Downtown office buildings could offer a solution to the housing crisis, but challenges abound | Opinion

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The United States needs more housing in order to meet demand and drive down prices. Could converting downtown office buildings offer a solution?

It’s a tempting idea. Many downtowns are emptying out, their commercial buildings increasingly vacant with the rise of remote and hybrid work. The New York Times reports the amount of unused office space at 13% nationwide. Misaligned urban planning, heavy subsidies and overbuilding have compounded the issue, leaving spaces that don’t meet market needs. Additionally, shifting consumer habits and suburban growth have pulled activity away from traditional downtown cores.

As office buildings sit eerily vacant, converting unused commercial spaces into housing has captured the imagination of urban planners and policymakers. Address the housing crisis while revitalizing downtowns — what’s not to like?

Yet, as the Brookings Institution found, a closer look reveals a concept riddled with challenges that may leave cities worse off than before.

Proponents of office-to-residential conversions argue these projects could alleviate the housing shortage and turn deserted business districts into bustling, mixed-use neighborhoods. Philadelphia’s downtown population grew by 55% after launching a tax abatement program in the 1990s, which spurred more than 180 building conversions. Similarly, New York’s lower Manhattan saw 13% of its office space turned into residential units during the same period, creating vibrant neighborhoods where people live, work and play.

Are these examples as successful as they seem? The Philadelphia and New York programs, like similar efforts in Kansas City and around the country, largely relied on heavy tax subsidies, raising questions about their true costs to taxpayers. Subsidized conversions may benefit developers, but do they truly address housing demand or create lasting urban vibrancy? The jury’s still out.

Even when the idea aligns with the market, these conversions can be complex and most buildings aren’t good candidates. Large floor plates make it difficult to provide natural light for every unit. Windows are often fixed, and structural columns can create awkward layouts.

Estimates suggest only 3% to 5% of office buildings in cities such as New York and Washington, D.C., are viable candidates for conversion.

Even when a building is suitable, the financial challenges are significant. Conversions can cost hundreds of dollars per square foot, and office properties — despite declining demand — often remain too expensive to justify the returns residential units would generate. Owners thinking of self-converting rather than selling generally need to be debt-free on the property; few legal documents are as inflexible as a commercial mortgage. Against this backdrop, developers may be tempted to demand tax breaks or subsidies to offset these costs, creating another drain on public coffers.

Then there’s the issue of zoning. Many downtown areas are restricted to commercial use, requiring legal changes that can be time-consuming and politically fraught. Even if cities succeed in rezoning, well-intended mandates or incentives for affordable units, generally known as inclusionary zoning, usually fail to deliver, merely driving up costs elsewhere.

For example, despite glowing reviews, programs like New York’s 421-g Tax Incentive abatements failed to deliver on affordability, primarily benefiting developers and high-income residents. One report estimated that from 1995 to 2006, the 421-g program cost $1.2 billion, averaging $92,000 per unit. In Philadelphia, while downtown populations grew, the broader economic impact has been lackluster compared to faster-growing cities such as San Francisco. Taxpayer-funded incentives for private development may also backfire, leaving cities on the hook for costly experiments that don’t deliver promised outcomes.

None of this means some projects cannot be successful. But they’re not as transformative as many advocates claim. Even if a project results in new housing units, the cost to taxpayers may be so high as to wipe out any actual public benefit.

Repurposing office spaces isn’t a panacea for housing or downtown revitalization. Policymakers must consider broader plans, and perhaps most importantly, allow developers the freedom to address the demands of the market, without barrier or subsidy.

Patrick Tuohey is co-founder of Better Cities Project, a 501(c)(3) nonprofit focused on municipal policy solutions, and a senior fellow at the Show-Me Institute, a 501(c)(3) nonprofit dedicated to Missouri state policy work.