Economic changes brought on by the COVID-19 pandemic have left the future of New York City’s office market as uncertain as at any other point in the modern era. When the office market faced similar pressures in the 1990s, City and State policymakers created 421-g, which provided property tax exemptions and abatements to induce property owners in lower Manhattan to convert functionally obsolete office buildings to residential uses.  

CBC’s new policy brief analyzes how 421-g was used and offers lessons for designing a cost-effective program to support office-to-residential conversions today.  

CBC’s analysis of 421-g found that: 

• The incentive was used to convert nearly 13 million square feet of office space, or roughly 13 percent of the lower Manhattan office market, to residential use; 
• 421-g was used to create 12,865 units—over 40 percent of the growth in lower Manhattan housing units between 1990 and 2020; and 
• Buildings built before 1945 were more likely than post-war buildings to be converted through 421-g, with 24 percent of pre-war space being converted compared to 6 percent of post-war stock. 

Critical lessons for intervention in the office market today include: 

• Regulatory reforms—including lifting the Floor Area Ratio (FAR) cap and zoning and building code changes—are essential to make conversion possible for some buildings that otherwise would be prohibited or would be financially infeasible to convert; 
• Allowing conversions as-of-right, rather than through discretionary processes, would maximize the potential number of conversions and allow the market to determine where conversion is the best option; 
• A tax incentive may not be necessary for conversions to market rate units, as conversions have continued without 421-g but at a slower pace;  
• A limited incentive could catalyze momentum by jump-starting conversions; and 
• More significant incentives could be needed to support mixed-income rental conversions. 

An appropriately targeted, cost-effective program should be grounded in policy analyses and decisions that answer the following questions: 

• Is the vacancy crisis dispersed or concentrated? 
• What are the goals of the program? For example: producing affordable housing, sparking the creation of mixed-use neighborhoods, and/or stabilizing the office market?  
• What incentives are needed to advance these goals, in which circumstances, and at what levels? 
• Is this the most cost-effective solution to achieve the program’s goals?  

The office market’s future uncertainty presents an opportunity to convert underutilized or obsolete office buildings into much-needed housing, but the success of a conversion program depends on policymakers getting the details right.