​​​A community guide to office-to-residential conversion: Part 2, policy levers

The idea of adapting older buildings for a use other than their original purpose is far from new. However, as work has become increasingly specialized, so has the design of buildings for workers, such as offices. Similarly, state and local governments have expanded residential building code requirements over time. Therefore, the specific challenge of converting obsolete office buildings into housing is more complex than ever, and merits new investigation. 

Over the last year, we interviewed over 150 respondents across six representative U.S. cities in an effort to understand the current state of office-to-residential (O2R) activity, and the market contexts and policy frameworks in which conversions occur.  

At the outset of our research, we identified four primary categories of actions that state and local governments might take to promote O2R conversions. This report presents findings from our research, moving from categories to specifics and detailing the range of tools we saw state and local governments successfully deploy. 

First, there are policy tools focused on the regulations and processes by which developers build: namely zoning, building codes, and permitting. The policy environment governs what can be built where, and impacts the speed at which projects can occur (and thus the costs too), as well as their ultimate viability. Implementing new or modified processes to ease and expedite construction opportunities is generally free to the taxpayer—and in fact can often save the government money while emulating best practices in mixed-use urbanism more broadly. 

Second, there are financial tools, which directly impact a project’s “pro forma”: an estimate of the cash inflows and outflows associated with conversion of a building. These tools can be grouped into measures to reduce the cost of conversion (e.g., tax abatements, loan programs) and measures to increase revenue by inducing demand (e.g., vouchers, neighborhood investments). However, since financial tools come at a cost to the taxpayer, policymakers must weigh competing social objectives when deciding which, if any, to adopt. 

Lastly, we consider the role of the federal government in promoting O2R conversions. The federal government’s role in promoting conversions today is largely limited to the provision of the federal historic preservation tax credit. However, through modifying existing federal programs and considering new legislation such as the Revitalizing Downtowns and Main Streets Act, the federal government could play a more proactive role in assisting localities. 

State and local policy tools 

In this section, we present regulatory reforms that local governments have used to expand the pool of viable conversion candidates and speed up the approval of conversion projects. This category of tools has two important features: 1) a one-time, de minimis cost to define and implement reforms; and 2) a systematic approach that applies to all current and future projects.  

Remove minimum parking mandates 

Many cities in the U.S. have minimum parking requirements for various land uses, specified in their zoning ordinances and building codes. These mandates, which have limited basis in actual models of demand, impose additional fixed costs on development projects and often serve little practical purpose in areas with ample public transit and high walkability, such as downtowns.  

These increased costs decrease affordability: Parking can increase the rent or mortgage per dwelling by $200 to $500 a month. One analysis found that after parking mandate reform, builders saved nearly $20,000 per unit. Removing these mandates is a general best practice for both spurring new residential development and some O2R conversions. Removing parking mandates allows developers to right-size the number of parking spots provided in a building, relative to willingness to pay.   

Los Angeles provides a case study on the interplay between conversion and parking. In 1999, the city adopted an adaptive reuse ordinance (ARO) that allowed for by-right conversions downtown. The area covered by the ordinance was expanded in 2003. Pre-ARO, developers were required to provide two or more on-site parking spaces for each new housing unit. But this requirement did not apply to buildings eligible for conversion under the ARO. Post-ARO, the average number of on-site parking spaces fell to 0.9 in converted buildings. 

In most market contexts, removing parking requirements does not mean that residential conversions will proceed with no parking. For example, we found in our case study research that Houston has begun to eliminate some parking requirements, expanding areas exempt from parking minimums near the downtown (in 2019) and near transit-oriented development (in 2020). However, most office conversions in Houston are to hotels, and use the flexibility of the lack of on-site parking requirements to provide parking via valet.  

Paradoxically, parking requirements can sometimes actually help O2R conversions. For example, in Stamford, Conn., where there are high construction costs and strong demand for parking, O2R conversions have an economic advantage over new construction in that many offices already have enough parking to meet residential demand. 

Allow responsible single-stair egress 

U.S. building codes typically require two staircase exits for buildings over three stories tall—a highly unusual requirement in a global context. Italy, for example, allows for a single staircase for buildings up to 26 stories, while Singapore sets the limit at 20. Many U.S. cities have an ample supply of smaller office buildings that, under present codes, would require a second egress option for conversion to residential use, which either increases the cost of conversion significantly or makes conversion infeasible. In our study of Pittsburgh, developers shared that Pennsylvania’s two-egress requirement was a significant factor holding back O2R conversions. 

