🔒CT lawmakers revisit tax credits for office, retail conversions to housing

State lawmakers are again advancing legislation designed to encourage the conversion of commercial properties into housing, the latest effort to address elevated office vacancies and a persistent shortage of residential units following the pandemic. Raised Bill 254, now before the Housing Committee, would establish a state tax credit program for owners who convert nonresidential buildings — including office, retail, hotel and industrial properties — into residential developments. The proposal continues a policy discussion that has gained momentum in Connecticut and nationally as remote and hybrid work patterns reshaped demand for traditional office space. Downtown Hartford, for example, has faced some of the state’s highest vacancy rates in recent years, mirroring challenges seen in other urban markets. Under the bill, eligible property owners could receive a tax credit equal to 10% of qualified conversion expenditures. Credits would be capped at $30,000 per dwelling unit for for-profit owners and $50,000 per unit for nonprofit developers. The Department of Housing would administer the program. Property owners would be required to submit conversion plans for state approval before construction begins. Following project completion, the state would review costs and issue tax credit vouchers. Qualifying expenses would largely be limited to construction-related costs directly tied to the conversion. Soft costs, such as architectural, legal and financing expenses, would not be eligible. Projects would also need to meet a minimum spending threshold. Owners would not qualify for credits unless they incur more than $15,000 in eligible conversion costs. The measure sets a statewide cap of $3 million per fiscal year in reserved tax credits. The housing commissioner would also be tasked with developing program standards, including criteria that consider whether projects create or preserve affordable housing units. The proposal builds on recent state efforts to address struggling commercial properties. Lawmakers last year approved the Greyfields Revitalization Program, which provides financial assistance for redeveloping vacant office buildings and underperforming retail centers. Similar conversion incentive bills, however, failed to gain approval in 2025. Supporters of conversion incentives argue the approach can simultaneously address two post-pandemic challenges: weakened demand for certain types of commercial space and limited housing supply. Critics have raised questions about program costs and whether conversions are financially viable without significant subsidies. If approved, the tax credit program would take effect July 1, 2026, applying to tax years beginning on or after that date.