Too many cubicles, too few homes spur incentives to convert offices to housing

A Colorado bill now in committee would provide tax credits for commercial conversion to housing starting in 2026, supporting Denver’s plans to transition its office-oriented Central Business District to a “Central Neighborhood District.” Denver identified 16 commercial buildings as prime candidates for housing.

Zoning changes

Starting in the mid-1990s, a combination of state and city laws helped transform lower Manhattan’s business district with more apartments, a process that accelerated after 9/11. A proposal by Democratic Gov. Kathy Hochul to expand the program to newer buildings failed to pass the legislature as part of a broader measure that included requirements for suburban and upstate communities to build more housing. Negotiations are continuing with lawmakers to make the change for New York City this year.

New York City also has begun working on its own rules to allow office-to-housing conversions citywide for buildings built before 1990, said Casey Berkovitz, spokesperson for the Department of City Planning. The state could do it faster and could also create tax incentives that the city cannot create on its own, and that’s also part of current negotiations with the state legislature, Berkovitz said.

“When you have a 20% office vacancy rate and a 1.4% rental apartment vacancy rate, it makes a lot of sense to substitute one for the other,” Berkovitz said. “We don’t want our own regulations standing in the way of that if it makes financial sense.”

In Herndon, town officials last month approved a zoning change that would clear the way for demolition of the Worldgate Drive offices and the construction of a combination of rental apartments, townhouses and “two over two” units with accessory living areas an owner can rent out or share with family members. All apartments would be market rate without subsidized affordable units, Ken Wire, an attorney for the developer, Boston Properties, said at last month’s hearing on the zoning change.

“We believe that by providing more housing in the area, we are adding to the overall supply, which thereby reduces price pressures in the market,” Wire said.

Virginia considered two state Senate bills this session that would have created incentives to convert offices to apartments but neither has passed, said Allison Brown, policy associate for the nonprofit Virginia Housing Alliance. One would have created a state income tax credit for office-to-residential conversion, and another would have allowed more residential building in commercial areas if they included affordable housing.

The Worldgate Drive housing plan may spur Herndon to change its zoning rules to allow similar projects without zoning changes, said Elizabeth Gilleran, the town’s director of community development.

Herndon wants to “retain its sense of community and historic small-town feel” but also keep a strong commercial tax base that has helped support the town’s tax coffers when home values inevitably rise and fall, Gilleran said. The town recently approved conversion of a small office park and a hotel to homes. But offices and other commercial buildings will remain a key component of the town’s suburban building mix as density grows with a recent new commuter rail stop that opened in 2022.

“The town doesn’t wish to become a bedroom community,” Gilleran said.