Next to the Australian embassy in DC, a lesson in how to build more homes

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Hello from a soon-to-be-snowed-under Washington, DC.

Next door to the Australian embassy here, a construction project has been under way for the past year. A former office building – once home to the Air Line Pilots Association – is being converted into 157 residential apartments.

It is one of eight similar projects being aided by a $US41 million ($61 million) tax abatement initiative from the District of Columbia government, called the Housing in Downtown program, to encourage turning underutilised CBD offices into homes.

There is no set percentage for the property tax abatement, which lasts 20 years and is offered for both adaptive reuse projects and knockdown-rebuilds.

DC Mayor Muriel Bowser announced the program at the end of 2022, and launched it with the conversion of an office block in the city’s central “Golden Triangle” into 163 units in March 2024.

“It makes so much sense,” said Leona Agouridis, executive director of the Triangle’s business improvement district, at the launch. “Downtown is the centre of it all … we have wide, walkable sidewalks and world-class transportation infrastructure. You can walk to restaurants, shops, your gym, your doctor, and of course, your office, which is the new paradigm.”

Downtown Washington, DC, is a mixed bag. I’ve been here a year, so I didn’t experience it before the pandemic, but it’s hardly what you would call bustling. The more vibrant areas – with more residents – surround the CBD. Still, it’s got a lot more going on than most American city centres.

What stands out about the DC council’s ambitions is their scale. At the start of this project, downtown DC had 25,000 residents (depending on how you define the area), and its land use was 87 per cent commercial and 13 per cent residential.

Bowser wants to add 15,000 residents by 2028, an increase of 60 per cent, which would rebalance the DNA of downtown markedly in favour of residents in just a few years. The city believes 90 per cent of that target can be reached through the Housing in Downtown program, which aims to generate 8400 new homes.

The eight council-backed projects announced so far are expected to yield 1745 new residential units, including 176 “affordable housing” units. The largest is a $US750 million conversion of an office block near Dupont Circle into 532 homes, which secured financing just a couple of weeks ago and is expected mid next year.

Breaking ground at the site this week, Bowser said the tax abatement incentive was “doing exactly what we thought it would do”. More offices are being converted to homes in Washington than in any other city in the US except New York.

The DC council is pursuing this policy actively and aggressively. It’s a no-brainer given the ongoing changes to work patterns brought about by COVID. The office vacancy rate in downtown DC was below 10 per cent in 2014 – today it is 19 per cent. DC has decided residential is the future.

This drive stands in stark contrast to what’s happening – or rather, not happening – in Australia’s big cities, where many councils are determined to preserve commercial zoning.

Guardian Australia reported in October that no development applications had been submitted in Melbourne to convert office buildings since 2023. But Melbourne gets a bit of a free pass because it has already built so much housing in its CBD, which has the vibrancy that Washington and other cities seek.

Sydney has no such excuse. It had fewer than 17,000 CBD residents at the last census – Melbourne had more than 42,000. And Sydney’s CBD units are far too expensive to rent for key workers, students and most young people.

As my colleague Julie Power reported three months ago, there are issues with office-to-residential conversions, including feasibility, floor plate size and compliance with apartment design guidelines (which could be reduced with co-operation from a willing government).

But these are not roadblocks in other cities. Aviator House, the development next to the Australian embassy, will be completed in a few months. A block from my office, another project is under way – one that’s not part of the Housing in Downtown program. A building previously belonging to the federal Department of Homeland Security is being turned into 264 apartments.

Bowser says when she started the program, critics told her office-to-residential conversions were impossible. “It’s not enough air, it’s not enough light, it’s just so hard, we can’t do it,” she recalled them saying. “We are proving that narrative wrong. While it may be hard, it is possible.”

In New York City, office-to-residential conversions, which once averaged less than 111,000 square metres a year, rose to an annualised rate of 3.1 million square metres in 2024, and 3.8 million square metres in August last year, with another 8.2 million in the pipeline, says real estate services firm Cushman & Wakefield. The old Pfizer headquarters near Grand Central Station is being turned into 1600 apartments – the biggest such project in the country.

A paper by the Brookings Institution last year identified at least 12 office-to-residential conversion projects completed in Los Angeles’s downtown and Koreatown districts since 2020, and another five in planning or construction.

And according to the Illinois Policy Institute, Chicago, which has an office vacancy rate of 28 per cent, has converted 11 buildings to residential, with nine more under way.

If Australia’s city and state leaders want new ideas to incentivise housing and revitalise their CBDs, they could do worse than look to the US.

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