For sale by owner: Federal office buildings can help the housing crisis

The Trump administration is looking to sell or cancel the leases on thousands of empty federal buildings. The timing is right because there are developers looking to buy empty office buildings and turn them into apartments and condos. Maybe we can get a win-win — solving the dual problems of a surplus of empty federal office buildings and the housing shortage.

The General Services Administration (GSA), which manages federal buildings and other real assets, owns or controls a lot of property. According to the agency, “GSA’s portfolio has grown to about 370 million square feet of space across the U.S. and eight territories…. That includes 1,700 owned and 6,700 leased assets of office buildings, courthouses, land ports of entry, laboratories, and other workspaces.”

The Government Accountability Office (GAO) says the government spends about $2 billion a year to operate and maintain the buildings it owns, and another $5 billion a year to lease office space. These buildings are all over the country, not just in Washington, D.C., or a few major cities. The problem is most of that office space is empty or only partially occupied, and much of it is poorly maintained.

For example, GAO claims that in early 2023, “17 of the 24 federal agencies used on average an estimated 25 percent or less of the capacity of their headquarters buildings.” Other agencies averaged between 39 percent and 49 percent utilization. Once the Department of Government Efficiency (DOGE) wrecking ball gets through knocking down the federal workforce, those percentages will likely be even lower — even if federal employees are required to return to the office most or all of the time.

As a result, the Wall Street Journal reports, “The Trump administration is considering selling two-thirds of the federal government’s office stock to the private sector.” It’s also considering canceling many of its leases.

News outlets have reported that developers have been buying empty buildings, especially those located downtown or near to it, and turning them into apartments and condos. That has allowed people who work downtown or who want to be near the downtown social life to find housing. Which, in turn, has encouraged small businesses that had thrived downtown but couldn’t continue during the pandemic to return.

If federal buildings become available at reasonable prices, we may well see developers step in and buy those buildings and put them to productive use. But a couple of things need to be kept in mind.

First, the government should put the buildings up for auction with little or no reserve. In other words, don’t let a high asking price quash the deals. Some may argue that an auction may mean the government will receive less than the fair market value for a property. But that misunderstands economics. What the highest bidder is willing to pay in a well-advertised, fair and open auction IS the fair market value — even if the sales price strikes some people as too low.

Some of the federal buildings may require extensive improvements and costly renovations to make them suitable and attractive to people looking for housing. So, developers might be unwilling to take the financial risk unless they get an attractive purchase price.

Second, by selling the property, Washington would end a costly liability and turn it into an asset for state and local governments, which will be able to collect property taxes from the private sector owners.

Third, progressives will almost certainly push for government subsidies and a heavier regulatory hand. For example, the left-leaning Center for American Progress published a paper last July — “Converting Vacant Office Space into Housing” — that encouraged the Biden administration to step up its efforts in promoting office-to-apartment conversions, but with “government support and comprehensive planning.”

Rather, the feds and state and local governments should minimize the regulatory roadblocks that hinder progress, like requiring developers to hire union-affiliated workers who demand higher wages and imposing affordability mandates.

If state and local governments want to provide some tax breaks or other economic incentives to encourage developers to take the risk, that’s their business. But the federal government should sell the properties and be done with it.

Selling federal office buildings has been tried in the past with limited success. But if the sales are handled correctly, the effort could end up saving the government money while helping millions of Americans find the affordable housing they so desperately need.

Merrill Matthews is a public policy and political analyst and the co-author of “On the Edge: America Faces the Entitlements Cliff.” Follow him on X@MerrillMatthews.

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