Multi-egress requirements were introduced in many U.S. cities throughout the late 1800s and early 1900s to mitigate against safety risks posed by fires, before the advent of modern firefighting techniques. In the 1970s, Seattle reconsidered this requirement to promote more urban development, changing the code to permit single-staircase apartments up to six stories—the height that a modern fire ladder can reach. This gave rise to a new housing typology, colloquially referred to as the “Seattle Special,” which now peppers the city: a four- to 29-unit urban infill housing project. In 2024, California, Oregon, and Washington all legalized single-stair construction, while more than 10 other states and cities have either begun to study the issue or already enacted reforms. 

This momentum reflects the fact that scant evidence supports the theory that U.S. egress requirements have prevented fire deaths. As global examples, particularly in the EU, suggest, midrise single-staircase buildings with proper fire precautions (such as sprinklers and fire alarm systems) are as safe as two-egress buildings. Legalizing responsible single-stair egress is a safe and effective way to create housing and encourage conversion.  

Preserve floor area ratio and activity density 

Apartment buildings use two to four times as many square feet per person as offices. Therefore, converting offices into housing typically results in reducing the activity density of a building. Local governments can minimize activity loss by modifying their zoning to preserve activity density in several different ways.  

Typically, U.S. local governments regulate urban density by zoning limitations on floor area ratio (FAR), the ratio of a building’s total floor area to the lot size. For example, a one-story building that covers a lot from edge to edge has a FAR of 1, as does a two-story building with a footprint that covers half the lot. Depending on the jurisdiction, FAR limits are implemented as either a total cap for the site or broken down into separate FAR caps per use type. These limits often change over time, leading to situations where an existing office building is “overbuilt” or has an existing FAR higher than new office construction or residential use zoned on the site. For example, until 2023 in New York City, a 12 FAR cap on residential applied to much of the office core, making conversion of larger buildings to residential impossible. 

Aligning office and residential FAR caps to the size of the existing buildings allows a 100% conversion of the property to be “as of right.” New York City has already enacted this change. 

Converting a building from office to residential sometimes involves having to make structural changes to the footprint of the building, such as cutting light wells, that result in lost FAR. Allowing developers to recapture this lost FAR by right through adding additional floors on top or space elsewhere on the parcel can partially mitigate lost activity density. In addition, office buildings often have mechanical floors, penthouses, and mezzanines only used by offices. Los Angeles recently updated their adaptive reuse ordinance to allow these spaces to be recaptured and converted to residential use. 

Finally, Texas is considering SB 2477, which includes an even more expansive approach, allowing up to 1.2 times the existing onsite FAR to be “as of right” for conversion. This is the most helpful approach to preserving activity density through conversion. Higher residential FAR allows for future residential use closer to the capacity the infrastructure on site is already proven to support. 

Modify state policies for Low-Income Housing Tax Credit allocations 

The Low-Income Housing Tax Credit (LIHTC) is a federal program that provides tax credits for investments in rent-regulated affordable housing developments. Each state is allocated a certain amount of tax credits it can access based on population, and then each state’s housing finance agency is responsible for the development and implementation of a Qualified Allocation Plan (QAP) to establish priorities for how those tax credits are allocated within the state. Through the QAP process, states must establish “selection criteria” that are used for scoring and prioritizing applications for competitive credits.  

The QAPs establish specific priorities within the state, which may include a range of variables such as population (housing for seniors or veterans, for example), as well as priorities by sponsoring entity type, energy efficiency, location (such as a rural set-aside), or local housing need. Empirical evidence indicates that the ways that states shape QAPs make a real difference in where housing for low-income residents gets built.   

For office-to-residential conversion, state QAPs can be amended to, in effect, prioritize conversion projects. This could be implemented directly or indirectly through targeting by geography or historic character of the building. For example, last year, New Jersey changed its QAP to allow exemptions from cost caps for up to $15,000 per unit for adaptive reuse projects. By increasing the competitiveness of conversion projects, states can promote the supply of affordable housing in accessible locations near jobs. 

