North Carolina has been a decade-long winner in population growth. That came with a cost — a housing shortage, especially affordable housing.

Tar Heel State legislators tried to end single-family zoning in 2021 to allow duplexes, triplexes, and fourplexes. However, opposition from cities stalled the bill. State lawmakers are now making a run at a different solution that several states and cities have adopted, or at least are considering, that eases the path to building more housing.

The solution amounts to a classic opportunity hiding within plain sight. It's an emerging trend in urban planning that reveals a compelling new opportunity that simultaneously solves two challenges: declining demand—and value—for certain classes of commercial and industrial real estate and soaring demand for newly developed housing, particularly proximate to job centers.

A bipartisan group of North Carolina lawmakers proposed legislation "Allow Housing Near Jobs" that would permit residential construction “by right” in commercially zoned areas without a discretionary approval process, including converting unused office space into residential.

California, Arizona, Rhode Island, and Montana are among the states that have passed some form of by-right legislation. Los Angeles and Minneapolis focused efforts near transit. Nashville approved residential development by right in commercial districts last year, and it eliminated previous restrictions that limited adaptive reuse to specific areas and roads, enabling broader residential use in commercial zones across the city.

The North Carolina bill reflects a growing recognition that major steps must be taken to address housing solutions amid skyrocketing home prices and increasing urban office vacancies. If lawmakers succeed in passing the law and the governor signs it, the legislation could take effect on October 1 this year.

“This represents a major shift in NC's approach to mixed-use development and could create substantial new opportunities for developers, investors, and those working to address housing shortages,” Michael Walliser, founder and CEO of Live Oak Asset Management in Raleigh that has a home selling platform called EasyDigz, wrote on LinkedIn.

What the N.C. Legislation Proposes

SB 499 would allow residential development by right in all commercial, office, and retail zones across North Carolina.

This means local governments would be required to permit housing construction in these areas without requiring zoning amendments or conditional use permits. The bill would also simplify converting existing commercial buildings into residential units, provided they meet applicable building and safety codes.

Why By Right

Frequently, bureaucratic hurdles slow housing development in areas where housing is needed the most. The desire is to remove those hurdles to encourage growth, which means eliminating the need for a rezoning battle or a planning process requiring public input—the discretionary process.

The real estate industry is 'so risk-averse because it's such a precarious business that they're going to find every possible way to go about a development with the least amount of resistance as possible,' said David McCullough of McCullough Landscape Architecture in San Diego. “If you have an option to go by right versus discretionary, you would be crazy to go discretionary.”

McCullough used California as an example. The minute a developer goes through a discretionary process there, he says:

Groups will file an appeal and a lawsuit against your project, just because they can, just because they want to slow you down and stop you, and they're using it as an opportunity to maybe even make money.”

Why the Change is Needed in North Carolina

North Carolina's housing crisis has reached critical levels. The state needs an estimated 442,000 for-sale new homes and 332,360 rental units over the next five years to meet demand, according to a February report by NC Chamber Foundation in partnership with the North Carolina Home Builders Association and NC REALTORS.

The data and key findings of the housing study underscore not only the pressing need but also the urgency of implementing tangible solutions to bridge the housing inventory gap at all income levels across the state,” John McPherson, president of NC REALTORS, said.

The report noted that median home prices have surged in cities like Asheville ($550,000), Raleigh ($470,000), and Charlotte ($450,000), making homeownership increasingly unattainable for many residents.

Meanwhile, urban areas like Charlotte are grappling with high office vacancy rates. Commercial real estate firm Avison Young data shows vacancy rates at 25% in its central business district, representing some 6 million square feet. That number is expected to grow.

Known in the commercial real estate business as a “flight to quality,” companies favor new offices with a lot of amenities they hope will attract employees into the office. New York-based developer Related Cos. has been selling the idea of a “lifestyle office.”

Leasing activity has been strongest in this type of office space, leaving the older buildings mostly empty, if not entirely vacant. If the conditions work, those buildings can be targets for conversion—low prices and floor plates that work for multifamily are among the chief factors.

The bill focuses on converting unused office space and addresses broader economic challenges exacerbated by natural disasters. In October 2024, parts of western North Carolina suffered significant damage from Hurricane Helene, further straining housing availability and affordability in that part of the state.

Rewriting History

North Carolina’s bipartisan support underscores the urgency of finding solutions that benefit urban and rural communities.

Challenges remain, however. Residential development in commercial areas could strain existing infrastructure, which would mean upgrading water and sewer systems and public utilities. That costs money, taxpayer money.

But as with any of these efforts, critics who worry about parking, property values, and the loss of local control over zoning will emerge.

Early zoning laws were motivated by public health concerns brought by rapid industrialization and urbanization in the 19th and early 20th centuries. These led to overcrowded living conditions in industrial and commercial areas, which contributed to disease outbreaks and unsafe environments. Separating residential areas was viewed as the best way to mitigate these risks.

However, the zoning changes also led to mass suburbanization that hollowed out urban cores in major cities.

These are different times, modern times, yet thinking of old remains among critics who want the status quo, while people wish for walkability, whether through a park, to go shopping, see a sporting event, watch a concert, or even work. And they want to do it from a home they can afford or rent.

If North Carolina succeeds with its new legislation, it could be another model for states and cities grappling with housing shortages and seeking a solution. It could usher in the past but without the disease and health problems of industrialization.