New Law Streamlines Commercial-to-Residential Conversions — But Cost Hurdles Remain

A change in Oregon law is meant to make it easier for building owners to convert vacant commercial space into housing, part of a broader push to address the housing shortage using buildings that already exist.

Under House Bill 2984, local governments are now required to allow conversion of a building from commercial to residential use without requiring a zone change or conditional use permit — removing one of the more time-consuming approval steps that previously stood in the way of adaptive reuse projects. The bill was aimed squarely at high office and retail vacancy rates that have persisted since the pandemic accelerated remote work and online shopping.

A newer measure moving through the 2026 legislative session, House Bill 4037, builds on that framework with additional provisions tied to how conversion projects are treated for tax purposes.

Property owners who’ve tried to use the streamlined process report the zoning relief helps, but doesn’t solve everything. Building code and life-safety upgrades — particularly around electrical systems, seismic standards, and accessibility — can still make a conversion prohibitively expensive, even when the space is structurally sound and up to the code standard it was originally built to. For a project of any real scale, industry advocates note that meaningful housing gains would require converting a substantial share of a city’s office inventory — a scale current adaptive-reuse activity is nowhere near reaching.

For contractors, this is a niche but potentially growing specialty: adaptive reuse work that blends commercial-building experience with residential code compliance.

Sources:

• Southern Oregon Business Journal, “HB 2984 – Commercial to Residential Conversion” — https://southernoregonbusiness.com/hb-2984-passed-and-is-awaiting-governor-signature-the-bill-requires-local-governments-to-allow-conversion-of-a-building-from-commercial-to-residential-use-without-requiring-a-zone-change-or-conditio/
• Oregon Legislature, HB 4037 — https://olis.oregonlegislature.gov/liz/2026R1/Downloads/MeasureDocument/HB4037