Create a special permitting process for office-to-residential conversions  

In most cities, obtaining a building permit is a time-consuming process that requires interfacing with myriad agencies, each with their own paper-based systems or software platforms. The process is so complex that many developers will hire an “expeditor”—a professional whose sole role is to obtain all the necessary permits for a building to open.  

Cities across the country are undertaking multiyear transformations to streamline permitting. In Winston-Salem, N.C., the city undertook a comprehensive review to create a transparent permitting environment for development. Typically, the onus is on the developer to prove to city staff—who perform a largely regulatory function—that their building is compliant. In Winston-Salem, the mayor redefined the role of planners and building inspectors, instead asking them to work as a team with local developers to help get to a compliant and expedient opening of each new building. Short of such a holistic mandate, some cities are focusing on office conversions by setting up dedicated, interagency teams focused on O2R conversions, which tend to face particularly complex permitting pathways by virtue of the fact that they often constitute use changes of landmarked buildings.   

For example, New York City established an Office Conversion Accelerator team that provides a single point of contact for any project creating 50 or more housing units. The team includes representatives from City Hall, the Department of City Planning, the Department of Buildings, the Department of Housing Preservation and Development, the Board of Standards and Appeals, the Landmarks Preservation Commission, and others involved in the approval process. As a result, developers don’t have to navigate across agencies on their own; instead, they have city officials championing their project. Over the next eight years, nearly 20,000 new units will be added thanks to New York City’s efforts.  

Modify zoning for by-right conversion 

One of the most direct policy changes localities have made to encourage O2R conversions is implementing “by-right” conversion zoning. Though the specifics may vary, by-right conversion generally means that as long as the buildings conform to existing building codes, developers do not need to seek variances, conditional use permits, or other discretionary approvals in order to replace existing office space with residential units. While many American cities already offer their most flexible zoning in the downtown area, localities should allow for by-right conversions jurisdiction-wide, creating new value not only in struggling downtowns but also encouraging conversion in office parks and malls outside the core.  

Some cities have already begun to implement some version of by-right zoning for O2R conversions. While a regional housing crisis persists, in Los Angeles, the city estimates that more than 12,000 housing units have been added downtown as a result of its adaptive reuse ordinance, which allowed for by-right conversion in that area. Building on this momentum at the state level, AB 3068, passed in 2024, expanded by-right zoning for O2R conversions to all offices “in an urbanized area or urban cluster” in California. The bill also established a streamlined review process and exempted conversions from California Environmental Quality Act reviews. 

Allowing by-right conversions will help projects move more swiftly. Allowing for conversion by right also circumvents potential political or aesthetic fights over individual projects. While public input is a healthy part of discourse about new development generally, given that the building stock for conversion projects already exists—and must still conform to existing building codes—there is minimal risk involved in authorizing a change of use. 

State and local financial tools 

While policy reforms can remove bureaucratic barriers and improve timelines, the​ challenging economics of conversion projects mean that, in many places, state and local financial intervention is necessary to promote O2R conversions on a large scale. There are two kinds of market interventions, both of which can be pursued simultaneously: reducing the cost of conversion through public subsidy, or increasing demand (and thus revenue) for the resulting building through public spending. The ideal mix of levers for a given region depends on local priorities and market conditions. Ultimately, localities must decide why they want to encourage office-to residential conversions in a particular area (or across a whole city or state), and the proper levers will flow from that answer.   

Reduce costs 

Most conversion projects make use of government programs that reduce costs, either in terms of the cost of construction, the cost of operation, or both. Governments and real estate practitioners favor these tools because their cost, timing, and contribution to project feasibility are predictable. At the same time, offering public tax incentives to private developers requires clearly articulated desired outcomes. Most cost reduction programs are tied to adjacent social goals, such as protecting historic architecture, creating affordable housing, or intensifying land use near transit. 

The four financial tools explored through the examples below represent a “menu” of options that a locality can choose to deploy to reduce costs. In addition, it is worth noting that eliminating parking minimums and allowing single-stair egress—policy levers covered earlier in this report—also reduce the cost of development without passing that cost to the taxpayer.  

