Put another way: More than half of the overall growth in house prices in the pandemic can be attributed to demand spurred by remote work, according to John Mondragon, an economist at the Federal Reserve Bank of San Francisco, and Johannes Wieland, an economics professor at UC San Diego.
The research, which controlled for migration during COVID, found that U.S. metro areas that had the highest shares of remote workers during the pandemic also saw the highest increases in home prices.
The paper also found the effects of demand driven by remote work had an “almost identical” impact on the rise in rent prices.
Those “robust” relationships imply “a shift in demand for housing across the board,” Mondragon told The Chronicle, as many pandemic home buyers and renters sought to upgrade to more spacious and pricier apartments and homes to support their telework lifestyles.
“It’s really a simple story, which is, as people are spending more time at home, they’re going to require a lot more space at home, and they’re going to be willing to pay for that,” Mondragon said.
In the Bay Area and California, home prices have continued to soar because of increased demand from home buyers and low inventory. The historic rise in home prices has made home ownership increasingly less affordable and has spurred bidding wars that have made home sales hundreds of thousands of dollars above listing price a common occurrence.
California’s median home price reached $884,890 in April, according to the California Association of Realtors, surpassing a record set in the month prior. The Bay Area’s median home price surpassed $1.5 million, setting another record for the region.
Even as the Bay Area experienced huge increases in outmigration in the last two years, the spike in remote work “was so large that ultimately house prices grew by 21%,” Mondragon said.
The paper also showed remote work has had an opposite effect on commercial rent prices. Commercial rents generally declined in areas with higher rates of teleworkers where demand for office space cooled.
The paper adds to a growing body of literature detailing the significant societal impacts of remote work during the pandemic across the Bay Area and U.S.
Nicholas Bloom, an economics professor at Stanford and an expert in remote-work trends, said in an email that the paper “suggests that the current housing surge is less of a bubble than we might think, since (work from home) rather than low interest rates are driving this.”
Remote and hybrid work are also likely to continue to fuel outmigration to suburbs if employees don’t have to stay close to where they work. Places such as the East Bay, North Bay and Central Valley “have seen and will continue to see strong demand from tech and finance workers moving out from (San Francisco) and central Bay Area,” Bloom said.
Many Bay Area employers, such as Apple, have yet to fully implement their new work schedules, and some cities, such as San Francisco, expect significant percentages of office workers will remain teleworking, denting future business tax revenue.
The paper, which was published independently of the Federal Reserve Bank system, concludes that future housing costs “may depend critically” on the staying power of remote work, as well.
“If remote work reverses, then there may be a general reversal in housing demand and potentially housing prices,” the authors wrote. “If remote work persists, we may expect important repercussions as increased housing costs feed into inflation and so affect the response of monetary policy.”
Ricardo Cano is a San Francisco Chronicle staff writer. Email: email@example.com Twitter:@ByRicardoCano