Infrastructure spending being guided to housing

The notion of channeling federal dollars devoted to infrastructure improvement into affordable housing including office conversions located near mass transit is picking up steam.

Quantifying the possibilities and costs offered by the concept remains elusive but recent research is revealing new possibilities. 

“We end up concluding something on the order of 10% of the existing office stock is potentially convertible,” said Stijn Van Niewerburgh, professor, real estate and finance, Columbia Business School. “And that’s not a small number either.”  

His comments came during a panel discussion produced by The Hamilton Project on Friday and coincided with the release of his co -authored proposal indicating that about 370,000 housing units could be created via office conversions and partially financed through bonds. 

Per the proposal, “The initial drop in tax revenue during the conversion phase is more than compensated for by the increase in tax revenues once the apartment property has been stabilized. If this incremental tax stream were to be segregated, it could serve as the collateral for a municipal bond issuance.”  

The proposal comes on the heels of a multi-agency announcement last week that demonstrated the federal government’s dedication to using infrastructure funding to support housing efforts, including office space conversions. The measure includes low interest loans for qualifying projects from the U.S. Treasury and the U.S. Department of Transportation. 

The new push ties back  to the administration’s Housing Supply Action Plan, announced in May that includes support for expanding HUD’s low-income tax credit which relies on a limited supply of Treasury approved private activity bonds issued each year. The cap is seen as in impediment to building more homes. 

The researchers are using their interpretation of the government’s guidelines and applying it to the housing conundrum. Looking at a $27 billion allocation in the Environmental Protection Agency’s Greenhouse Gas Reduction Fund (GGRF), which needs to be spent by September 2024, they see a huge opportunity.

Per the proposal, “We believe that market-rate conversion projects that turn brown offices into green apartments should qualify for the first $12 billion bucket of grants. If such conversions also contain an affordable component, they should also qualify for the latter two parts of the GGRF of $8 billion and $7 billion.” 

The proposal teases out the cities with the highest concentration of potential units with transit-enabled New York City, San Francisco, Los Angeles, Washington, D.C. and Chicago topping the list.  The researchers have developed a robust calculator to help puzzle out the possibilities of location and conversion costs, extrapolated against government funding opportunities. 

The potential impact of federal dollars funneling directly to cities was brought home by Birmingham, Alabama Mayor Randall Woodfin. “Federal dollars would come to the state and then the state can do whatever they want as it relates to the disbursement of where those dollars went,” said Woodfin. “ARPA changed all of that. We kick-started so many projects related to direct growth in housing in our community. It has been a game changer.”