• Tax credits  

In a tax credit program, a taxing authority (such as a federal, state, or local government) offers a credit on the tax bill (e.g., for corporate income taxes) of an entity in return for some type of investment. Critically, the taxes reduced are not necessarily owed by the same entity as the one developing the project. When tax credits can be sold to a third party, they can be useful to entities with little or no tax liability of their own (such as nonprofits or limited liability companies (LLCs).  

The most commonly used tax credit for O2R conversion is federal rather than local: the historic preservation tax credit (HPTC) under the Federal Historic Preservation Tax Incentives program. The HPTC is a 20% federal income tax credit for rehabilitation (or conversion) costs. The development entity can use this credit to reduce its corporate taxes, or it can sell the credit to an outside investor, providing up-front cash that can be invested in the project’s construction. In either case, the credit has the impact of reducing the cost of constructing the project.  

Conversion projects’ widespread reliance on the HPTC means that stackable state or local equivalents are a relatively straightforward way of incentivizing conversion activity. For example, North Carolina—home to one of our case study cities, Winston-Salem—offers a 15% to 25% state income tax credit that can be stacked with the federal HPTC. These combined federal and state tax incentives have been used on both office-to-residential and dozens of mill conversion projects in Winston-Salem’s core, producing thousands of new apartments as well as offices, labs, retail, and hotels.  

The key limitation of historic tax credits is eligibility. To qualify, a building must be at least 50 years old and either registered with the National Park Service in the National Register of Historic Places or be identified as a contributing structure within a historic district on the National Register. Many of the U.S. office buildings that currently have the highest vacancy rates were constructed during the speculative office construction boom of the 1980s. These buildings are not yet 50 years old, and are therefore ineligible for the HPTC. In addition, owner-occupied real estate is not eligible for the HPTC, so projects that convert offices into condominiums cannot use it. Thus, jurisdictions with younger office stock or that want to promote homeownership may need to invest in other tools. 

• Tax reductions  

Tax reductions are a second set of tools to reduce project costs. These can include tax “exclusions” (in which specific project investments are not included in the calculation of project taxes) and tax “abatements” (in which a tax bill is reduced by an amount that is predetermined and related to a specific set of investments in a project). Unlike tax credits, the reductions are most often directly associated with some aspect of the operations of the project itself, and often may not be sold to outside investors to raise capital. Instead, the most common effect is to reduce the ongoing tax liability for a project. 

As with income tax credits, abatements on real estate taxes often serve a social purpose beyond economic development. For example, North Carolina offers the Brownfields Program, a five-year abatement designed to encourage developers to restore environmentally contaminated areas to use. In this program, investments in project infrastructure that addresses historical contamination (for example, re-grading a site to remove soil contaminants) are “excluded” from the calculation of the project’s property value for 10 years. This effectively reduces the ongoing property taxes of the development. Similarly, Forsyth County, where Winston-Salem is located, offers a 50% permanent local property tax exemption for properties designated as local landmarks and maintained by their owners in their historic condition—a program authorized by the state legislature.  

In other localities, tax abatements are often used to incentivize affordable housing. New York City’s 421-a Tax Incentive program was first created in 1971, and in 2024, the state created Affordable Neighborhoods for New Yorkers, or “485-x.” In each iteration, the law established both a percentage of the number of units in a building that must be “affordable” and the targeted income ranges for those units. In return for providing those units, projects have their property tax liability reduced by a fixed amount over a period as long as 30 years. While the effect of 485-x remains to be seen, 421-a had a strong history of generating affordable housing: Of the 185,000 units of multifamily housing built between 2010 and 2020 in New York City, nearly a third were targeted to those making less than 80% of the area median income. 

As critiques from multiple points of view show, when crafting these tax reduction programs, policymakers will inevitably face tradeoffs. On one hand, if a program’s requirements for wages are too high or rents too tightly restricted, projects may not be viable. On the other hand, if incentives are too generous, programs are subject to concerns about being a “giveaway” to private interests.  

• Low-cost loan programs  

Upfront financing is often the biggest challenge for construction projects, and O2R conversions are no different. As with saleable tax credits, low-cost loan programs can help developers with the immediate costs of development and thus help get more projects off the ground. Low-interest loans can come from philanthropy, government, or quasi-governmental development authorities, which may also tie the loans to other social goals such as affordable housing. Sometimes, regional business communities will pool capital and form development corporations to disperse loans or even act as a developer of last resort.  

