My Blog January 28, 2021

Could California’s Shopping Centers Be a Housing Fix? A trio of bills propose plugging the state’s huge housing gap with commercial-to-residential conversions of strip malls. New research suggests it could work.

A vacant shopping center in El Centro, California. 
A vacant shopping center in El Centro, California.

Photographer: Photo by: Mickey Strider/Loop Images/Universal Images Group via Getty Images

El Camino Real is a 600-mile historic thoroughfare that once linked Spanish missions in California, running from San Francisco to San Diego. Between Daly City and San Jose, the road is a nearly 45-mile corridor of suburban offices, fast-food outlets, auto parts stores, and other businesses slicing through Silicon Valley, tying together some of the nation’s priciest residential neighborhoods. Like so many other shopping-center laden strips of pavement that ribbon California, this segment is, for the most part, devoid of homes.

Joe DiStefano sees boulevards like El Camino Real as more than just spots for takeout or an oil change. He sees a “perfect storm of opportunity.” Cofounder and CEO of UrbanFootprint, a software company that builds urban planning tools, DiStefano has done numerous studies on the housing potential hiding in California’s commercial strips. According to UrbanFootprint’s analysis of El Camino Real, this lone corridor could theoretically accommodate more than 300,000 new units if the road was upzoned to allow residential development and its parking lots and big-box stores became low-rise apartment complexes.

In a state that needs 1.3 million more affordable rental units, according to the California Housing Partnership, such conversions could “take major bites out of the state’s housing crisis,” DiStefano says. “This meets so many California challenges. How do you attack the Covid crisis and deep economic trenches it’s creating in some communities, while at the same time attacking climate change and adding affordable housing?”

Converting underutilized retail and office space into apartments is not a novel idea, but it’s gaining fresh attention from California lawmakers, especially as pandemic-fueled e-commerce and remote work trends continue to empty brick-and-mortar stores and business parks across the state. In December, California State Senator Anna Caballero, who represents the Central and Salinas valleys and cities such as Merced, helped introduce Senate Bill 6, which would fast-track the creation of walkable infill development and make it easier to turn land zoned for commercial uses into housing. Another member of the state’s legislature, Assemblymember Richard Bloom, has a similar proposal to encourage commercial-to-residential conversions, Assembly Bill 115. (California has a bicameral legislature.) And Senator Anthony Portantino introduced AB15, which would incentivize turning vacant big box sites into workforce housing.

“We have an opportunity to create a much more walkable community, build more housing, and stop sprawl,” Caballero says. “We have a housing shortage today of 2.5 to 3 million units statewide. If they were all built tomorrow, they’d have tenants.”

But more than 40% of commercial zones in California’s 50 largest metros prohibit residential development, according to a recent report from the Terner Center for Housing Innovation at Berkeley. “Residential Redevelopment of Commercially Zoned Land in California” highlights the growing potential of such rezoning proposals. “It’s a perfect infill option,” says David Garcia, a co-author and policy director at the Terner Center. While legislation like these proposed bills hasn’t been passed in other states, he believes they address a universal problem. “You’re really plugging in gaps left by shifts in the commercial marketplace, by Covid and the shift to e-commerce.”

There are three main types of projects ripe for this kind of reuse, Garcia says: commercial strips in more urban areas, often along existing transit lines; former big box retailers in more suburban areas; and vacant land in the exurban landscape that’s been reserved for future development. Researchers found there was actually more acreage of available commercial space per person in more suburban/outlier areas, an opportunity that, if paired with increased investment in transit, could quickly bring more density and valuable walkable development to fast-growing and diversifying suburban centers, some of which have already done a relatively good job of building new housing. “Instead of thinking about a bill like this as another state mandate cities need to adhere to, it should be looked at as a tool for doing the good planning they need to do anyways,” Garcia says.

On smaller scales, some California municipalities have instituted their own commercial-to-residential conversions, along with numerous one-off projects by developers. In Los Angeles, an adaptive reuse ordinance meant to convert old downtown buildings such as lofts and factories into apartments has added more than 14,000 units to the city since 1999. In Oakland, the Broadway Valdez District Specific Plan converted a commercial strip once known as the city’s Auto Row into a “complete street, transit-first,” mixed-use neighborhood, including new housing.

The ability of this kind of statewide legislation to solve multiple problems at once, according to supporters, suggest it should be a slam-dunk for approval in a state starved for housing production and struggling with an ongoing epidemic of homelessness. (The Terner report doesn’t make predictions about the total number of housing units such changes might produce, leaving those estimates to a future report). UrbanFootprint’s DiStefano also believes that targeted investment in already dense areas would fit with the incoming Biden administration’s climate and housing priorities.

As a candidate in 2017, Governor Gavin Newsom pledged to build 3.5 million new homes in California by 2025. But that effort is falling far behind schedule, as political realities and NIMBYism have repeatedly doomed recent efforts to boost California’s housing production. The large number of stakeholders — labor, environmental groups, local government and residents — have made it very hard to pass pro-housing bills. State Senator Scott Wiener, a Sisyphus of housing legislation, has pushed numerous bills in recent years, such as a transit-oriented development plan mostly recently proposed as SB50, only to see them die in legislative chambers. The “May Massacre” of state housing legislation in the spring of 2019 made the state “a poster child for untenable inequality,” wrote L.A.-based journalist Alissa Walker in Curbed.

Caballero and Bloom hope for a different outcome this legislative session, but both pointed to numerous potential sources of pushback. Despite the sprawl-fighting benefits of siting housing in already urbanized and transit-accessible areas, Caballero’s bill ran into some resistance from environmental groups when it was first proposed last year, because it would expedite the environmental review process via California’s infamous CEQA process. And Bloom expects his bill will bring out NIMBYs who raise objections about traffic and “neighborhood character”; his bill includes maximum height limitations to help address some of these complaints and compatibility issues.

“We don’t want to destroy neighborhood character, but we don’t do that by building new housing; that’s a red herring for the most part,” says Bloom. “We also have to balance priorities, one of which, I think, would be helping the millions of Californians who can’t access affordable housing.”

There’s also the issue of sales tax revenue for cities that comes from commercial property; Caballero’s bill mandates that property be vacant for three years, which focuses more on giving the city tools to repurpose underutilized land, from a revenue perspective.

Since the new legislative session in Sacramento just started in December, both Bloom and Caballero need to introduce their bills in committee. There are also some slight differences that would eventually need ironing out; Bloom’s bill has an affordable housing requirement, while Caballero’s bill has a provision for skilled and trained labor paid at the prevailing wage.

Bloom believes 2021 will bring more action on housing: State Senate leadership has already unveiled a suite of bills this session, and while the business of the state has been delayed by increased security concerns following the attack on the U.S. Capitol on January 6, he expects the topic will be a major priority going forward. Zoning isn’t the silver bullet to solve the issue, says Garcia, but it can help unlock plenty of potential.

“I certainly hope we see more action this session, because the housing crisis is causing people to leave California, and that’s very disturbing,” says Bloom. “It’s something that we all need to take seriously.”