Builders completed more than 1 million single-family homes in the U.S. in both 2022 and 2023, the highest totals since the Great Recession, according to Zillow. Still, that’s barely making a dent in the shortage of homes.
Estimates vary but the U.S. has a housing shortage of somewhere between 4 million to 7 million homes. To meet that demand, many developers have shifted to building higher density homes, such as condos and townhomes. Construction starts for these attached homes grew 3% between 2022 and 2023, according to Zillow.
In California, accessory dwelling units (ADUs), a self-contained home on the same property as a single-family house, accounted for 20% of new home construction in 2023. More than 45,000 ADUs were permitted in Los Angeles County alone that year, up from 8,000 for the entire Golden State in 2018, according to the Brookings Institution.
Another option to address the housing shortage: co-living. This past fall, The Pew Charitable Trusts and global architectural company Gensler floated these dorm-style rooms as a way to address the housing crisis. This lower rung on the housing ladder could be built in vacant office buildings.
While the housing market has such a severe shortage of homes, the office vacancy rate reached an all-time high of 20%. Or to put it another way, more than a billion square feet of office space sits unused. Still, office-to-apartment conversions remain rare.
So, Pew and Gensler teamed together to develop a proof of concept of how to convert offices to co-living. The idea is that entire floors of under-used office space could be converted into housing by creating micro-apartments with rooms about 120 to 180 square feet in size with shared kitchens and bathrooms.
“There’s a lot of appetite out there for office-to-residential conversions that makes sense, but we know not many are happening, candidly,” said Alex Horowitz, Pew’s director of housing policy initiative, in an October webinar. “We did research together to see if there was a way to add more, more cost effectively.”
These low-cost apartments, built in downtowns close to jobs and transit, could be ideal for students, service-industry workers and new arrivals in a city. More than half of renters are spending more than 30% of their income on rent and a quarter are spending more than 50% of their paychecks for rent, Horowitz said. At the same time, U.S. household size declined to an all-time low of 2.49. Many renters (40%) live in a household alone.
This could also be part of the answer to the issue of homelessness plaguing most of the country. Previous Pew research has found that housing costs are the primary driver of homelessness. Further, co-living could improve housing access for people with federal Section 8 vouchers, who often cannot find landlords willing to accept their vouchers.
Pew and Gensler’s study examined the cities of Seattle, Minneapolis and Denver, identifying offices that would be suitable for conversion. All the cities are experiencing housing shortages and high median rents: $1,781 in Denver, $1,387 in Minneapolis, and $2,091 in Seattle, according to Pew.
The anticipated rents for the Gensler-created micro-apartment floor plans would be roughly half those rent figures. Turner Construction, a multinational company with expertise in construction cost analysis, estimated the conversion costs on a per-unit and per square foot basis. They also factored in maintenance and security such as keycard access for each floor.
One of the barriers to office-to-housing conversion is the cost of plumbing and electrical. Pew and Gensler envision adding kitchens and bathrooms in the center of the offices, where these facilities typically are already located. That would cut the costs by 25% to 35% compared to typical office-to-apartment conversions.
“That allows us to really crush the square footage and cost per dwelling unit to something like a quarter to a half of what a traditional conversion or new construction approach to this kind of housing would be,” said Wes LeBlanc, principal and strategy director at Gensler.
Based on those findings, Gensler projected the total cost to build a co-living micro-apartment in Denver at about $123,000 per unit; by comparison, constructing a studio apartment in Denver affordable to a low-income resident costs about $400,000.
The fly in the ointment: The modest rate of return would likely not attract private capital. Pew and Gensler noted that this could be a lower-cost option for governments looking to build subsidized housing.
With a $100 million subsidy, putting $100,000 per unit for construction costs, Denver could build 4,292 of these micro-apartments, compared with just 333 studio apartments. Seattle could build 1,497 micro-apartments compared to 361 studio apartments and Minneapolis could build 1,157 compared to 313. “For office-to-apartment conversions, cities could stretch their dollars so much further with this model,” Horowitz said.
Cities would also need to loosen rules such as allowing residential housing in commercial areas, reducing parking minimum requirements and other things such as requiring operable windows when most offices have windows that don’t open. Some cities have minimum standards for size of units. Any of these could doom these projects, Horowitz said.
This could help overall homeownership by allowing people to spend less for rent while saving up a downpayment. Some houses or condos are shared by roommates who can’t afford to live alone but would prefer to do so. To the extent groups of roommates move into co-living units, it could free up some houses or condos that are currently rented by groups of roommates for purchase by households.
“This isn’t solving every problem out there in terms of housing,” Horowitz said. “This is one piece of the puzzle, but we know the most undersupplied type of housing are smaller, well-located homes aimed at one- or two- person households.”
