The Biden Administration will spend taxpayer dollars to convert vacant commercial buildings in economically collapsed urban cores to residential use, including through new financing, technical assistance, and even the sale of federal properties.
Over $100 billion in taxpayer money will be allocated to bail out the commercial real estate sector, but billions more are to be allocated in the way of tax incentives and grants.
“These announcements will create much-needed housing that is affordable, energy efficient, near transit and good jobs, and reduce greenhouse gas emissions, nearly 30 percent of which comes from the building sector,” the White House announced.
With the changing economy that has more people staying home or working from home, and in the same week that WeWork filed for bankruptcy protection, Biden was essentially acknowledging that Bidenomics has failed urban areas.
Office and commercial vacancies across the country are affecting urban downtowns and rural main streets, the White House said, referring to a White House blog that says office vacancies have reached a 30-year high of 18.2%, placing a strain on commercial real estate and local economies.
Biden says these commercial offices can be used for housing.
“The COVID-19 pandemic forced Americans to change how they live and work, with ripple effects felt across the economy. More than one third of households report working from home more frequently now than they did before the pandemic, and workers go to the office about 3.5 days a week, a 30 percent reduction from pre-pandemic norms. The changes are squeezing the commercial real estate market, which is dominated by office buildings but also includes hospitality and healthcare facilities,” the White House said.
“The vacancy rates have reduced foot traffic to the ‘office adjacent’ economy, reducing demand at local businesses, including restaurants, dry cleaners, convenience stores, retailers, and hair salons. A new initiative announced today by the Biden-Harris administration helps accelerate conversions of commercial properties to residential use, presenting an opportunity to prevent such a loop,” the Biden Administration explained.
All of this is at a level that the Biden Administration believes requires federal intervention, including much that relates to climate change:
New Federal Funding and Repurposing Property
The Department of Transportation released guidance to states, localities, and developers on how the Transportation Infrastructure Finance and Innovation Act and Railroad Rehabilitation & Improvement Financing programs, which combined have over $35 billion in available lending capacity for transit-oriented development projects at below market interest rates, can be used to finance housing development near transportation, including conversion projects.
In addition, DOT released a policy statement with principles for pursuing transportation projects with the dual goals of increasing affordable housing supply and decreasing emissions.
“By making low-cost financing available for conversions and housing projects near public transportation, this guidance and policy statement will increase housing supply, while encouraging state and local governments to improve their zoning, land use, and transit-oriented development policies,” the White House said.
- DOT has new guidance that makes it easier for transit agencies to repurpose properties for transit-oriented development and affordable housing projects, including conversions near transit. Under the new guidance, transit agencies may transfer properties to local governments, non-profit, and for-profit developers of affordable housing at no cost. The new policy has the potential to turn property no longer needed for transit into affordable housing development particularly when combined with loans from TIFIA or RRIF programs.
- HUD is releasing an updated notice on how the Community Development Block Grant fund, $10 billion of which have been allocated during this Administration, can be used to boost housing supply – including the acquisition, rehabilitation, and conversion of commercial properties to residential uses and mixed-use development. HUD is also increasing outreach efforts to support municipalities and developers seeking to use HUD tools to finance conversions.
- States and localities can also access up to five times their annual block grant allocation in low-cost loan guarantees to fund projects such as the conversion of properties to housing or mixed-use development. In addition, HUD will make awards through a research-related Notice of Funding Opportunity, which can be used to develop case studies that can serve as roadmaps for other localities interested in pursuing conversions.
- HUD is also accepting applications for the $85 million Pathways to Removing Obstacles to Housing program, which includes the development of adaptive reuse strategies and the financing of conversions as eligible activities.
- The General Services Administration will expand on its Good Neighbor Program to promote the sale of surplus federal properties that buyers could potentially redevelop for residential use. To support this initiative, GSA will work with the Office of Management and Budget to identify current and upcoming sale opportunities, maintain a public list of current opportunities, and affirmatively market resources available to support housing development in all targeted materials for applicable properties.
Leveraging Federal Funding to Encourage Conversions
- The White House released a Commercial to Residential Federal Resources Guidebook with over 20 federal programs across six federal agencies that can be used to support conversions. These programs include low-interest loans, loan guarantees, grants, and tax incentives, which, subject to the requirements of each program, may be used together to increase the economic viability of conversion projects.
- To accompany the guidebook, the White House is announcing training workshops this fall for local and state governments, real estate developers, owners, builders, and lenders on how to use federal programs for commercial to residential conversions and achieve additional goals including affordability and building zero emissions housing.
- The Department of Transportation will be announcing new technical assistance through direct engagement with federal agencies and third-party intermediaries to support municipalities and developers seeking to use Department of Transportation tools to finance conversions.
- Through the Better Buildings Initiative, Department of Energy also launched a commercial to zero emissions housing toolkit that includes technical and financial guidance on how to achieve zero emissions commercial to residential conversions. DOE’s toolkit highlights how the Inflation Reduction Act can bring more capital to conversions through the DOE Loan Program Office’s loans and guarantee programs and tax incentives, such as the new energy efficient home tax credit, the energy efficient commercial buildings tax deduction, and the clean energy investment tax credit.
- Treasury posted a blog that describes tax incentives for builders of multifamily housing. Through the Inflation Reduction Act, several tax incentives may support eligible builders of multifamily housing to lower the investment costs associated with energy efficiency upgrades, clean electricity generation projects, or even the new or substantial reconstruction and rehabilitation of homes meeting certain Energy Star or Zero Energy Ready Home Program energy efficiency standards.
Working with States, Localities, and the Private Sector to Take Action
A number of states and localities have taken steps to address the challenge of high commercial and office building vacancies in their downtowns, the White House said.
“As new research from HUD shows, developers commonly use combinations of federal, state and local resources on individual conversion projects. The White House is encouraging all state, local, tribal, and territorial entities to identify all available public tools and land disposition opportunities to facilitate conversions. The White House encourages the private sector, including non-profit organizations and other stakeholders, to engage in capacity building around conversions in support of this effort today,” the administration said.