By John Dealbreuin
Forty-three percent of full-time employees worked at home in 2020. That’s almost double the 22% reported in 2019.
According to the U.S. Bureau of Labor Statistics, those numbers appear to be leveling off, but in many industries, remote work is becoming the norm, rather than the exception – especially with new variants of Covid-19 continuing to circulate throughout the United States.
Those numbers have many wondering whether the increase in remote work impacts the price of real estate, and what repercussions could be expected for real estate investors. Here’s what we found.
#1 How Remote Work Impacts Cost of New Homes
There is no question that remote work is changing the real estate market. On the one hand, it increases the demand for homes with separate office areas. The U.S. Census Bureau reported more than a third of U.S. households are working from home more frequently than before the pandemic.
There is an increased demand for multiple at-home offices that are needed to accommodate two or more adults working from home. In selected markets, national homebuilder KB Home introduced a home office concept designed to personalize the needs of homeowners working from home. The dedicated home office room is changing home construction – increasing the cost of new construction and residential value.
#2 Remote Work Affecting Residential Investments
Remote work is also changing the price and value of homes based on location. The popularity of remote work is driving an “untethering” of people who felt the need to live close to expensive downtowns in the past.
Working remotely allows people to live further away from their centers of employment. As a result, home prices may slow their growth in urban locations, but rise in suburban ones.
Square, Twitter, and Coinbase are just a few San Francisco headquartered companies offering employees the remote working option permanently.
Although this could be excellent news for people looking for more affordable housing in costly markets, real estate investors, in both traditional and crowdfunding endeavors, could see demand for residential real estate drop in locations that are normally more lucrative.
For example, California already has some of the most expensive housing in the entire country. However, we’ve already seen accelerating home prices slow significantly. And experts speculate continued slowing, especially in costly areas thanks to remote working. While more affordable prices in the Golden State could benefit potential homeowners, a decline in value in specific housing markets in the Golden State hurts investors.
#3 Commercial Real Estate is Also Affected
Besides the impact on residential real estate, the change caused by remote work is hurting specific commercial markets. Since people can now work from home, there is decreased demand for commercial spaces.
According to U-Haul’s Growth index data for 2021, California lost more people to migration than any other state in 2021. The three most significant states in the Northeast-New York, Pennsylvania, and Massachusetts were among the top 10 losers in migration trends. Individuals looking to start investing in real estate need to watch migration trends closely.
For large cities such as New York or Chicago, this can be a real impediment to their real estate market, possibly causing a decline in prices and increasing vacancies. Unfortunately, these ripple effects are also damaging retail and restaurant spaces, both of which are seeing an increase in vacancy as more workers stay at home and don’t shop in city settings.
Suburban areas are expected to continue booming due to these changes. People no longer need to go to work in the cities – or at least don’t need to go to those places as regularly. As a result, demand for homes in suburbia is skyrocketing, positively impacting the overall price of homes in suburban locations.
A Realtor.com research report showed that suburban listing prices had increased faster than urban prices. Additionally, a typical suburban home spends nine fewer days on the market now than last September, decreasing faster than the typical urban home. As such, it seems clear that remote working causes a more significant spike in suburban home prices than their urban counterparts.
Perhaps most interesting about these changes is that they impact a much wider breadth of locations than are typically seen when there are shifts in the housing market. For example, the rise of remote working is unquestionably impacting rural housing markets. Reports worldwide have found that the rise of remote working has resulted in more people fleeing cities to move to quieter, rural areas.
That can cause increased home values in areas where populations and infrastructure are typically sparser. Which leads to another quandary: rural areas must have access to reliable internet connections for connecting to the home office. Otherwise, they will be unable to take advantage of the boom in remote work.
Finally, it is worth considering that remote working has also made a real impact on rent prices, but not in a way you might think. One study found that areas with higher education – and thus more likely to work remotely – had slower rent growth than other areas. Another side effect of the ability to work almost anywhere, and an unwillingness to pay higher rents – slowing their usual annual increase.
Remote working is unquestionably having an impact on the price of real estate. However, like all items related to COVID-19, the effect occurs in an uneven and often unpredictable way.