Are We Seeing the Start of Office Building-to-Affordable-Housing Conversions?

With Austin housing prices continuing to be over-heated, the City of Austin has not so quietly been trying to add affordable housing within the city limits. One method to accomplish this goal is to persuade developers to add more affordable housing, but it’s had limited success. The typical formula is to approve a multifamily development with 15- 25% of its available units offered at below-market rental rates for those earning 50-60% of the city’s median family income (MFI). The MFI for Travis County is $99,250 per year. This is becoming harder for developers to do. Case in point, Aspen Heights Partners LP, who co-developed the 58-story Independent condo tower in downtown Austin, was awarded the contract to build 921 apartments by the City of Austin, but only if they made 25% of their units available as affordable housing. However, because construction and financing costs have risen so high, Aspen Heights has since told the City that in order for the project to be feasible, they can only offer 7% of the units as affordable housing. The City responded by revoking the negotiating agreement. As it stands today, the deal is in limbo.¹

A second method for Austin to add affordable housing is by buying and converting hotels. So far, the City has purchased four hotels with only two having been converted so far. The City is also buying existing apartment complexes and offering them to qualified affordable housing families. To date, the City has purchased eight apartment complexes, mostly in central Austin complexes, and six of the eight are less than 10 total units.

Finally, and this is a first as far as I can tell for Austin, the City just bought a small, aging office building on North Lamar with the goal of converting it to affordable housing. The price was not disclosed.² Is this a trend that many in the business community have been thinking would happen as some office buildings remain mostly vacant from businesses reducing or eliminating their office space footprint? With housing inventories still being lower than demand, I predict we will see more of this.

As a longtime Austin area resident, I see the growing affordability issues Austin faces for many people.  It’s an unfortunate side effect of its own success at attracting people and businesses to this beautiful and business friendly area. I am all for adding affordable housing and appreciate anyone’s efforts to help curb the problem; but its concerning to me that in its zeal for pushing affordable housing, Austin is not being good stewards of our taxpayer dollars by overpaying for many of these acquisitions. Ironically, by overpaying for property, all properties end up increasing in value thus continuing the unaffordable housing spiral.

If you would like to talk about this or any other topic related to commercial real estate in Central Texas, feel free to call me at 512-736-5933 or shoot me an email to oddo@toweratx.com

Source Citations

¹ – Mike Christen, July 4, 2023, “Plan To Redevelop Chunk Of Downtown Stalls”

² – Brian Irwin, July 17, 2023, “City of Austin Acquires Office Building To Add More Affordable Housing”