The past two years have seen a sudden and massive shift to remote work, but as the pandemic slows, will armies of distant workers also change the real estate marketplace? What do real estate investors and homeowners need to watch?
For perspective, the work-from-home (WFH) trend is bigger now than it was before Covid-19, but probably smaller than expected. Prior to the pandemic, perhaps 5% or so of the workforce toiled away from home. A February report from McKinsey & Company found that about a quarter of the workforce could productively work from home.
“Considering only remote work that can be done without a loss of productivity, we find that about 20 to 25 percent of the workforces in advanced economies could work from home between three and five days a week. This represents four to five times more remote work than before the pandemic and could prompt a large change in the geography of work, as individuals and companies shift out of large cities into suburbs and small cities.”
“In theory,” said Rick Sharga, Executive Vice President with RealtyTrac, “the future should see a lot more WFH opportunities than the traditional 5%. That means more interest in properties with additional space that can be used for home offices and even small-scale production, assembly, and shipping. Think of homes with lots of bedrooms, big garages, utility structures, and accessory dwelling units (ADUs).”
“Remote work,” says Zillow, “has the potential to bring the most significant expansion of economic opportunity and housing affordability witnessed in a generation or more. The ability to work and live anywhere is already opening up housing opportunities all over the country, widely benefiting first-time buyers and renters of color. “
The company adds that “those moves are already happening. In the most expensive metros, buyers are prioritizing affordability over commute times, with areas 60‒90 minutes outside the city center experiencing the fastest home value growth. This trend is echoed by moving data that shows pandemic-era movers are seeking larger, more affordable homes.”
But, is it possible that vast numbers of remote workers are not a sure thing? Will workers largely migrate back to formal office settings once the pandemic ebbs?
A study by the Mortgage Bankers Association (MBA) shows that in “May 2020, an estimated 37.4% of workers ages 25 years and older teleworked because of the pandemic. The share dropped to 14.7% as of August 2021.”
The general WFH trend did not start out equally, and it won’t end that way. The ability to earn a Manhattan or San Jose salary while working 1,200 miles away depends in large measure on education.
For instance, the MBA found that 15.3% of workers with a high school education teleworked early in the pandemic, a percentage that fell to 4.5% in August.
“In contrast,” says the MBA, “59.6% of workers with a bachelor’s degree or higher worked remotely in May 2020, and 25.2% of those workers still teleworked in August 2021.”
Optimism versus reality
While many workers plainly prefer to work remotely, it’s not a practical reality for most. The economies of scale require central points of production in many fields and — historically — WFH is not a management preference.
JPMorgan Chase CEO Jamie Dimon explained on CNBC that the WFH movement is “not going to change everything so dramatically. It accelerated a trend, but it does not work for younger people. It doesn’t work for those who want to hustle, it doesn’t work in terms of spontaneous idea generation.”
A Microsoft study found that with many of its employees working from home, “there was a decrease in synchronous communication and an increase in asynchronous communication. Together, these effects may make it harder for employees to acquire and share new information across the network.”
Translation: People spent less time with informal communication, and this reduced productivity and the movement of ideas.
Goldman Sachs CEO David Solomon is not a fan. According to Bloomberg, Solomon says remote employment is “not ideal for us and it’s not a new normal. It’s an aberration that we are going to correct as quickly as possible.”
Not everyone agrees. Some — such as Twitter — are largely open to WFH options.
“If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” says Twitter. “If not, our offices will be their warm and welcoming selves, with some additional precautions, when we feel it’s safe to return.”
For the moment there are lots of unfilled job openings. One result is rising wages. Amazon, as an example, has just announced that it will pay starting employees an average of $18 per hour, well above the $15 many workers groups have been seeking. It will even provide a $3,000 signing bonus in some cases.
We’re seeing suddenly higher wages because employees in many industries have a lot of bargaining power. The pandemic, now with the potent and fast-spreading delta variant, is still with us, keeping many employees out of the workplace.
“The U.S. has recovered 17 million, or 76%, of the 22.4 million jobs lost last spring as states shuttered businesses to contain the COVID-19 outbreak,” said USA Today, “leaving payrolls 5.3 million jobs below their pre-pandemic level.”
The catch is that employee leverage may not last. Special federal unemployment benefits have just ended. There’s not a lot of talk about extending the SBA’s payroll protection program (PPP), a key source of wages for many small businesses. Some jobs may never come back, many lost as a result of closed businesses and automation.
Real estate impact
Will the work-from-home trend remain after the pandemic? Will it impact real estate? The answer to both questions is likely yes, but perhaps not quite the revolution that some expect.
There’s no doubt that WFH opportunities will increase, if only because there’s now widespread evidence of utility and productivity. However, the overwhelming majority of employees will continue to work from central office facilities.
Rather than large numbers of full-time WFH employees, the long-term trends are likely to focus on more-flexible “hybrid” work schedules with employees spending two or three days a week at the office or a satellite facility.
Work-from-home opportunities largely formalize practical work options long in place. For many workers, the office is as close as the nearest laptop.
WFH raises substantial questions. For instance, what about security? Can computer systems be more easily hacked from remote employees? And how will privacy? How much online oversight is too much within an employee’s home?
As formal home offices become more common, they will create a de facto back-up system in the event a central office is closed or inaccessible. Given climate change’s growing impact, this is a benefit not to be ignored.
Work-from-home arrangements will have to be individually negotiated with employers. One emerging idea is that employers may impose a wage differential between office and remote employees. CNET reports that Google has told some remote employees to expect salary cuts of 15% to 25%.
However — even with such reductions — working from home may still be attractive if it means a far smaller mortgage, lower living costs, no state income tax, and a location just a few minutes from the beach or ski slopes.
As WFH options increase — whether full-time or hybrid — so will the demand for properties with more formal workspace and additional square footage. Think of an ad marketing a home with “three bedrooms, three baths, three garages, and two dedicated offices.” That’s going to be enticing to a lot more people than it was just 24 months ago.