The Wall Street Journal is reporting that smaller cities and regions are offering hefty relocation incentives to attract remote workers to help jumpstart their local economies. This new geographical reality is highlighted in new data from the Labor Department shows that Midwest cities have had some of the most resilient job markets during the pandemic
We know the impact the pandemic is having on geography but what about houses themselves? A new paper by Christopher T. Stanton and Pratyush Tiwari looks at the impact an increase in remote workers will have on residential real estate. (NBER)
Regardless if they rent or own, Stanton & Pratyush find that remote workers spend more of their income on housing compared to non-remote households.
- RENTERS: Households with at least one adult remote worker spent between 6.5 and 7.4% more of their income on housing
- OWNERS: Looking at mortgage payments and property taxes found that households with at least one adult remote worker spent between 8.4 and 9.8% more of their income on housing
Why are remote workers spending more? Stanton & Pratyush looked at both reduced vehicle costs and the importance of more space being the biggest possible drivers of this increased spending.
- VEHICLES: “After accounting for differences in the presence of vehicle for remote and nonremote households, we conclude that vehicles are insufficient to explain remote households’ greater housing expenses.”
- MORE SPACE: “The most plausible explanation for larger homes is that additional space is needed to accommodate remote work.”
So what does this mean for the future of remote workers? Businesses, which will be saving money by reducing office space, will have to pay employees more. Stanton & Pratyush find that earnings premium will vary greatly depending on income level.
- Households in the bottom decile would require between a 10-15% earnings premium,
- Households between the 80th and 90th percentile of income would require about a 3% earnings
premium - Households in the top decile would not require additional compensation to offset housing expenses.
There is no question that many of the changes that we have made during this pandemic, like remote work, are here to stay. What is in question is the result of these changes. Could businesses offer a work-from-home premium for future workers? It seems very possible which would be a big win for the housing industry.