Pittsburgh’s Urban Development Authority, for example, used funds from the American Rescue Plan Act (ARPA) to launch the Pittsburgh Downtown Conversion Program. The program provides developers loans of up to $3 million (or 40% of total project costs) for conversion projects in Pittsburgh’s central business district, with the loan amount varying depending on the percentage of affordable units. The program has seen significant uptake: As of April 2024, all of the ARPA funds had been allocated. 

Low-cost loan programs have the advantage of allowing governments to disperse needed cash quickly and recoup the cost later. Arguably, states rather than cities are best positioned to maintain these programs because of their greater and more stable resources. 

In 2023, Wisconsin launched the Vacancy-to-Vitality Loan Program, which also provides low-interest loans for conversions that create affordable housing. Though Wisconsin allocated $100 million to the program, as of fall 2024, only $9 million in loans had been dispersed. Developers point to the fact that the statute authorizing the program prohibits them from accessing both state and federal historic preservation tax credits and local tax increment financing—resources many conversion projects rely on. In general, low-cost loan programs need to be carefully designed to meet all of a state or locality’s goals, whether that is increasing affordable housing or reducing vacant office stock downtown.  

• Direct cash transfers  

The most efficient way for state and local governments to spur conversion is via direct cash transfer to target buildings, because there is minimal administrative, accounting, time, or risk costs to the capital. However, this method remains rare—generally only used by governments in true times of crisis to target a subset of particularly challenged buildings—as most governments have limited reserves and/or surplus revenue. 

The most well-documented example of a direct transfer for conversions is in Calgary. Calgary’s downtown had increasing office vacancy rates for years before the one-two hit of the 2014 oil crash and 2020 pandemic. At the same time, housing costs in Calgary had grown quicker than wages, and residential vacancy rates were extraordinarily low, creating an affordability crisis. Of the Greater Downtown Plan’s initial $200 million budget, the city spent $153 million on direct financial incentives for O2R conversions. Specifically, the city offered developers $75 CAD per square foot of converted floor space, amounting to about a quarter of the entire cost of conversion. The initial $153 million was exhausted after the city approved 11 conversion projects. In 2023, the city allocated $52.5 million more for additional projects.  

As covered in our case study, Houston’s Living in Downtown program, initiated in 2012, also provided direct incentives for developers creating housing downtown. While not specifically targeted at O2R conversions, the program used state funds to provide around $15,000 per new unit to developers. However, political conflicts at the state level make renewal of the incentive uncertain.  

When feasible, direct cash subsidy can be structured to deliver additional public benefit beyond other forms of subsidy because of its premium value. In the example of Calgary, the city provided the subsidy dollars only after projects were completed, thus shifting risk from taxpayers to developers. In the 2023 extension of the program, the city also included affordability requirements. The political challenges of direct transfers mean that cities and states will likely only turn to them as a solution when there is broad acknowledgement that a particular subset of office buildings presents a problem that needs to be solved.   

Increase revenue 

The projected value of a building as residences must exceed projected costs for a conversion plan to pencil. Reducing costs is one way to influence that equation. The other is to increase the total value of a given building by increasing the value of each residential unit. For a residential building, value is mostly determined by demand: whether people want to live in the apartments in a given building and in the particular neighborhood more broadly (in this case, a former office district). 

• Direct incentives 

A straightforward way to encourage people to move to a given area is through cash payments. While no city has yet embraced this policy for a particular neighborhood (such as a downtown) or development, some places with declining or stagnating populations have experimented with paying remote workers to move in.  

The most prominent example is Tulsa, Okla., which, since 2018, has offered $10,000 for people to move to the city, primarily targeting knowledge workers. Beyond the money, which is gradually paid out during a worker’s first year in Tulsa, the program also has a strong emphasis on networking, promoting entrepreneurship, and otherwise providing resources to help new arrivals integrate into the community. Funded primarily by the George Kaiser Family Foundation, Tulsa Remote has moved more than 3,500 knowledge workers to the city. A recent evaluation found a large, positive cost-benefit ratio from the program’s impact. The positive impact is in part because a clear majority of the relocations are sticky: 76% of participants have stayed in Tulsa since the program launched.  

