How Work-From-Home “Hotspots” Drove the Housing Market Even Higher

Dave:
Hello, everyone. And welcome to On The Market. I’m your host, Dave Meyer. Today, we are going to be talking about work from home. I know this might not sound like a housing or investing related issue, but it really is and you’ll see that over the course of this episode. Of course, back in the beginning of the pandemic, a lot of people across the world were forced to start adapting and working from home. And this was a requirement because a lot of businesses were not able to keep their offices open. And this extended for almost two years.
But now as a lot of COVID lockdowns and protections are being rolled back, offices are reopening and it is a chance for both employers and employees to reevaluate work from home. Is it working? Do people like it? Do employers like it? We’re going to dive into all this data and information today to help you understand whether work from home is likely to stick around for the long term.
And this is important for real estate investors and just for people in general, because where people live has an enormous impact on local economies. We’ve already seen that people who have been moving primarily out of very expensive areas to more affordable areas during the work from home era over the last two years have had significant contributions to changing economies.
So today, what we’re going to talk about is what does the research and data tell us about work from home? What is it? Is it continuing? Is it going up? Is it going down? Do people like it? We’re going to talk about the different types of jobs that work from home and how that matters for local economies. And then we’re going to talk about what the impact of work from home is on the housing market and what qualities make for a great work from home hub if you are interested in trying to take advantage of some of the shifting trends in migration and demographics in the US.
So that’s what we’re going to talk about today. I think it’s a super interesting and important topic both someone who does work from home every single day and as an investor and someone who really just enjoys learning about this stuff. So before we jump into that, let’s hear a quick word from our sponsor.
First things first. When we’re talking about work from home, let’s just cover some of the most basic high level stats. In the US, according to a new McKinsey survey, 58% of US workers say they can work remote, at least some of the time. And 35% say that they can work remote full time, which is a really high number. I honestly expected it to be a little bit less given that a lot of offices are reopening and there seems to be this narrative, at least in a lot of the media outlets that employers are trying to push people back into the office.
But still over a third of people say that they can work remote full time. And it’s interesting because of the people who say they can, are able to, according to their employer work remote, 87% of those people do so at least one time a week. So the takeaway here is a lot of people can work from home and the people who are able to do it because their employers allow it, generally really like it if nearly 90% of them are working from home at least one time per week.
Now, the question are these stats that we’re seeing, are they just an effect and a temporary effect of the pandemic or is this a long term trend? Well, I’ve found some data that shows that the work from home trend and the stats that I just relayed to you are actually starting to stabilize. Just like with the data from a lot of things that we’ve seen over the pandemic. It is fluctuated wildly over the last couple of years.
And it’s hard to really understand what is real and what is not. But we’ve seen that the number of days that people have worked from home, so not just the number of people who are able to work from home, now, I’m talking about the total number of days in the economy that people work from home rather than working from in an office is really starting to stabilize. Actually for the last three or four months, it’s about 50% of days are worked from home for people who are able to work from home.
So this is not everyone, of course. Some jobs do require you to be on site every single day. But for those people who are able to work from home, they’re working from home about half time. This was at 98% during the pandemic, which of course is going to come back down. But it is interesting, and I think really telling that the average number of days people are working from home has started to flatline, right?
And this to me makes a lot of sense because employers have now had enough time, basically since the spring to make their decisions about what they want to do long term. Back in the winter of 2021, there was still lockdowns, there was Omicron or whatever the variant was at that time. And employers were still adjusting and changing things day to day. Municipal governments and the CDC were issuing advice that would change your policies on a pretty regular basis.
But a lot of that stopped around this spring. So employers have had three or four months to make their decisions. I personally think that they’re probably going to stick with what they have decided at this point, right? They’ve either decided that they’re going to stick with full-time remote or they are going to require everyone to be in the office. Or perhaps they’re going to do some sort of hybrid solution, which honestly does seem like the most popular solution.
