Managers attempting to coax reluctant workers back to their cubicles have a new card to play: returning to the office could make housing more affordable.
According to research published Monday by the Federal Reserve Bank of San Francisco, the massive shift to remote work spurred over 50% of the increases in house and rent prices through the pandemic. Yet another variable for Zillow to plug into your Zestimate.
Extreme Home Office Makeover
Remote work drove up home costs for two abundantly self-evident reasons. The first: working from home is best when there’s suitable space to set up and get proper work done — i.e., not right in front of the TV or next to the fridge. Living spaces with home offices or convertible spaces were suddenly priced at a premium.
The second and more important cause are the downstream effects of the great migration spurred by remote work. As the white-collar-turned-no-collar laptop class realized it could live just about anywhere, previously-affordable small cities became desirable destinations, causing home prices to skyrocket.
Both well-known and well-covered trends, but the latest Fed research grounds the correlation with firm numerical significance:
- After adjusting housing data to account for inter-city migration cost differences, the researchers found that for every percentage-point increase in remote work, housing prices gained about 0.9% — with identical figures seen in rent prices as well. In total, remote work accounted for 60% of the price hikes.
- “Our results suggest that rising house prices over the pandemic reflected a change in fundamentals rather than a speculative bubble,” the researchers wrote. “This suggests that the fundamentals of housing demand have changed, such that the persistence of remote work is likely to affect the future path of real estate prices and inflation.”
What Goes Up: Officials at the Fed believe the evolution of the WFH trend will be determinative for the housing market, just as much as changes in mortgage rates. So where do we stand? After peaking at about 60% of the US workforce in the early stages of the pandemic, analysts say remote work has settled to around 33% today — about a 5% increase from pre-pandemic norms. While national housing prices jumped 24% between November 2019 and November 2021, many hot markets are experiencing a post-pandemic chill. Data from Rent.com shows one-bedroom apartments dropped nearly 3% from July to August. Tough break for landlords, but welcome news for the ~70 million Millennials stuck in mom’s basement.