City report throws cold water on converting vacant offices into affordable housing

Among the ideas that have been floated to address the District’s affordable housing shortage is turning vacant office space into subsidized apartments. Last year, the D.C. Council passed legislation establishing an official task force to examine the issue. After all, the thinking went, at least a tenth of the city’s office footprint—some 13 million square feet—was not being used.

But a new report from the task force finds that “office-to-residential conversions are not the most efficient way to address the city’s pressing housing needs.” While the report says there are some cases where “such conversions are financially responsible, most likely to be Class C and lower-grade office buildings located outside the central employment area,” generally the city’s time and money would be “better spent on other affordable housing ... programs.” Class C buildings are considered the poorest-quality, command less rent, and often need upgrades.

D.C. government

D.C. Office of Planning director Andrew Trueblood chaired the 12-member task force, which included a mix of public and private members. He writes the following in the group’s report:

The Task Force found that there are numerous barriers to office-to-residential conversions, which has limited the number of conversions in the District. These include the higher profitability of office space compared to residential use and the spread of office vacancies across buildings resulting in very few completely or nearly-completely vacant office buildings. The Task Force found that in most circumstances, office-to-residential conversions are not the most effective method of addressing the District’s most pressing housing needs. However, lower-grade and Class C office buildings along or near commercial corridors outside of the central employment area may provide for feasible opportunities for conversion to affordable housing. Such conversions could also support the District’s fair housing goals by increasing affordable housing supply in higher opportunity areas. The Task Force found that one of the most impactful policy changes would be to adjust zoning to provide additional density and mixed-use zones in these areas.

The group met monthly from October 2018 through January 2019 and prepared its report in partnership with the Coalition for Nonprofit Housing and Economic Development, a District-based organization that frequently provides services for the city, including a recent study that found D.C. lacks family-sized affordable housing. By the end of last year, the District had an 11 percent vacancy rate for privately owned office space—totaling between 13.4 million and 16.9 million square feet—according to the task force. This was lower than the overall rate for the region, 15.4 percent. Two-thirds of D.C.’s vacancies were situated in or near downtown.

Citing research by the Downtown Business Improvement District, the task force also found that only 2 percent of the 1,371 new residential units completed in conversions from 2002 to 2018, or 23 units, were considered affordable. When accounting for under-construction and planned apartments, the group explained, “the District will have only created 393 affordable housing units through office-to-residential conversions out of over 3,800 total housing units, or 10 [percent] — primarily through Inclusionary Zoning,” a city affordable housing program.

D.C. government

The barriers that developers face in office-to-residential conversions, per the report, include economic ones: In most parts of D.C., developers expect to make more income from offices than from multifamily apartments. Furthermore, “there are very few completely or mostly empty office buildings that are not already being repositioned for other purposes, which makes it difficult for a building to move quickly into an office-to-housing conversion,” the report says. Under the current housing code, office buildings present physical challenges to being converted, and owners are also wary of taking on risky projects with little precedent.

“As such, the District government would need to make a policy decision that it is in the public interest to increase the frequency of conversions to produce affordable housing,” concludes the task force. “If the District government decides to pursue such a policy, it would need to directly subsidize office-to-affordable housing conversions to make the projects economically feasible. Th[is] analysis shows that without such subsidies, the District may continue to see small numbers of office-to-residential conversion with very few affordable units.” Mayor Muriel Bowser’s administration transmitted the report to the D.C. Council late last week.

D.C. government