So I do think that we are going to see a relatively stable amount of work from home, at least for the next couple of months, if there is a different long term trend that emerges, we’ll obviously have to adjust then. The question is, is this a good thing? I think people have generally strong opinions about work from home, from what data I have seen. Mostly workers really like it. A lot of people tend to enjoy the flexibility, the lack of a commute that is afforded when you are able to work from home.
On the employer’s side, however, bosses and managers seemed to be somewhat mixed. Overall. According to researcher, Adam Grant, who studies these types of things, the hybrid model actually chose some promise as being the most effective way to accomplish work. And again, I am really talking about traditional office work here.
Obviously, when we’re talking about work from home, we’re not talking about retail jobs or service industry jobs where you have to be there. What I’m talking about is a traditional office job. Adam Grant has said that individualized tasks, not only can be done well at home, but they’re actually done more productively at home, which is really encouraging Aand it’s interesting.
To me, that makes sense, right? If you have to put your head down and write up a report, or in my case analyze some data, I don’t really personally need to be around anyone else to do that. I can do that in the comfort of my own home. Meanwhile, Adam has shown that other types of work like collaboration and brainstorming are much more effective in person. Again, not super surprising and why I think this hybrid approach where employees work some days in the office, but work some days at home is becoming more effective.
And it seems that actually despite what you hear about these big companies, forcing people back into the office… And I know that Tesla thing is really on top of people’s mind. It got a lot of media coverage because Elon Musk was tweeting about making sure everyone comes back to the office. But in reality, according to the data, employers and employees are actually pretty close to what they want on this. So workers on average want to go to work from home 2.75 days per week, and employers want their employees to work from home 2.3 days per week.
So we’re talking about a couple of hours a week in difference here. They’re not very far off. This again, supports the idea that the amount of time and the amount of jobs that are being done from home is likely stabilizing. Because if there was this big discrepancy in what employers want and employees want, then when the labor market shifts and perhaps employers start gaining more leverage over employees, they would force people back to the office.
But it seems that employers for the large part are comfortable with this type of hybrid solution. Now, as I’ve said a few times, there are certain industries that tend to allow work from home or are possible to work from home where certain industries have almost no one working from home.
So in one end of the spectrum, we see tech workers or people in finance where tons of people are working from home. And in fact, tech workers report that 90% of them can work from home at least part-time. So pretty much everyone in the tech industry does have some flexibility on working from home or working remote. Whereas on the other end of the spectrum, the lowest number comes in construction where only 2.2% say that they can work remote as closely followed by transportation and retail which are also really low.
So of course, this makes sense. A lot of construction jobs, you obviously have to be on site to physically do the work. Whereas people who tend to work on computers can work mostly remote. And this also doesn’t just go to the industry, but also translates into salaries. People who are at the higher end of the income spectrum tend to be able to work remote more than those who are on the lower end of the income spectrum.
So you see that 46% for people making over 150K, whereas people making under 25 K only 27% of them can work remote. So those are two totally different sides of the spectrum, but just want to demonstrate that the people who are able to work remote are people who tend to be making more money. And according to some other data tend to have more educational attainment.
Now, I’m bringing up these discrepancies because it has broad implications for the housing market, because it means people who are higher earners and who tend to be more homeowners have the most flexibility in work from home. And therefore these people could have the biggest impact on migration and new housing markets. Traditionally, over the course of history, I guess, you could say that people generally worked close to the place where they could get the highest paying jobs.
Just think about New York for finance or San Francisco for the tech industry. People want to live in those places because they are in close proximity to very, very high paying jobs. But now that is changing. And some of these extremely high paying jobs like being a computer programmer for a tech company, you no longer are tethered to that housing market. You are no longer required to be in San Francisco where prices are obviously extremely high. And now you have some flexibility about where you can live.
We’ve seen this play out over the last couple of months, right? We hear about people from California moving from these super expensive markets to places like Boise, Idaho, or Phoenix, or Austin. And some of those markets, don’t get me wrong, have absolutely gotten expensive in their own right. But when you compare them to San Francisco or New York, they are still relatively inexpensive.