While not a direct parallel, Tulsa Remote’s example does provide important lessons for larger-scale efforts to remake areas currently dominated by emptying offices. Many of these ailing city centers will require more than newly converted units to become attractive places to live. As in Tulsa, developers and cities could partner with nonprofits to provide incentives and create business and social ecosystems that give newcomers a community. 

• Offering vouchers or other rent guarantees 

Many communities have targeted programs to provide rent vouchers to low-income households. These often fall under the umbrella of “Housing Choice Vouchers,” which provide rental assistance to families that meet defined income criteria. Vouchers can be either “tenant-based” (that is, a tenant can take the voucher to any available apartment) or “project-based” (in which the voucher is associated with a unit, and the unit must be rented to a qualified tenant).   

Today, these types of voucher projects do not target office-to-residential conversion projects. But in theory, voucher programs could be a powerful tool in spurring O2R conversions at a local level. A decision to direct a set of project-based vouchers toward conversion projects would, in effect, guarantee tenants for a developer and form a highly reliable stream of revenue. If local policymakers could facilitate, for example, a commitment that 20% of units in a building be leased via vouchers or by the local housing authority for sub-lease to future tenants, the developer of the project would be able use that commitment to reduce financing costs as the overall risk of default decreases. Vouchers could both increase potential project revenue and help achieve local affordable housing goals.  

• Building improvements 

Another way to drive demand to residential units is to improve the aesthetics and amenities of the building in question. Improvements to the building—such as subsidizing facade repair and retail activation—both make the neighborhood more vibrant and provide direct value to potential residents. 

Government-subsidized facade repair and restoration has a long history. Pittsburgh, for example, subsidizes facade repair for commercial properties through its Paris to Pittsburgh program. The program provides matching grants of up to $50,000, or 50% of total costs, for buildings in the central business district. While Pittsburgh’s grant is particularly generous, many other cities have similar programs. These grant programs can help reduce costs for developers of O2R conversion projects or allow them to redirect funds toward interior improvements. 

Similarly, subsidizing retail activation is a powerful tool for making any given building—and the neighborhood at large—more attractive. Some retail activation programs offer low-interest loans to prospective business owners in a given development area (typically, the downtown). Winston-Salem, for example, used low cost loans to help establish the now thriving Restaurant Row. Others, such as Milwaukee’s Storefront Activation Grant, allow developers to use government funds to attract business owners into presently vacant retail space.  

While there are a variety of forms these loans and grants can take, in general, they help increase the value of a newly converted building. Retail activation is likely especially important in areas otherwise lacking in stores and restaurants.  

• Neighborhood improvements 

In some cases, office-to-residential conversions happen in downtowns that are already viable for residential use. In Stamford, for example, strong regionwide demand for housing—combined with high barriers to new construction—has led to O2R conversions in its relatively attractive downtown area. But many cities more resemble Pittsburgh, with downtowns that have never been a population center and that do not include key amenities that drive residential demand, such as schools and open spaces.  

As one respondent told us during interviews: “We don’t have a playground, we don’t have a dog park, we don’t have a supermarket.” Another respondent observed that conversion costs were driven in part by the need for associated streetscape improvements: “To do the project, we need to light the street, to redo the sidewalk.” In a city such as Pittsburgh, conversion activity that might revitalize the downtown is thus limited by additional infrastructure costs. Without subsidies—and perhaps even with them—the only way that O2R conversions make sense is if the government also spends money (and encourages investment) to remake the neighborhood itself.  

In Pittsburgh, local economic development bodies previously tried to address these issues through assembling grants, particularly drawing on the 2021 Infrastructure Investment and Jobs Act. However, developers found this “cobbled together” approach insufficient. In October 2024, Pennsylvania Governor Josh Shapiro announced more than $600 million in public and private funding to remake Pittsburgh’s downtown. Though the initiative directly funds certain conversion projects (including several examined in our study), it will also spend money on public goods such as improving parks and street medians, as well as converting “underutilized parking lots and open space” into a new outdoor destination that can host festivals and concerts. Though the results remain to be seen, the state’s efforts in Pittsburgh provide a striking example of how a unified effort can potentially jump-start an entire neighborhood. By making neighborhoods more pleasant places to live, cities can increase forecasted revenues for building owners and possibly incentivize conversion projects.  

