Texas lawmakers want to make it easier to convert office space into apartments and condos

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DALLAS — As Texas’ major urban areas grapple with a glut of vacant offices, state lawmakers may make it easier to transform empty office and commercial space into dwellings.

A bill by state Sen. Bryan Hughes, a Mineola Republican, would effectively allow owners of struggling office properties in the state’s largest cities to convert that space into residences. The bill would forbid cities and counties from requiring owners of flagging office buildings and commercial properties like shopping malls and strip centers to go through a rezoning process if they want to add apartments or condominiums.

The idea is among a slate of proposals state lawmakers are weighing to remove barriers to housing construction and boost housing options to put a dent in Texas’ deep housing shortage — a key driver of the state’s high home prices and rents.

“It's a simple matter of looking at the housing stock that's available and looking at the growing demand, and looking at every option to expand those opportunities,” Hughes said in an interview. “The Lord’s not making new land.”

Few places in Texas have gone untouched by the state’s rising housing costs. More than half of the state’s renters are “cost-burdened,” meaning they spend more than 30% of their income on keeping a roof over their heads, according to a recent analysis by the Joint Center for Housing Studies at Harvard University. Home prices have vastly outpaced incomes.

Hughes’ bill is part of a suite of proposals state lawmakers are considering to allow more homes to be built. Many of those proposals take aim at cities’ zoning regulations, which restrict what kinds of homes can be built and where. A growing body of research shows that relaxing those rules can help cities add more homes and contain housing costs.

Some local officials are uneasy about the prospect of state lawmakers overriding city zoning regulations in a blanket manner. In the Austin suburb of Georgetown, officials are weighing changes to the city’s development code to allow accessory dwelling units and reduce lot-size requirements, Mayor Josh Schroeder said. Those kinds of decisions, he said, should remain at the local level.

“To do it on this macro level that doesn't take into consideration the differences between Georgetown, Austin and Littlefield is not the way to handle land use,” Schroeder said.

The rise of remote work amid the COVID-19 pandemic drove up office vacancies in Texas’ major metropolitan regions. Employees in Texas’ largest cities have returned to the office at higher rates than their peers in other major U.S. cities, according to data from Kastle Systems, a security firm that tracks office occupancy. Still, vacancy rates for office space in the state’s major urban areas remain above pre-pandemic levels.

As offices emptied and housing costs exploded, housing advocates, office landlords and policymakers increasingly eyed office-to-residential conversions to tackle multiple problems. Adding residences would help chip away at the nation’s housing shortage, they have said. Revamping lagging offices into residences would also keep those properties financially viable, staving off blight and continuing to generate property tax revenue for local governments and school districts.

However, it is not a silver bullet. These conversions make up a small percentage of the country’s homebuilding. Office-to-residential conversions have resulted in nearly 28,000 new housing units nationwide since 2016, according to figures from CBRE Group, a commercial real estate services and investment firm. Of those, about 2,400 are in Texas. Another 2,800 units are underway or in the works in Texas, out of about 38,000 across the country.

Converting offices to residences can often be tricky, developers and real estate experts have said. For one, not every office building makes sense to convert into housing owing to factors like unwieldy floor plans and plumbing needs.

Zoning regulations can also get in the way of office-to-residential conversions — a barrier Hughes is trying to address.

Texas’ largest cities tend to automatically allow office buildings in their downtowns, where office vacancies are perhaps most visible, to become apartments, according to a Texas Tribune analysis of city zoning codes. Hughes’ proposal would unlock that same benefit for owners of office buildings outside of downtown neighborhoods.

If it becomes law, owners of other kinds of buildings — including commercial buildings, shopping centers and warehouses — who want to remodel their space into apartments or condominiums, would also no longer have to go through the rezoning process.

That process can be costly and lengthy, housing advocates and developers say — resulting in higher costs for the eventual tenant, if builders aren’t deterred from moving forward with projects in the first place.

“When there's more costs involved, eventually that's going to have to get passed off to the resident,” said Jamee Jolly, who heads The Real Estate Council, a Dallas-based real estate trade group.

The legislation would only apply in counties with more than 420,000 residents — 13 of the state’s 254 counties — and municipalities within those counties that have more than 60,000 residents.

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