Boston plans to offer ‘up to 75%’ tax breaks to office building owners that convert spaces into housing

Like many other cities across the United States, Boston is facing a housing crisis. Meanwhile, because so many companies moved to remote or hybrid workforce norms when the COVID-19 pandemic forced people to stay at home, many offices have remained empty for years—a Downtown Revitalization Report published in October showed that about 20% of all commercial space in downtown Boston are vacant.

Boston Mayor Michelle Wu is addressing both at once through a new “Downtown Office to Residential Conversion Pilot Program,” which will incentivize commercial property owners to convert underutilized buildings to residential housing via hefty tax breaks.

“We must take every possible action to create more housing and more affordability so that Boston’s growth meets the needs of current and future residents,” said Wu in a statement published by the Boston Planning and Development Organization about the initiative, which was announced Monday. “This program will help us take advantage of the opportunity we have to rethink downtown as a space where people from all over come together to collaborate, create, live, and play.”

Starting in the fall when applications open, the program will offer owners of commercial office buildings in the downtown area a reduced property tax rate of up to 75% if they immediately convert their buildings to residential use. The discount is based on research included in the city’s PLAN: Downtown study, which found that discounting taxes at that rate for “up to 29 years could provide a strong incentive to encourage conversion,” the statement says.

The program, which is going to be overseen by the Boston Planning and Development Organization, the mayor’s office and the City of Boston Finance Cabinet, will be implimented through a public-private partnership that enables the city and the building owner to enter a payment in lieu of taxes (PILOT) agreement. Approved projects will receive assistance from the planning organization to streamline departmental building requirements.

“By converting office space into residential homes, we can fulfill the housing needs of our thriving City, while revitalizing and stabilizing our downtown neighborhood,” said Chief of Housing Sheila Dillon in the statement. “New residents will enjoy the advantages of living in a neighborhood with many amenities, including shopping options, recreational spaces and multiple transportation hubs. This initiative aligns with this administration’s dedication to creating accessible and equitable housing in every neighborhood, strengthening our small businesses and commercial centers.”

According to the latest annual 2022 Greater Boston Housing Report Card from the Boston Foundation, published in October, the region is facing a “crippling housing shortage.” And an analysis published last month by Portland Real Estate, which compared job growth to the number of building permits issued, ranked Boston as having the sixth worst housing shortage in the nation.

“Through this conversion program, we seek to incentivize lenders, property owners, downtown stakeholders, and the state to partner with the City to increase the production of much needed housing in our downtown core,” said Chief of Planning Arthur Jemison. “This public private partnership opportunity is the right tool to unlock new housing and shape a new, mixed-use neighborhood Downtown.”

Final parameters for the program will be published when applications open. The program is expected to be time-limited, and will only accept applications through June of 2024, the statement says. To be eligible, projects must comply with certain zoning standards and the city’s new energy efficiency standards. Applicants will be encouraged to maintain ground floor retail or other public uses. Projects will be required to start construction by October 2025, and will be subject to paying any forgone taxes if these commitments are not met. In order to recoup the forgone tax revenue over time, the city will also require a 2% payment on future sales of the property.