Beyond BLS briefly summarizes articles, reports, working papers, and other works published outside BLS on broad topics of interest to MLR readers.
Remote work is mainly responsible for soaring home prices and rentals, according to a recent study. In “Remote work and housing demand” (Economic Letter, Federal Reserve Bank of San Francisco, September 26, 2022), authors Augustus Kmetz, John Mondragon, and Johannes Wieland show that housing prices rose 24 percent between November 2019 and November 2021, with remote work contributing to more than 60 percent of that increase. In addition, this surge in home prices is similar for rent prices. As of August 2022, approximately 30 percent of work in the United States is still remote work. Between November 2019 and November 2021, remote work increased to 16 percentage points.
The shift to remote work during the pandemic led workers to search for cheaper housing and more desirable amenities. Consequently, as workers left relatively expensive areas looking for cheaper housing in less expensive cities, the overall price of homes increased. Workers’ desire for homes in warmer climates with more space also affected advancing home prices.
For their analysis, Kmetz and coauthors researched the relationship between the share of remote jobs in 2020 compared with the share of prepandemic remote work. They looked at core-based statistical areas (CBSAs)—geographic areas that consist of one or more counties associated with at least one urbanized area of at least 10,000 people connected by commuting.
To show that they had an accurate measure of migration across CBSAs, the researchers isolated the effect of remote work on housing demand, separate from the effect of prepandemic migration. Even after adjusting for this migration, the authors estimated that an additional percentage-point increase of remote work caused a 1.5-percent rise in home prices. By tracking migration and its effect on housing demand, the researchers found that from November 2019 to November 2021, the surge in remote work alone increased home prices by approximately 15 percent.
Their analysis also revealed that the types of jobs available in a city matter because many jobs are not conducive to remote work. A work-from-home environment may increase demand for housing because jobs done previously in an office environment will likely use additional space and time at home. Cities considered more desirable for remote work saw the biggest increase in home prices because the limited supply of homes could not keep up with the influx of demand. Areas with higher shares of remote work experienced substantially higher housing prices than those areas with less remote work.
Kmetz and coauthors conclude that the fundamentals of housing demand have changed since the pandemic and that housing prices and inflation are likely to rise in the future as the shift to remote work becomes permanent.