Governments use these mechanisms not just for office-to-residential conversions for their own sake, but also to revitalize aging neighborhoods such as once-vibrant downtowns. By spending money today, governments can remake underutilized areas into more productive neighborhoods for tomorrow.

The federal role in office-to-residential conversion 

Real estate developers have long relied on state and local support to complete projects. With current national construction financing conditions tougher on multiple dimensions (including higher loan standards, higher interest rates, and less lending activity from banks), many developers are hoping for more help from the federal government. 

Today, the main mechanism through which the federal government is involved in promoting office-to-residential conversation is the historic preservation tax credit, discussed above. Nearly every asset owner we interviewed who possessed a site over 50 years old had success registering their building on the National Register of Historic Places and utilizing the tax credit, often stacking it with local equivalents. While this federal tax credit will continue to be crucial for developers, with some tweaks to existing programs and potential new programs on the horizon, the federal government could play a much larger role in promoting conversion in the future, especially in suburban areas where many buildings lack a persuasive story to justify placement on the National Register.  

Reforming Department of Transportation programs 

Two programs that could act as potentially powerful tools for financing office-to-residential conversions sit under the purview of the Department of Transportation (DOT): the Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation and Improvement Financing (RRIF).  

TIFIA, a $70 billion program, provides low-interest loans for transit-oriented development (TOD) projects, at up to a 49% loan-to-cost (LTC) ratio. Eligible projects can improve public transit or focus on related economic development, including, in theory, the production of housing. Authorized in 1998, TIFIA was created to enable the construction of large-scale surface transportation projects. 

RRIF, a $35 billion program, is like TIFIA but has a 75% LTC ratio. However, applicants must be within a half-mile of an Amtrak station, and they must apply as a joint venture with a public entity. While both programs have garnered substantial interest from the development community, neither had a track record of successful use for O2R conversion projects at the conclusion of our study. 

National Environmental Policy Act categorical exclusion 

Presently, application processing for both of the above programs takes at least 12 months, and necessitates National Environmental Policy Act (NEPA) review, Buy America requirements, and Davis-Bacon wages, among other conditions typical of large-scale infrastructure projects, but highly unusual within real estate. As a result, developers cannot use them in O2R conversions. But given that much office stock sits in accessible locations served by transit (and that many jurisdictions want to encourage O2R conversions precisely to gain more housing along transit lines), the programs, if altered, could make a significant difference.   

Developers and sustainability advocates alike have advocated for DOT to issue a NEPA categorical exclusion for office-to-residential conversion projects. A NEPA review can be a time-consuming, litigation-inducing process, which hinders public-private investments that succeed or fail based on how long it takes for a project to go from conception to occupancy. At its core, NEPA is intended to regulate infrastructure and real estate decisions in order to protect the environment. But O2R conversions are unlikely to pose an environmental risk by virtue of the fact that the building stock is already there. In fact, quite the opposite: By producing housing from existing buildings—rather than ground-up development—a developer can avoid embodied emissions associated with new construction. By issuing a NEPA categorical exclusion for TIFIA- and RIFF-eligible office-to-residential conversion projects, the federal government can help make projects in walkable areas near transit newly viable.  

Statutory and regulatory changes 

Other statutory and regulatory changes and clarifications can make TIFIA and RRIF more accessible and relevant for real estate projects:  

• TIFIA and RRIF borrowers are required to have an investment grade rating in order to receive a loan. However, rating agencies typically do not rate debt for residential developments. DOT could consider removing the requirement for an investment grade from TIFIA and RRIF programs when used for O2R conversions. 
• TIFIA and RRIF take over 12 months, but a two- to three-month loan review cycle is typical for the real estate industry. DOT will need to expedite review for TIFIA and RRIF real estate projects if it wants to promote broader usage. To facilitate a shorter review cycle, DOT could develop a template loan document specific to conversions, as the current DOT loan templates are intended primarily for financing transit projects.  
• TIFIA and RRIF include “Buy America” requirements that make sense for billion- or trillion-dollar infrastructure projects, but would prove challenging for smaller-scale real estate projects. DOT could remove these requirements via administrative waiver. 
• TIFIA’s maximum loan-to-cost ratio is 49%. However, real estate developers typically borrow 60% to 70% of their project costs from commercial lenders and secure the remaining 30% to 40% from private equity (at a much higher cost). Congress could consider increasing the maximum loan-to-cost threshold for TIFIA from 49% to match the RRIF program, which allows loans up to a 75% loan-to-cost ratio. This would reduce the burden on local governments to find gap financing from other sources, which for some projects will make the difference between feasibility and impossibility. 

