Office-to-Housing Conversion: Legislation – California’s Next Frontier
In an effort to spur the conversion of office-to-housing as one way to revitalize California’s struggling urban downtown areas, Assemblyman (and former San Francisco Supervisor) Matt Haney has introduced AB 1532, dubbed the “Office to Housing Conversion Act.” The proposed legislation would, in most cases, allow for such conversions as a matter of right, regardless of any local zoning that would otherwise restrict residential development. In addition, the bill would make approvals for office-to-residential conversion projects ministerial, which would take them outside the scope of CEQA review. Haney has said the bill is meant to address “the growing crisis of California’s rapidly emptying downtowns and the huge need for new housing statewide.”
The legislation would require fast-tracking the application process, with local jurisdictions having a maximum of 90 days to respond to conversion applications. Other additional developer-friendly benefits include allowing project proponents to pay applicable impact fees over 10 years, establishing a grant fund to assist with project financing, and requiring that only 10% of the proposed units be affordable to low- and moderate-income families (far less than the requirement for new projects in many jurisdictions, including San Francisco).
The introduction of AB 1532 comes at a time when property owners, cities, and real estate professionals are all grappling with the practical and financial feasibility of office-to-residential conversions. The San Francisco-based architecture firm, Gensler, recently released a report identifying 12 downtown San Francisco office buildings that it argues could be converted to residential uses, resulting in approximately 2,700 housing units.
At a recent panel discussion on the topic hosted by Farella Braun + Martel, however, panelists agreed that without additional incentives or public subsidies, the cost of conversion will not be feasible for most properties. Reductions or waivers of impact fees, temporary property tax abatements, and relaxation of affordable housing requirements were all cited as important incentives policymakers should evaluate as a way of making conversions (and other downtown development) viable in the current economic climate.
While AB 1532 may not, by itself, clear the way for a wave of office conversions, it could provide valuable regulatory relief and costs savings for conversion candidates. Together with a range of other state and local reforms like those described above, AB 1532 could help property owners re-program their underperforming office buildings as sorely needed housing. We will continue to track this bill as it moves through the legislative process in Sacramento.