So this helps explain why some of these markets that don’t traditionally have the strongest economic engines are seeing some of the biggest gains in the housing market. It’s because people who are really high earners can leave really expensive cities and go somewhere that is a lot more affordable to them. So to study this and better get an understanding on… This narrative isn’t new. People are high earners from the coast are moving inland and are jacking up prices in the housing market. That’s not like a new narrative, but there is some research that has just come out that demonstrates the extent to which this is having an impact on the economy.
And this research comes from the National Bureau of Economic Research. These are a bunch of economists, basically. They’re actually the same people who are responsible for determining whether we’re officially in a recession or not. And this group, the National Bureau of Economic Research shows that about 50% of the steep increases in home prices over the last two years have been due to remote work, or as this has been called that you might hear it called the great reshuffling where it’s like people are changing and going to different places just due to the option from work from home.
But let me say that again, because when I saw that stat, I was like, “There’s no way this could be true.” But it does seem to be accurate that 50% of home increases in prices over the last two years have been to remote work. And obviously we know low interest rates, really high demand have obviously impacted that. But this great reshuffling is really dramatically changing the dynamics of tons of housing market. This study, it was actually done a little while ago. It was done back in November of 2021 and it shows that housing prices grew at that point 24% on average during the pandemic, which is crazy. Obviously, just in a year and a half of the pandemic, 24% increases.
And they said that 15.1% of that increase was due to work from home. So this narrative that people are leaving the coasts and are jacking up housing prices across the rest of the country, looks like it’s true at least according to the National Bureau of Economic Research. And we all know about migration to cheaper places, right? We’ve seen that a lot of places in the Southeast, we see Tennessee, Alabama, North Carolina, Florida, all growing really rapidly. And again, over the course of the pandemic, some of those places are no longer affordable and no longer as affordable as they were.
But what I’m talking about is relative to New York or New Jersey or the Pacific Northwest where people are coming from the most expensive housing markets in the country, they are going to cheaper places. And so when I first learned about this, I thought this was it, right? Like it was people moving from expensive places to cheap places and that was changing everything. But listen to this quote from Johannes Wieland. He is the associate professor of economics at UC San Diego and a co-author of the study by the National Bureau of Economic Research. And he said, “We were pretty shocked remote work had this impact once we saw the estimates.” That makes two of us.
Wieland said, “We thought about how people moving to different locations would be important, and it is. But it is the people who are remaining in a metro area, the people who need more space at home, if they work at home, that is really pushing up prices.” That is the majority of the story. That honestly really shocked me because there is all this data. I think if you listen to the episode with Taylor Marr from Redfin, a couple of weeks ago, he talks all about migration and migration is crazy.
Then that is really driving up home prices in certain markets. But what Professor Wieland said, who is the author of the study says that it’s people who are just trying to maybe get out of the city center and out into the suburbs where there are bigger houses. That is what’s driving up prices right now because you see people who are maybe in a small apartment and maybe it’s two people, a couple who no longer can work from a one bedroom apartment comfortably and want to move to a two bedroom or a three bedroom.
You couple that with demographics where millennials are reaching their peak family formation and home buying age, it is logical that larger homes are seeing really record high demand. So I thought this was super interesting and lended some data and economic credibility to the narrative that work from home is having a very measurable and very significant impact on the housing market.
Now, the next question I wanted to discuss is whether work from home will end in a recession, because it seems like there is a narrative that once the labor market shifts and employers tend to get some power back over the labor market, that they’re going to force people back into the office. And there have already been some what they’re calling like stealth layoffs, which were like what Tesla is doing, which is like come back or quit. Right?
And sure, maybe they want everyone to come back or maybe they really need to actually lay people off given their performance of their businesses and they don’t want to do that because of the optics. And so they are using this as a tactic to get people to quit and go somewhere else. I don’t know. I just read some article on the Wall Street Journal about that, so I thought it was kind of an interesting take on this.
But overall, I don’t think that if there is a recession, we are going to see a dramatic shift in work from home rates because of that data point, I said to you before, right? The amount that employers expect people to be in the office and the amount that employees expect to be in the office are not very far apart. Remember, employees wanted to be work from home 2.75 days. Employers wanted their employees to work from home 2.3 days.