The Revitalizing Downtowns and Main Streets Act  

The bipartisan Revitalizing Downtowns and Main Streets Act of 2025 offers a concrete proposal to increase the federal government’s role in supporting office-to-residential conversions. The legislation was modeled on the historic preservation tax credit, similarly deploying an easily accessible tax credit for developers converting former office or commercial buildings to residential use. In advocating for the bill, congressional sponsors pointed to both the nationwide lack of affordable housing and the negative social and economic consequences of downtowns and commercial corridors filled with vacant properties. 

In its proposed form, the tax credit is transferable and covers 20% of conversion costs, stacking with the HPTC and LIHTC. The conversion tax credits would cover more recent buildings than the HPTC, including all retail or office buildings more than 20 years old, rather than the HPTC’s 50 years. There is also an affordability requirement: 20% of the residential units must be reserved for individuals whose income is 80% or less of area median income. The legislation proposes $15 billion in funding, with $3 billion set aside for economically distressed areas and the remaining $12 billion allocated to states in proportion to their population. States would be required to allocate the credits on a competitive basis.  

Similar state legislation in Missouri—the Revitalizing Missouri Downtowns and Main Streets Act—allocates $50 million for tax credits of either 25% or 30% of conversion costs in Main Street districts, depending on the project. This legislation passed the state senate in the most recent session, but did not make it out of committee in the lower chamber, leaving the possibility of the federal version of the legislation or a future state version alive. 

As state legislatures weigh similar incentives, the question for Congress is whether the economic benefits to the public and the nation of moving underperforming commercial real estate back to productive use outweigh the cost of foregone tax revenue.

The case for intervention 

While varying jurisdictions have differing motivations for encouraging conversions, there are commonalities. In many contexts, there is an urgent need for more housing, especially affordable housing—and promoting conversions is one way to make a (small) dent in nation’s unprecedented housing shortage. But perhaps more importantly, local, state, and federal governments should all have a strategic interest in ensuring that downtowns and other commercial clusters remain vibrant centers of activity. 

Office space is highly concentrated in specific areas—both traditional downtown urban cores and suburban office clusters. A recent analysis of 110 U.S. metropolitan areas found that activity centers occupying only 3% of land contain 40% of all private sector jobs, 46% of the commercial real estate tax base, and 88% of all federal office space. Given the dominance of offices in a typical activity center’s land use mix (30% to 70% of square footage), these places can be significantly weakened by unproductive office buildings. 

Yet the well-being of activity centers matters to the whole economy. Metropolitan areas that concentrate jobs in activity centers are more productive. There is a clear and positive relationship between activity center density and productivity, as measured by gross metropolitan product per worker. Every 1,000 jobs per square mile in a metro area’s median activity center was associated with an additional $1,723 in output per worker across the metro area. Converting underperforming offices into housing strengthens demand for the remaining product by removing competition and bringing workers into proximity. 

Activity center proximity is a critical characteristic of resilient regions. Expanding housing supply in and around activity centers enables households to cut their annual vehicle miles traveled by up to half by making shorter car trips and doing more biking and walking—saving time as well as money spent on fuel and reducing emissions. This returns a direct benefit to both individual households and society as a whole.  

Lastly, activity centers matter to local government fiscal health. A typical U.S. activity center produces more than four times its tax assessable value relative to land area. In the rest of the region, this relationship is inverted, with land area producing less than two-thirds of its share of taxable value. Many jurisdictions are anticipating future revenue shortfalls as the “doom loop” of commercial real estate valuations adjusts to the new market reality and federal aid is used up. Keeping activity centers productive can help the fiscal bottom line for local governments. 

The top 25 U.S. metro areas make up over half of the nation’s gross domestic product, and including smaller metro areas brings the number up to nearly 90%. Put simply, we need to care about the health of regional economies because they are crucial to the national economy—a source of American competitiveness in everything from culture to innovation. Office-to-residential conversions contribute to the dynamism of these regions and can therefore be part of ensuring a prosperous future for American communities.