It’s no secret that America is in the midst of a housing shortage. Whether it’s highly-populated urban areas or more rural ones, the quantity of available homes isn’t keeping up with the increase in population. In contrast, one thing we have an excess of is office space. As a result, the movement to convert vacant office space into housing is moving ahead full steam. 

In a September 2023 report, the commercial real estate services and investment company CBRE found that since 2016, nearly 20,000 housing units have been created through office-to-residential conversions nationwide. That same year, an analysis by CoStar and CBRE found there were around 100 office conversion projects underway in major U.S. cities, up from an average of 40 annually from 2016 to 2022. 

With this momentum, it’s likely we’ll continue to see more former offices undergo transformations.

The Reasons Behind Excess Offices and Shortage of Housing

When the COVID-19 pandemic hit, many people transitioned from commuting downtown to their offices to working from home. While there has certainly been a strong movement to return to the office, numbers are far from what they used to be. With that decreased demand for office space and increase in remote work comes additional changes which have demonstrated how our views on office life have evolved. 

For instance, many businesses demand less space these days. Maybe they only have a percentage of employees working from the office due to hybrid schedules. But the decreased need for physical space comes from other components, as well. Many businesses no longer require tremendous space for the physical storage of files and documents. When those items can be stored digitally or in the cloud, the need for several storage rooms is minimized. 

The housing shortage is a situation that is also based on a diverse set of factors. Labor and supply costs are skyrocketing, and zoning issues often restrict new construction and the density of the housing that is built. As Baby Boomersare living longer than ever, they’re not giving up their homes. Plus, an increasing population simply means that the rate of new home construction can’t keep up with the numbers. Each of these factors play an important role in the housing shortage. 

Where are Office-to-Housing Conversions Happening?  

Office-to-housing conversions are particularly prominent in major metropolitan cities. Cities like Dallas, New York and Washington, D.C. got in on the phenomenon quite early. Chicago is in the middle of a massive conversion involving 10 city blocks. In fact, the city was able to set aside more than $150 million in subsidies to convert four commercial buildings into apartments, with 3 of every 10 units being considered affordable. 

Gateway cities, where affordable housing is badly in need, have also jumped aboard. Lowell and New Bedford, Mass. have had significant success converting former mills and factories into housing, with advocates lauding this process.

“Your downtown will be more successful if you’ve got more people living over the commercial space on the ground floors,” one architect told WBUR. “That is going to make your downtown more lively and less a place that goes completely quiet after 5 o’clock.”

The Challenges of Office-to-Housing Conversions

There are certain challenges that make office-to-housing conversions more difficult. Many of these obstacles are related to the physical structure of buildings. For example, one study suggests that only 15% of office buildings in the country’s largest cities are physically suitable. These offices also may lack access to natural light and air, and have low ceilings many residents wouldn’t desire. 

There are also financial limitations. High interest rates and the cost of labor and materials can throw a wrench in the conversion process, as can the need to overhaul mechanical systems. Luckily, the tax benefits in many areas are extremely positive. In Massachusetts, the state is offering owners up to $4 million for residential conversions. Michelle Wu, the Mayor of Boston, is offering a 75% discount on the residential tax bill for converted buildings.

The excess of office space and lack of housing can’t be narrowed down to having one cause. In contrast, it’s a variety of factors that play into the issue. While there are challenges to achieving office-to-housing conversions, the benefits are fruitful. Across the country, vacant buildings are undergoing transformations. With a slew of upsides that range from putting a dent in the housing shortage to tax benefits, investing in office-to-housing conversions is a revolutionary move that will create a better future for us all.