So maybe they’ll have to come in a couple more hours per week, but it doesn’t seem like at least on a national macro scale that employers are begrudgingly allowing people to work from home. I’m sure there are some. And so I do think we could see slightly less work from home in the case of a recession where the labor market starts to shift.
But I don’t think it’s going to be this big reversion back to where we were pre-pandemic levels. So that is just my read of the situation. I’m of course not sure what exactly will happen, but let’s shift from talking about what the trends are and what the future might bring for work from home and talk more about the impact on the housing market.
Now, just like everything in housing, it is local. Some markets are going to be net winners from work from home. They’re going to see migration and perhaps housing prices go up. Some are going to be net losers. And when I say winners and losers, I’m really am talking about population and migration. Some economies and some communities are going to see a net in flow of people and some are going to see a net outflow of people.
And that is going to either put upward pressure on housing prices, if you’re in a community that sees more people, or it’s going to put downward pressure on housing prices if you are in a metro or geography that is losing people. So all of this, if you’re trying to understand what might happen in your market begs the question, what makes for a remote work hotspot? And what I’ve found from reading through the data and analysis is three things tend to make a remote work hotspot.
The first is tech focused economies or ones that are easy to work from home. So I think this is interesting because there is a large outflow of people from San Francisco, which is a tech focused economy, but it seems that those people tend to move towards slightly less expensive, but still tech forward economy. So like Austin is a really good example. You hear that companies like Tesla and Facebook, and Google, and Panasonic are all building huge campuses and investing massive amounts of money into Austin.
So the people from San Francisco, they still want to be in these epicenters of technology because maybe if they want to change jobs, they want to be able to find what job that might require you to go into the office sometimes. So that although it is shifting and is no longer as important. It does seem that cities that still have these strong tech-focused economies are still going to be doing really well. We see that in Charlotte. They have a strong banking and insurance sector. We see that in Austin. We see that in Miami where there’s a lot of finance jobs and finance firms going down there.
So it is not like the housing markets and the markets that are gaining people are completely divorced from the economy and the availability of high paying jobs. That’s not true. I just think it’s spreading out more. It is not as hyper concentrated in New York and San Francisco, it’s now moving to some of these secondary tech cities. So that’s the first one, tech-focused economies. The second one is lower population density. And this is where cities can expand outwards where there is more room to build basically, right?
No one wants to work from home in New York City where the average apartment is probably a quarter of the size of what it is in some of the Midwest, right? No one wants to work from home in San Francisco where it’s too expensive. And it is very, very expensive in these cities to get more space. So even if you love New York City and you’ve been living in a studio apartment or a one bedroom apartment, and you want a three bedroom, it is very, very expensive to move up in terms of that amount of space.
So the cities that tend to be doing well in terms of attracting new population are places where there is a lower population density and more room to build. So that’s the second one. The third is a warmer climate and appealing lifestyle. We’ve seen this trend over the last couple of years, but the sunbelt seems to be attracting the vast majority of migrants. We see Florida, Texas, Arizona, Tennessee, North Carolina, even Alabama have been seeing huge increases in their population. And the places that are declining are more of the Northeast and the Pacific Northwest.
So there just seems to be a desire for people to be in a warmer climate. I think this was obviously impacted by COVID too. People wanted to be outside and get out of their house. And if you’re in a warmer climate, that makes it a little bit easier. So I think it’ll be interesting to see if this one continues, but so far what the data shows about which housing markets have been positively impacted in terms of housing prices.
Again, there are pros and cons of seeing a population influx, but in terms of housing prices, these three characteristics tend to predict where housing prices have been going up the most, tech-focused economies where there is relatively low population density and a warmer climate and appealing lifestyle.
So overall, we’ve seen cities like Miami, Phoenix, Boise, and Austin. They’ve been some of the big winners in terms of attracting people and New York and San Francisco honestly have been some of the biggest losers in terms of losing their population.
Now, also to remember that this is happening. This migration, as we learn from the study, by the National Bureau of Economic Research, it’s not the same throughout the city. Suburbs and places with more space are growing faster than urban centers, even in some of the cities that are gaining people.
