Summary:

California’s Assembly Bill 507 (Haney), signed into Law in October 2025, is a cornerstone of the state’s housing strategy to convert underutilized commercial buildings into housing.  The bill establishes adaptive reuse as a “use by right” statewide, streamlines permitting through ministerial approvals, and authorizes local incentive programs to subsidize affordability.  It aims to tackle two significant challenges: high vacancy rates in office/retail spaces and severe housing shortages, particularly in urban areas.

Key Provisions of AB 507

1.  Adaptive Reuse as Use by Right

• Applies to existing buildings (generally less than 50 years old) or those meeting historic preservation standards.
• Overrides local zoning: Adaptive reuse projects are permitted in all zones except industrial zones, which prohibit residential uses.
• Requires compliance with the Secretary of the Interior’s Standards for Rehabilitation for historic structures or eligibility for state/federal historic tax credits. ,

2.  Streamlined Ministerial Approval

• Adaptive reuse projects that meet statutory criteria qualify for ministerial review, eliminating the need for conditional use permits and discretionary hearings.
• Parking requirements are waived for portions of buildings that do not have existing on-site parking.
• CEQA review is effectively bypassed for qualifying projects under this ministerial framework.

3.  Affordability Requirements

• Rental housing:
• Option A: 8% very low-income + 5% extremely low-income units
• Option B: 15% lower-income units
• Owner-occupied housing:
• Option A: 30% moderate-income units
• Option B: 15% lower-income units
• Mixed-use projects: At least 50% of square footage dedicated to residential use.

4.  Local Incentive Programs

• Cities/counties may create Adaptive Reuse Investment Incentive Funds starting FY 2026–27.
• Funding source: incremental property tax revenue from increased assessed value post-conversion.
• Duration: Up to 30 years of payments to subsidize affordable units.
• Flexible structure: Funds can flow to owners or lessees under approved agreements.

Why AB 507 Matters

• Addresses office vacancy crisis: California’s urban centers face record-high commercial vacancies post-pandemic.
• Accelerates housing production: Ministerial approvals cut years off timelines.
• Supports affordability: Mandatory income-restricted units + local tax-increment incentives.
• Climate-smart development: Reusing existing structures reduces embodied carbon and infrastructure strain.

Implementation Roadmap

For Developers

• Eligibility check: Building age (<50 years) or historic compliance affidavit.
• Affordability strategy: Choose a rental or ownership compliance path early.
• Documentation: Prepare ministerial application with objective standards; no CEQA EIR required.
• Financing: Explore local incentive programs + state/federal historic tax credits.

For Local Governments

• Adopt ordinances for incentive programs by FY 2026–27.
• Set clear timelines for ministerial review (align with SB 35 shot clocks).
• Publish guidance on affordability verification and incentive fund requests.

Risks and Challenges

• Infrastructure capacity: Older buildings may need seismic, ADA, and utility upgrades.
• Historic compliance costs: Meeting preservation standards can raise project budgets.
• Local fiscal Impact: Diverting property tax increments for incentives may strain budgets.
• Market uncertainty: Conversion economics depend on construction costs and demand for smaller units.

Legislative Journey

• Introduced: 10 February 2025
• Passed Assembly: 23 May 2025 (64–1)
• Passed Senate: 10 September 2025 (30–9)
• Signed by Governor: 10 October 2025
• Effective Date: 1 January 2026

Key Takeaways

• Adaptive reuse is now by-right statewide (with exceptions).
• Ministerial approvals + CEQA bypass = faster conversions.
• Affordability mandates ensure equity.
• Local tax-increment incentives can bridge financing gaps.