Implications and Geography of Office to Housing Conversions
Office to residential conversions are a once-in-a-generation opportunity to provide affordable housing in New York City.
In their “Making New York Work for Everyone” plan, released in January, Mayor Adams and Governor Hochul expressed eagerness to build more housing in New York City’s business districts after COVID. But due to significant financing, zoning, and design challenges in converting office buildings to residential, only select offices make good candidates for conversion, and few offices have actually been converted in recent years.
Since then, a policy debate about providing both regulatory relief and a property tax benefit that would spur conversions, especially in order to create affordable housing, has taken place across New York. With a budget due shortly, the Governor’s Office and State Legislature are likely debating the best approach for spurring office-to-residential conversions while ensuring the inclusion of affordable housing.
This post describes three resources to help inform the debate.
We recently gave testimony to the New York City Council describing the importance that office to residential policies encourage affordable housing. On February 28th, 2023, Mark Willis, the NYU Furman Center’s Senior Policy Fellow, testified at a City Council Oversight Hearing on Residential Conversions of Office Buildings. In this testimony, Willis pointed out the need for affordable housing, saying that “There is no question that affordable housing is needed, and indeed is critical to providing the lively mixed-use neighborhoods that conversions are meant to create.” Willis’ testimony also pointed out that while market forces, especially combined with various forms of regulatory relief, are likely to spur some residential conversions without committing public resources, unless affordable housing is required, office conversions will result in few or no affordable units. Creating such an opportunity for New York’s renters will require some public resources, perhaps in the form of property tax exemption or other subsidies, to allow that if conversions are necessary to revitalize New York City’s business districts, they also work to advance the City’s fair housing goals.
We are now providing a paper with further detail on the testimony, explaining why Mandatory Inclusionary Housing requirements should not be preempted by state action, and that some form of government financial assistance will likely be needed to ensure conversions with an affordable component actually take place. Furman Center Faculty Director Vicki Been, Executive Director Matthew Murphy, and Willis provide additional details on important considerations for office conversions. We begin with a more detailed look at why conversions are appropriate, outline some of the concerns policymakers might have top of mind about conversions, explore whether and how affordability should be secured in conversions, and provide a preliminary analysis of how a property tax exemption could be structured to offset some of the financial cost of including affordable housing as part of conversions. In short, we show that market forces will play a large role in offices converting to residential uses, and describe the need for the City of New York to closely monitor the issue.
But we also detail the need to consider the consequences of not applying the City’s Mandatory Inclusionary Housing (MIH) requirements to office-to-residential conversions, the importance of including affordable housing given that the neighborhoods where conversions are most likely to occur are some of the best-resourced and also lowest contributors of new affordable housing, and how a property tax exemption could be coupled with MIH (or a similar requirement) to ensure conversions actually take place. We conclude by saying:
“The cost of providing that affordable housing to developers should be offset to ensure that [an] affordability requirement does not prevent conversions that would help address the city’s housing shortage and ensure that underused offices do not become a burden to the surrounding neighborhoods and the city as a whole. The City has traditionally made that allocation by providing some property tax relief in exchange for developers building and operating affordable housing. That same approach can be used to ensure that allowing more office buildings to convert to residential homes does not waste the once-in-a-generation opportunity to secure affordable housing in some of the city’s best-resourced, but least diverse, neighborhoods.”
We created an interactive map showing the spatial concentration of New York City’s office and hotel properties, providing a sense of the geography of where conversions may take place. This interactive map allows a user to explore detailed information on New York City’s office buildings, including filterable criteria that might help identify potential conversion candidates and the spatial concentration of those buildings. Conversion candidates include those office properties that make less income from being an office building rather than a residential one. As well, those buildings with shallow floor plans, which potentially makes it easier to supply residential units that are up to code. Depending on legislation, they also include those built before a certain year.
You can use the map to understand the spatial concentrations of office buildings according to some of these various criteria. We encourage you to click on properties, and take a look at them on Google Maps – New York City’s office buildings are not a monolith:
Converting properties from office to residential is complicated for several reasons, but especially because of their physical design. According to architects and developers, conversions are particularly challenging due to the high costs of renovation, floor plates that are too deep to design bedrooms with code-compliant access to windows, and difficulty putting together large financing deals, even with public support. Two main policies help loosen zoning restrictions and provide financing, Article 1 Chapter 5 of the City’s Zoning Code and 2021’s Housing Our Neighbors with Dignity Act (HONDA), respectively.
New York City has a case study about how regulatory relief helps spur conversions: what took place in Lower Manhattan, especially after 9/11. A combination of regulatory relief and a property tax benefit helped to spur office-to-residential conversions there, transforming a heavily commercial area into a mixed-use one. Specifically, Article 1 Chapter 5 of the city’s zoning resolution loosened regulatory restrictions for office conversions in lower Manhattan and downtown Brooklyn and Queens. The regulation targeted buildings built before 1961 in these districts and buildings built before 1977 in Lower Manhattan. An analysis by CBCNY found developers created 17,000 housing units in lower Manhattan without government subsidy or tax relief since 1995. The same analysis found that a property tax benefit known as “421-g” was used to convert nearly 13 million square feet of office space, or roughly 13 percent of the lower Manhattan office market, to residential use between 1995 and 2006. CBC also found that office-to-residential conversions using 421-g created 12,865 units—over 40 percent of the growth in housing units in lower Manhattan between 1990 and 2020.
Also under discussion in Albany, related to this issue, is removing the cap on floor-area-ratio for residential properties. This move would permit denser residential building, and maybe even have the potential to unlock more housing from conversions. From our map, we estimate that around 800 office buildings have floor-area-ratios higher than the permitted density for residential.