Remote work may have fueled the spike in U.S. home prices
U.S. home prices rose a record 14.8 percent year-over-year in April.
Americans embraced remote work during the pandemic, and office occupancy remains at only 43.4 percent.
The rise of remote work could be the driving force behind the spike in housing prices, per a new NBER paper.
Despite some signs that the housing market is cooling, Americans are still struggling to find a home they can afford. Home prices rose 14.8 percent year-over-year in April, a record high since the NAR began tracking this data in 1999. The average mortgage payment is now 31 percent of the median American household’s income, up from 24 percent at the end of 2021.
Many prospective home buyers have been nudged to enter the market due to the newfound flexibility remote work has provided. If they don’t have to live in a city for their jobs—where an apartment is the typical form of housing—buying a home suddenly becomes an option.
But as apartment dwellers move away from their corporate offices, there’s another reason many have decided to become homeowners: If they’re going to be spending so much time at home, they want the extra space a house can offer.
The rise of remote work has clearly impacted the demand for housing, but per a recent NBER report, it is the driving factor behind the spike in home prices over the past few years. Per the report, the embrace of remote work has accounted for over half of the 23.8 percent increase in U.S. home prices since late 2019. Specifically, the researchers estimated that “an additional percentage point of remote work causes a 0.93 percent increase in house prices.”
Other factors—at least to some degree—have contributed to the rise in housing demand as well, including government transfer payments during the pandemic (which bolstered household incomes) and low mortgage rates. And as prices rose, some people—concerned they’d soon be priced out—jumped into the market a year or two earlier than planned, driving prices even higher when they did so.
Some, however, point to a low supply of homes for sale as the key factor that has sent prices skyrocketing. Per Zillow, U.S. housing inventory for sale was 740,000 as of late April, down 23 percent from April 2021 and 47 percent from April 2020.
But if the NBER report is correct, the scale of remote work could be the key statistic to track as one forecasts housing prices.
While some businesses have begun bringing employees back to the office, office occupancy remains at only 43.4 percent, per Kastle’s Back To Work Barometer. Per some estimates, 25 to 35 percent of workers are still working from home.
If workers start returning to the office, the work-from-home fueled demand for housing could stall—potentially providing some relief for home prices. But if many employers embrace remote work going forward, then demand—and prices—could remain elevated, at least until the housing supply catches up.
A final thought: While the shift to remote work may be contributing to higher home prices, it’s possible that moving forward—as Stanford professor Nick Bloom pointed out—higher home prices could fuel a demand for remote work. Elevated housing prices could incentivize Americans to move further away from cities to areas that are generally more affordable. The further people get from cities—and their offices—the more many will pursue remote work (moving to more “remote” areas could increase demand for remote work).