An Oregon Court of Appeals decision has widened the path for converting churches, offices and other existing buildings into affordable housing, reshaping the financial calculations surrounding projects that may otherwise remain vacant or never reach construction.
The September 16 ruling in DEVNW v. Oregon Bureau of Labor and Industries reversed a state determination that required prevailing wages on the conversion of a former church into 17 affordable apartments. The nonprofit developer retained the church’s foundation, exterior walls and some windows while rebuilding the interior for residential use.
The Bureau of Labor and Industries had classified the project as a major renovation of a church rather than the construction of housing. Because the original structure was not residential, the agency concluded that the project did not qualify for an exemption covering privately owned residential construction that predominantly provides affordable housing.
A divided Court of Appeals rejected that interpretation. The majority concluded that affordable housing can qualify for the exemption even when a developer reuses portions of a nonresidential structure. The controlling issue is whether the completed project creates affordable residential housing, rather than whether construction began on vacant land.
The decision does not eliminate Oregon’s prevailing wage law or establish a general wage exemption for affordable housing. It applies to projects meeting specific statutory conditions, including private ownership and the predominant provision of affordable housing. Publicly owned developments, projects that do not satisfy the affordability requirements and construction supported by certain federal programs may remain subject to prevailing wage obligations.
The ruling also does not require developers to hire nonunion contractors. Oregon’s prevailing wage system establishes minimum wages and benefits for covered construction classifications. Union and nonunion companies may compete for the same work. The court addressed whether the state wage schedule applied to this category of affordable housing construction, not whether organized labor could participate.
For housing developers, the decision removes a financial uncertainty that could determine whether an older building is preserved, demolished or abandoned. Prevailing wages can raise labor expenses substantially, particularly when a conversion requires new plumbing, electrical service, heating systems, fire protection, accessibility improvements and extensive interior reconstruction.
The developer involved in the case reported that BOLI’s original decision increased the project’s cost by approximately $50,000 per apartment, representing about 13 percent of the total development expense. Those figures belong to that particular project and should not be applied automatically to other developments. Building condition, financing, location, environmental work and local construction costs will produce different results.
For Josephine County, the ruling may create additional options where land prices, lower local incomes and limited public financing already complicate affordable housing construction. Grants Pass and Cave Junction contain churches, offices, motels and commercial properties that may possess redevelopment potential, although no specific local project has been confirmed as a beneficiary of the decision.
Converting an existing structure can preserve usable foundations, walls and utility connections while placing housing closer to established streets and services. It may also allow a developer to work within an existing neighborhood without clearing an undeveloped property. Those advantages depend heavily on the condition and design of the building. Severe deterioration, hazardous materials, seismic deficiencies or an unsuitable floor plan can make conversion more expensive than new construction.
The economic effect in Josephine County would therefore emerge one project at a time. A qualifying conversion may become more attractive to a nonprofit or private affordable housing developer because the court has removed BOLI’s prior interpretation as a barrier. That may improve the chances of financing a proposal, increase the number of apartments supported by a fixed budget or permit a long-vacant property to return to productive use.
Construction workers face a different financial consequence. When the exemption applies, contractors are no longer compelled by this portion of state law to pay BOLI’s prevailing wage and fringe-benefit rates. Contractors may still offer comparable compensation through union agreements, company wage policies or competitive hiring conditions, but the state schedule would not establish the minimum rate for the project. Labor organizations may view the decision as a loss of wage protection on publicly assisted construction, while housing providers may regard the lower mandated cost as a means of producing more units.
The ruling carries the same legal force throughout Oregon, but its practical value will vary among the state’s 36 counties. Urban areas with vacant offices may see opportunities for larger conversions. Rural communities may find potential in former schools, churches, motels or smaller commercial properties. Counties with high construction costs may gain more from the exemption, while projects requiring extensive structural work may remain financially unworkable regardless of wage classification.
Federal law remains a separate consideration. Affordable housing developments receiving covered federal assistance may be required to pay federal Davis-Bacon prevailing wages. State grants, loans and tax-supported financing can also carry individual conditions. Developers must still examine ownership, financing, building height, affordability restrictions and the final residential use before determining whether the Oregon exemption applies.
BOLI may continue making project-specific coverage decisions within the limits established by the appellate ruling, and further review by the Oregon Supreme Court remains possible if sought and accepted. The decision nevertheless changes the current statewide framework: the reuse of an existing nonresidential building, standing alone, cannot disqualify an otherwise eligible affordable housing development from Oregon’s residential construction exemption.
For Josephine County and communities throughout Oregon, the ruling creates an additional route for addressing the housing shortage through properties already standing. Whether that route produces new apartments will depend on local buildings, available financing and developers willing to undertake the conversions.