The pandemic has changed how people lived and, for many, where they lived. Working from home has been a big driver of this “big shakeup” and has accounted for more than half of the sharp house price increases seen during the pandemic, new research shows.
Remote work has allowed some people to move further away from their office and inspired others to buy bigger houses to accommodate their new lifestyle. Demand for more homes and the ability to move to warmer climates have played a significant role in driving up house prices, according to a new National Bureau of Economic Research working paper by Federal Reserve researchers. Bank of San Francisco and the University of California, San Diego.
Home prices rose 23.8% during the pandemic, according to population-weighted analysis of the Zillow Home Price Index between December 2019 and November 2021. And the study found that labor at distance accounted for 15.1% of this growth.
The findings suggest there was more than speculation behind the meteoric rise in house prices during the pandemic, said Johannes Wieland, associate professor of economics at the University of California, San Diego and co-author of the report. ‘study. He added that the evolution of remote working is likely to have a big impact on the future path of house prices and inflation.
“We were pretty shocked that remote work had this impact, once we saw the estimates,” Wieland said. “We thought about the importance of people moving to different places. And it’s. But it’s people who stay in a metropolitan area — people who need more space in their homes if they’re working from home — that really drive prices up. That’s the majority of the story.
The results confirm what Zillow economists have found throughout the pandemic.
“We’ve seen what we’ve called the ‘Big Shake’ that has helped housing demand nationally,” said Chris Glynn, chief economist at Zillow. “It accelerated trends that existed before the pandemic. Migration to places like Austin [Texas] and Raleigh [North Carolina] has been happening for a while, but the pandemic has accelerated it due to the separation between an office and home that has allowed people to make choices about where they want to live.
The Sun Belt attracted remote workers seeking a warm-weather lifestyle even before the pandemic. But the researchers found that the trend accelerated further during the pandemic, causing home prices in those areas to rise at a much faster rate than before the pandemic.
By the end of the fourth quarter of 2021, the median price of existing single-family homes in Austin was up 26% from a year earlier, according to the National Association of Realtors. Prices in Phoenix also rose 26% and in Boise, Idaho, 24.3%.
The researchers found that cities that already had a large share of remote workers before the pandemic tended to attract even more after pandemic shutdowns pushed a whole wave of people to work remotely.
“Where more people are working remotely, that’s where house prices go up,” said Wieland, who noted that cities like Austin, Boise, Phoenix and San Diego have seen some of the biggest increases in home prices as a result. house prices in the country.
These remote work-friendly cities share three key characteristics, he said. The first is a predominant industry that allows remote work. Tech jobs, for example, are easily done remotely because they mostly involve working on a computer, he noted.
The second aspect is lower population density, where there is more space and more affordable housing than in the largest cities in the country.
“It’s hard to work from home in New York, for example,” he said, explaining that the cost of living there means having extra space for an office is expensive. “Low-density areas are more attractive for remote work.”
The third characteristic is a warmer climate or an attractive lifestyle. “There’s more remote work where the weather is nice,” he said. “When you’re not tied to a place because of your job, you can choose where you want to be. Many of these places … are attractive to people who can move to live, not to work.
That’s why many cities in the Sun Belt have seen such increases in house prices during the pandemic, he explained.
The pandemic prompted us to change the way we work very quickly, Wieland said.
“There hasn’t been a period of peace where we’ve changed the way we work so quickly,” he said. “Suddenly we move away from where our work is. We don’t need the office space. We now need this domestic space to work.
In a perfect world, you would want to see the economy adapt to this shift in preferences and opportunities, he said. “But that’s hard to do with housing in a year or two, especially at a time when supply isn’t very high initially,” he said. “That’s one of the reasons house prices are rising at such a rapid rate.”
In their research, Wieland and co-author John A. Mondragon, economic research adviser at the Federal Reserve Bank of San Francisco, examined a housing market impacted by many variables, including low supply of homes for sale, a demographic bulge of Millennials reaching typical home-buying age; and the Fed’s interest rate cut during the pandemic, which resulted in ultra-low mortgage rates for more than a year.
The researchers measured the increase in house prices in an area based on the number of remote workers living in the area.
NBER Working Papers are released for discussion and comment, but they have not been peer reviewed or reviewed by the NBER Board of Directors that accompanies official NBER publications.