Washington wants to reset the minimum sales rules for residential properties
The fight for a low-rise retail mandate could be one of the most important zoning debates of 2026, when Washington state lawmakers will ban mandatory retail restrictions on new residential buildings.
A bill in the Washington state Senate would change the text on commercial zoning, requiring cities with more than 30,000 residents to allow housing right-of-way on land zoned for commercial use.
That approach has become common in cities and regions that want to increase the supply of housing.
However, the bill would go a step further by severely limiting how often local governments can force a sale on those projects. So far, Washington is the only state to consider limiting the authority at the federal level, creating a model that officials in other states are watching closely.
After decades of putting together these guidelines, cities across the country are now putting an end to those remedies to address housing affordability and housing supply, as well as low-vacancy stores. This change focuses on converting vacant retail or commercial space into residential space.
In Michigan, Grand Rapids changed its code in 2021 to allow low-rise residential conversions. New York City and San Francisco have changed laws to allow squatting.
Decades of approval
With the rise of the new urban concept, planners often want to go back to the earlier days of low-level retail among the transit areas. The ideal location was residential above restaurants, grocery stores or other commercial uses.
From around the 1980s to the 2000s, many cities embedded requirements or bonuses for low sales and other active uses to create pedestrian-oriented streets in cities, station areas and redevelopment districts. These codes used to limit the additional height or floor area ratio to providing functional ground floor space and required transparent facades, multiple entrances and commercial or public uses at street level, and housing above.
However, instead of requiring sellers to keep up with the ups and downs of market demand, cities are making sales a comprehensive requirement for urban-style multifamily development, even in suburban areas.
Before the COVID-19 pandemic, real estate professionals made the case for underselling.
“You need lower-end retail to attract and charge higher rents for the multifamily units above,” Melina Cordero, now head of retail research for real estate firm CBRE, told the International Council of Shopping Centers in 2018.
The pandemic, however, has eroded office and retail demand in urban areas, particularly in densely populated office districts that have been a major customer base for restaurants and retail rentals in multi-use buildings. The acceleration of e-commerce has further reduced the demand for small shops.
Shops in these buildings remain vacant for long periods of time, although the space is constantly changing.
Engineers want flexibility
For years, real estate developers have argued that forced sales on the ground look better on paper than in practice. It costs money to hold a property or change tenants. Sales also involve additional parking requirements, which increase costs.
Developers are especially wary of foreclosures in suburban and low-growth markets, where tenant demand often can’t support the property. They want to create a ground floor that can transition between retail, office or utility use, rather than freezing the entire new building into a traditional storefront template.
The instructions can be particularly difficult for Low Income Home Loan developments. Low-quality commercial use of LIHTC deals can lead to higher construction costs, complicated fire classification and elevator requirements, and long gaps that undermine the economics of affordable projects, according to the National Housing & Rehabilitation Association.
Allowing to stay in commercial areas
Modeled on California’s 2022 law, the Washington bill targets freestanding malls and low-rise office parks. Proponents argue that such buildings should be prime locations for middle-class housing rather than reserved for fringe shops that struggle to rent.
A parcel-level analysis conducted by HR&A Advisors for the Puget Sound County Council found that the real benefit of the bill comes not only from opening commercial spaces to homes but also from loosening the sales mandate. The analysis, conducted in partnership with Challenge Seattle and Amazon, determined that mandates often push mixed-use projects from infeasible to dead on arrival.
Supporters, including Gov. Bob Ferguson and large employers such as Microsoft, are introducing this change as a measure of housing affordability. They argue that the state can reduce construction costs, regulate financing and open thousands of new units in an area already served by roads and utilities.
Critics, however, warn that dialing back stores risks shutting down neighboring business districts and harming the vibrant, walkable corridor systems that many cities have spent decades idle.
Salomon cited concerns that long-standing neighborhood businesses could be decimated if cities lose the ability to demand retail in key areas.
Threading the needle with local governments
Washington’s SB 6026 successfully enters the midst of a growing national debate. The bill has already been scaled back to preserve the ability of cities to seek sales in transit-oriented districts covered by last year’s transit-oriented development law. The same applies to business development areas and national or state historic sites.
The bill allows a limited sales authority – set at 20% of the area – elsewhere for bonuses of limited length.
That compromise reflects Washington’s willingness to prioritize housing-blocking housing while pursuing a balance between the realities of low-income economies and the long-promised, healthy, walkable streets.
