So Why Can’t We Turn That Building into Apartments?

From rural to urban communities, appropriate, affordable housing is in demand, and is increasingly hard to come by. In different places, appropriate and affordable take different forms. In our work, we have worked with rural communities that had a surplus of aging single family homes, but few rental apartments appropriate for single person households. We have also worked with urban communities where multi-family housing was being built, but all the units were out of the price range of a middle income earner, such as a teacher.

In places that are facing a shortage of appropriate, affordable housing, the question often asked is, “Why can’t we just convert that old school/warehouse/abandoned church into apartments?

It seems like a simple trade – there is a need for space, and these structures have a lot of it. Oftentimes, they are a link to the community’s past, such as an old school or a mill building. But the process of transitioning a commercial, industrial, or institutional use to residential is complex and expensive, and not a fit for every community.

Zoning

The first hurdle is zoning. The principle behind zoning is to keep land uses separate, and sometimes for good reason; that old industrial warehouse along the river may have been part of a loud, noisy, and potentially polluting complex fifty years ago.

If that warehouse is now located along a riverfront rail trail, and within walking distance to bars and restaurants, it may make sense for the zoning around it to change. In order to do that, the city would either have to change the zoning, or grant a variance – a specific waiver that allows the property to be used in a way that is not permitted by the current zoning ordinance.

Zoning variances take a long time to be decided and are not a sure thing. This is especially true if the change in zoning would require more infrastructure and city services to be delivered to an area that formerly was not active. In property development, time is money, and the more time a property is tied up in zoning proceedings, the less likely it is to be redeveloped.

Market Forces

Retrofitting an industrial or institutional building into residential involves many different factors, and one of those factors is money. Older buildings are more likely to hold outdated and dangerous materials like asbestos insulation and lead paint. Utility systems and elevators may not conform to residential and accessible standards. And finally, building footprints (such as classrooms) may not align with codes for residential units.

Addressing each of these factors is expensive. Those costs add to the total project budget, resulting in higher costs that are eventually passed on to the owners or renters of the building’s units. As remediation costs pile up, the developer will compare the budget with other new build construction rents and development costs. If renovation costs push unit prices high above market rate, the rehabilitation of the structure will be untenable. And if it can be profitable to the developer and deliver a product within the market range, these costs can push the prices far above what is affordable.

What can we do?

Successful conversion of large, older buildings into residential properties can be encouraged by lowering municipal policy and financial barriers.

Municipalities can review zoning to determine ways to allow for conversion of properties, for example, considering if a former industrial site should be zoned light industrial or mixed use, or allowing for multi-family units in single-family residential neighborhoods which could allow reuse of churches and schools. Parking requirements can also be a barrier – it is likely that the residents of an 8 unit building will not have the same parking needs as a 50 person company.

Financial hurdles are harder to address from a municipal standpoint, but programs such as the Low Income Housing Tax Credit provides some incentive for building affordable units. The Historic Tax Credit is another way to alleviate financial hardship, thought this program is practically only useful for project over $5 million. If the project is in an Opportunity Zone, there may be a heightened possibility of attracting outside  investment, thus relieving the need for bank financing, which can be difficult to secure for unconventional projects.

There is never a simple answer to how to create more affordable housing, and converting buildings from industrial and institutional is no exception. It requires flexibility and ingenuity from both the private and the public side to make sure there is a perfect fit.