So suburbs places where you have a lot more room, obviously, if you’re working from home, those are in higher demand. So even within these cities, it’s important to really understand what’s going on, on a micro level in terms of the geography. And remember that generally speaking, after the great recession, the suburbs got absolutely crushed in the great recession,. Urban centers, they’re retained their housing values much better than the suburbs did.
And that was generally true up until the pandemic. The suburbs did not recover as quickly as urban centers and they were far below the growth rate of urban centers. Now, since the pandemic, that has completely changed and the suburbs both in terms of rent, I should mention and home prices have been growing faster than urban centers. Again, if you want to learn more about this, we should listen to the episode with Taylor Marr who’s an economist with Redfin. He brought a ton of good information about this, so you can learn more about this.
The last thing I wanted to say before we go is I think it’s interesting, because I’ve done some studies of late that show that I was looking at sort of the relative strength of different housing markets and a lot of these markets that were the hottest and have these characteristics of attracting a lot of people are starting to look a little wobbly to me, at least. Phoenix, Austin and Boise in particular, all are starting to see large increases in inventory and days on market, which shows to me not that there’s necessarily going to be a crash or even a decline, but it shows to me that the market is rebalancing and becoming more normal a lot quicker than a lot of other markets.
On the other hand, Miami, one of the big winners that still looks extremely strong. So while it does seem like the work from home boom is sort of starting to come to an end, not that it’s going to revert. I’m not saying people are necessarily going to move back. I have no idea, but there’s no data that suggests that’s going to happen. What it does seem like is that it’s starting to level out and we are not going to start to see a lot of new people who are going to be able to work from home. Right?
I don’t think there’s going to be a lot of employers who have held out on allowing people to work remotely up until now, and all of a sudden are going to say, “Yep, now is the time to let people work from home.” So I do think this whole situation is going to start to stabilize.
Okay. So that is all of the data I have for you today. But let’s quickly just recap everything that we have discussed. First and foremost, work from home is incredibly popular with employees and is surprisingly popular with employers. The question is, “Will work from home trends start to reverse? Will the people who move to the suburbs or rural areas move back? Will they stop moving all together if there is a recession? Will preferences for large cities and new economic hubs have a revitalization in a recession?”
These are all of the big trends that you should be watching during these really confusing, uncertain economic times. Personally, if you’re interested, this is just a guess, but this is my best guess is I do think it will probably revert a little bit. I do think in a recession, we might see some more people move back to San Francisco and New York to be close to the highest paying jobs in the US.
And this could somewhat hurt the cities that really boomed like Boise or Phoenix. But overall, I don’t expect to see some complete reversion. I don’t think we’re going to go back to the way it was before the pandemic. I think the trend of work from home is going to remain far above pre pandemic levels and continue to really reshape home buyer preferences in the US towards larger houses that are in the suburbs and in rural areas in some parts of the country.
I don’t necessarily think they’re going to be growing faster than urban areas forever, but I think there will be more parity. Like I said before after the great recession, we saw urban centers going really quickly at the expense of suburbs and rural. I would expect over the next few years, we will see a lot closer growth rates between suburbs rural and urban population centers.
All right. Again, it’s just my best guess after doing all of this research as to what’s going to happen, but of course, we’re going to have to keep our eyes on these trends over the next couple of months. I hope all of this information was useful to you. If you are an active or aspiring real estate investor, or perhaps you just want to understand work from home better and how it is impacting the economy as a whole. If you have any feedback for me, I would love to hear your thoughts on this show format. You can reach me on Instagram, where I’m @thedatadeli. I would love to know what you think, and I’m going to start putting some of the data from my research into the show notes.
So if you’re watching this on YouTube, you can find it in the description. Or if you’re listening to this on either Apple or Spotify in these show notes, we are going to put links to some of these studies and some of the data that I researched and reviewed for this episode. As always, thank you all so much for listening. We will see you again next time.
On The Market is created by me, Dave Meyer and Kaylin Bennett. Produced by Kaylin Bennett. Editing by Joel Esparza and Onyx Media. Copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team.
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