residential conversion. 
  • HUD launched an $85 million Pathways to Removing Obstacles to Housing program that would provide competitive grant funding to support local governments in removing obstacles like outdated zoning, insufficient infrastructure, and challenges with preserving existing housing. 

Other types of loans:

  • Below-market loans: The guidebook lists programs such as Transportation Infrastructure Finance and Innovation ACT (TIFIA) and Railroad Rehabilitation & Improvement Financing (RRIF).  The RRIF program offers $35 billion in lending for the program, which now also includes opportunities for transit-oriented development. This would establish large-scale below-market loans that can be used for conversions near transportation.  
  • Land dispositions that make deals possible and can reduce development costs: The Department of Transportation (DOT) also would allow transit agencies to take properties to local government, non-profits, and for-profit developers that are associated with affordable housing at no cost. These properties could have existing commercial uses that can be switched to housing. 

Our LOCUS program played a key role in introducing a Transit-Oriented Development provision within TIFIA, having been involved during the drafting of the 2015 FAST Act. Currently, DOT has $70 billion in the TIFIA program that gives a credit for assistance in surface transportation and Transit-Oriented Development (TOD) projects that qualify. These projects look to improve or construct public infrastructure that is within walking distance of a fixed guideway transit, passenger rail, or bus station or improve economic developments.

Considering commercial to residential conversions

Commercial-to-residential conversions are not a panacea or a one-size-fits-all solution for the housing supply shortage or the housing affordability crisis. Conversions are not an overall cure for the lack of housing supply, but they could present an important innovation to increase supply, especially given the severity of the current housing access crisis. Increasing the housing supply could contribute to housing being more affordable and, if developed to sustainable standards and in transit-served locations, can reduce emissions and address other climate goals. 

While there are many potential positives, there are pitfalls when considering commercial to residential conversion, notably design challenges with floor plans, circulation, and operable vs. inoperable windows, amongst other issues. The valuation gap between commercial and residential buildings also presents a challenge from a financial perspective for Class A offices. DC Policy Center lays out additional considerations most relevant to the D.C. market in this article.   

Overall, office-to-residential conversions represent an important opportunity to reinvigorate struggling downtowns. With that in mind, we’re glad to see the Biden administration’s efforts to create federal tools and programs that can help advance these efforts. 

Land Use and Development LOCUS