The U.S. housing market may be loaded with properties for home buyers with decent incomes. But for low-income earners, it's long been a struggle to find affordable homes.
It's estimated that the U.S. lacks a whopping 7.2 million affordable housing units, according to the National Low Income Housing Coalition. As a result, 75% of all extremely low-income families currently spend more than half of their earnings on rent.
Of course, this begs the question: Why not convert existing commercial real estate to homes for low-income individuals?
Right now, there's a host of office buildings across the country that are largely sitting vacant. The coronavirus outbreak has changed the face of working arrangements, and remote setups are likely to remain popular even as the pandemic wanes. This means that in the coming years especially, there could be plenty of office buildings that keep losing money month after month. Converting them to affordable housing reads like a reasonable solution.
But converting commercial properties to residential housing units is no easy feat. And unless local governments work with real estate investors to overcome those challenges, it's something that's unlikely to happen on a wide scale.
A cumbersome process
There's a reason some commercial property owners may be hesitant to undergo conversions to residential units -- the cost and complexities involved. Commercial buildings, by nature, don't easily lend themselves to residential conversions. Those buildings tend to be set up in a way that doesn't allow for an even flow of light and air -- something that's needed when you're talking about setting up an apartment complex. And the distribution of windows is often such that in a residential application, those buildings would not be up to code.
Converting offices to residential buildings also means having to redo plumbing and electrical work. That's an investment property owners may not want to make when the upside is uncertain.
Of course, some commercial properties lend better to residential conversions than others. Hotels, for example, can be more easily adapted because they're already laid out as a series of individual units. But still, even hotels could face issues when merging blocks of rooms to create new apartments. And that's a process investors may balk at.
So what's the solution? It could boil down to the right set of government incentives and support.
Investors may be more inclined to put their unused commercial space to good use if local municipalities find ways to simplify the residential conversion process. Zoning laws, for example, can be relaxed to provide more flexibility to developers. Similarly, building codes can be revised as necessary to make conversions more viable and less expensive.
Of course, if lawmakers really want to solve the affordable housing problem, they should also consider throwing in added incentives for commercial property owners. Subsidizing the cost of conversions is a good place to start.
Right now, there are plenty of commercial properties across the country that are being underutilized. At the same time, there are millions of Americans who don't have access to affordable homes. At first glance, the solution to this problem seems simple. But given the challenges of converting commercial space to residential space, it's easy to see why so many investors aren't going that route.