The COVID-19 global pandemic changed American cities forever. New proposed federal legislation attempts to address two of the biggest pandemic impacts on American cities: the rising cost of housing and the emptying of downtown cores. Myriad factors, including pandemic-related migration and generationally high interest rates, have driven up the cost of both rental housing and homeownership. In Rust Belt cities, like Buffalo, NY, rapidly escalating housing costs are creating rampant housing insecurity, in some cases for the first time since the end of World War II. At the same time, changes in office commuting and working patterns, and the proliferation of work-from-home jobs, have softened America’s downtown office markets. For Rust Belt cities, this downturn only exacerbates already below-average leasing and vacancy rates, and disincentivizes reinvestment in Class B and C buildings.

The Revitalizing Downtowns and Main Streets Act (H.R. 9002), the latest version of a 2021 bill, would offer building owners and developers tax incentives to convert underutilized office and other commercial buildings into housing. The bill clearly aims to “kill two birds with one stone” by attempting to fill underutilized office buildings with eager apartment renters and owners. The bill blends attributes of other economic development tax programs. On the one hand, the program includes per-capita state allocations and tenant income restrictions, like the low-income housing tax credit program (I.R.C. Section 42). On the other, it offers a 20% federal tax credit for converting buildings of a certain age to new uses, similar to the historic rehabilitation tax credit program (I.R.C. Section 47). Overall, if adopted, the new law would offer another powerful tool to help owners and developers adapt existing buildings to new uses.

Main provisions of the bill include:

• 20% federal tax credit for converting an underutilized commercial building to a residential use
• Buildings must be at least 20 years old
• Conversion costs must exceed 50% of the building’s adjusted tax basis
• 20% of the resulting residential units must be set aside for persons whose income is at or below 80% of the area’s median income (as determined by HUD)
• Conversion credits will be allocated to states on a per capita basis
• State housing finance agencies will allocate conversion credits on a competitive basis pursuant a qualified allocation plan
• For projects in rural areas, the conversion credit will increase from 20% to 35% for the first $2 million in qualified costs
• For projects in low-income census tracts or difficult to develop areas, the conversion credit will increase from 20% to 30% (but the affordability requirement drops from 80% to 60% of AMI)
• The conversion credits would be transferable, to allow for simpler monetization and use by charitable organizations and REITs

The bill was introduced on July 11, 2024 by Reps. Jimmy Gomez of California and Mike Carey of Ohio and immediately referred to the House’s Ways and Means Committee. A D.C. lobbyist I spoke to indicated that the bill is gaining legislative traction, but that passage this session is unlikely.

Questions about the bill? Feel free to email me – jyots@chwattys.com and give me a call at 716 800 8707.

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Jason Yots has been a real estate and tax credit development attorney since 1996, and currently is a partner at the law firm of http://www.chwattys.com. Jason also is the founder of http://www.preservationstudios.com, an historic preservation consulting firm, and http://www.commonbondrealestate, an historic rehabilitation firm. He is based in Buffalo, NY.