Arizona HB 2297 Allows Cities to Repurpose up to 10% of Commercial Buildings for Residential Use

PHOENIX (April 24, 2024) — Arizona is grappling with a severe housing crisis, a situation underscored by a staggering shortage of 270,000 homes across the state was revealed by a special state legislature housing committee in December 2022. This crisis is not just a statistic; it’s a reality that squeezes the budget of middle-class families and pushes low-income families into homelessness. The severity of the situation is such that 80% of voters, regardless of political leanings, agree that housing costs are spiraling.

Last year, Arizona Legislators, in a rare show of bipartisan unity, acknowledged the housing crisis and pledged to find solutions in the 2023 session. However, despite these promises, no major bill was passed to address the situation.

After initially vetoing a housing bill earlier this session, Gov. Katie Hobbs signed a revised one on April 10. This bill will allow cities to swiftly convert some commercial buildings into residential uses, a significant step towards alleviating the housing crisis.

House Bill 2297, which takes effect in January 2025, is a significant step towards addressing the housing crisis. This bill allows cities with populations of more than 150,000 to repurpose up to 10% of commercial buildings without the need for discretionary municipal review, conditional use permits, or rezoning applications. This streamlined process could help alleviate housing shortages in metro Phoenix and Tucson.

When the bill passed out of the House on April 4, Rep. Analise Ortiz, D-Phoenix, said, “Many of my constituents have asked me why we cannot make it easier to transition commercial buildings into housing so the fact that HB2297 takes the steps to take that innovative measure to address our affordable housing crisis and our homelessness crisis creatively is commendable.”

The housing bill could alleviate two significant challenges in metro Phoenix and Tucson: the acute housing shortage and the surplus of vacant commercial buildings. This dual impact could significantly reshape the housing landscape in these areas.

House Bill 2297, signed into law on April 10th, will allow developers to convert or demolish a small portion of commercial, office, or mixed-use buildings for new residential development without rezoning. This could potentially save months in the building process.

Developers who convert or develop a commercial building that a municipality has chosen as part of this program will not have to apply for a conditional use permit, rezoning application, or any other application that requires a public hearing.

House Majority Leader Rep. Leo Biasiucci, the bill’s main sponsor, said the program could help pique the interest of investors and developers, knowing they could save on costs and time to bring more apartments, townhomes, and condos to our area.

“I think it’s going to be something that changes Arizona for the better,” Biasiucci said in a written statement.

Local zoning attorneys say the bill could result in more development, but its impact has yet to be seen. Other challenges remain.

Although some buildings could warrant this conversion, real estate experts don’t expect the trend to catch on in Phoenix because converting an office building into a multifamily dwelling is costly, complex, and even more expensive in Tucson.

According to CBRE Group Inc. research in Q1 of 2024, Metro Phoenix has 22 projects that have been completed or planned to convert 3.3 million square feet of office space into other uses. Nine of these conversions are into multifamily or mixed-use developments, including the stalled One Camelback project and the former Phoenix Financial Center.

In Tucson, The Leo Kent Hotel at One South Church was a recent successful partial conversion of an office building into a 150-room hotel.

Last month, Hobbs vetoed HB2570, which would have made first homes more affordable by prohibiting lot size requirements in building development. In a press conference on April 11, the Governor said she hopes to see some of the provisions of this vetoed bill reintroduced in a separate bill.

“My administration is actively negotiating with legislators on housing legislation that is moving through that is going to help us increase the supply of housing, which is absolutely something that needs to happen,” Hobbs said. “I’m optimistic we’ll get a bill or a package to my desk that will do that.”

Hobbs also announced that her “Arizona is Home” mortgage assistance program is available for qualifying first-time home buyers.

Working with Trellis and Chicanos Por La Causa housing assistance groups, program participants with incomes 80% or below the area median income can receive up to $30,000 in down payment assistance. Participants with incomes between 81% and 120% of the area median income can receive up to $20,000.

Another housing measure being negotiated by lawmakers is SB1415, which would require cities with populations over 75,000 to allow accessory dwelling units to be built on residential properties. The bill and its mirror version, HB2720, are being held up in the House and Senate as lawmakers continue drafting amendments to the measure.

Biasiucci said that, depending on the HB2297 program’s success, each city can modify the current 10% of the participating buildings every ten years.

Housing has been one of the key focuses for this year’s legislative session.