Black family with two children moving house
The housing market has experienced a roller coaster of demand and pricing, particularly since the onset of the pandemic. While many argue that remote work has led to a decline in demand for big city living, a recent paper by the Economic Innovation Group, titled "Remote Work and Household Formation," unveils the hidden factor driving up house prices: remote and hybrid work.
The Changing Demand for Houses
The paper discovered that working from home has different effects on how much people want houses. It's true that some people are leaving big cities to work from home, and this makes city house prices and rent lower. But at the same time, working from home has also made more people want to live in their own homes.
The researchers in this study used a new way of looking at how working from home affects house prices. They looked at how many people work from home in different places and used that information to understand how it changes house prices.
Why Remote Work Makes People Spend More on Housing
The study found out that people who work from home spend more money on their houses or apartments. In 2019, people who worked from home spent 30% more on their mortgage payments. In 2021, they spent 10% more. They also spent more money on rent, 33% more in 2019 and 20% more in 2021.
Let's imagine a family that doesn't work from home and pays $4,000 for their mortgage every month. If the person who earns money for the family starts working from home, they would get a new house and pay $1,300 more for their mortgage in 2019 and $400 more in 2021. If they rented a home for $2,500 each month, they would get a nicer one and pay $825 more in 2019 and $500 more in 2021 if they worked from home.
This happens because people who work from home spend more time in their houses and want to have a nicer place to live. This change in how people think about their homes has a big effect on how much they are willing to pay for housing and where they choose to live.
People Want to Pay More for Houses
Working from home makes people want to pay more for houses, maybe 10-20% more. This is because they spend more time at home and want a better place to live. The study also found out that people who work from home are more likely to move to a new house and be the head of their household.
When more people want to buy or rent houses and are willing to pay more for them, the prices go up. This is happening because remote and hybrid workers are competing to get the best houses, which makes the prices higher for everyone.
Balancing Out the Changes in Big Cities
In big cities where many people live close together and houses are expensive, the good effects of people working from home help balance out the bad effects of people moving away. This means that even though fewer people live in these cities, the housing market is still strong because more people want to live in their own homes.
One example of this balance is that more people are becoming the head of their household in big cities. Working from home has made more people want to be in charge of their own homes. This, combined with people moving away from the city center, creates a mix of changes that affect the housing market in these areas.
What Will Happen to Cities in the Future?
As the pandemic gets better and more companies let people work from home or have a mix of working at the office and at home, these trends in housing will probably continue. Cities might change even more as people who work from home look for better places to live, choosing nicer houses instead of living close to their jobs. This could lead to people moving around and changing where they live, which might affect how cities work and how they spend money on things like roads, parks, and public services.
Cities will have to change to make sure they're still a good place for people to live, whether they work from home or not. They might have to change the way they plan their neighborhoods, how they help people find jobs, and how they take care of the environment.
Conclusion
Remote and hybrid work is a hidden reason for higher house prices. As more people work from home, they don't just move away from big cities; they also spend more money on housing. This leads to a complicated shift in how much people want houses and where they choose to live. We don't know exactly what will happen in the future, but it's clear that working from home will keep changing the housing market for years to come.
