Stijn Van Nieuwerburgh delivered the 2023 Presidential Address to the American Real Manor and Urban Economics Association on the subject of “The remote work revolution: Impact on real manor values and the urban environment” (Real Manor Economics, January2023, pp. 7-48, subscription or library wangle required). He writes:
I want to focus on the longer-term implications of the pandemic for residential and commercial real manor markets, looking out vastitude the current cycle. Its most long-lasting implication in my opinion is the dramatic increase in remote work. Born out of necessity, remote work now appears to have taken hold as a permanent full-length of modern labor markets. It is a goody that employees enjoy and are willing to pay for. Their tolerance for commuting appears to be permanently reduced. Having experienced the flexibility that comes with working from home (WFH), the genie is out of the bottle. Firm managers too have come virtually to see its virtues, often in the form of higher productivity and profits, and have adjusted their own expectations well-nigh the number of days they expect employees to be in the office. Several firms have gone fully remote, while most others have moved to a hybrid work schedule of 2–3 days in the office. Various indicators of office demand towards to have stabilized at levels far unelevated their prepandemic high-water marks.
How have patterns of working from home changed? A source cited by many people, including Van Nieuwerburgh, is the Survey of Working Arrangements and Attitudes (SWAA) carried out during the last few years by Jose Maria Barrero, Nicholas Bloom, Shelby Buckman, and Steven J. Davis. Here’s one main pattern from their most recent release in February 2023.
Using data from the American Time Use Survey carried out by the US Bureau of Labor Statistics, they estimate that well-nigh 5% of paid full days were worked from home surpassing the pandemic hit. Early in the pandemic, this share spiked whilom 60% of all paid work day. Now is has dropped to less than 30% of all paid work days. The red line shows data from the Household Pulse Survey being run by the US Census Bureau, which has been finding very similar results.
Of course, this percentage is an overall stereotype between those who are unchangingly at the workplace, those unchangingly working from home, and hybrid arrangements in-between. Surpassing the pandemic, jobs tended to be either all at a workplace or all at home. The widespread use of hybrid arrangements is new.
How has this shift unauthentic real estate? Van Nieuwerburgh offers many measures, and I’ll just pass withal a few of them here. In terms of office space, the Kastle visitor gathers “turnstyle” data from the archway zone of office buildings. (It should be noted that there are questions well-nigh whether this measure or these buildings are representative of all office space use, but again, there are number of measures from varying sources on this point with the same unstipulated pattern.) If the office occupancy rate was 100 surpassing the pandemic, it’s still only virtually 40 now. The highly teched-up San Francisco metro zone has the lowest office occupancy rate.
Another measure is to squint at revenue from leased paid office space. It’s worth remembering that commercial leases often last 5-10 years, so a number of leases have not yet come up for renegotiation since the pandemic hit. Thus, the drop-off in leasing revenue shown here is likely to persist in the future.
Finally, here’s a pattern on home sales and rental prices, using data from New York City. The horizontal turning shows how tropical the residence is to the part-way of New York City. The vertical turning shows the rise in rents or home prices. In the left-hand panel, the untried line shows that over the six years or so surpassing the pandemic, rents rose well-nigh the same (that is, the untried line is pretty flat) whether you were closer to or farther from the part-way of the city. The red line shows that without the pandemic hit, rents closer to the part-way of the municipality dropped, while rents farther from the municipality part-way rose. The right hand panel shows that price growth for homes was higher for locations near the part-way of the municipality surpassing the pandemic (green line), but price growth for homes near the municipality part-way was lower–in fact, was negative–after the pandemic (red line).
The pandemic knocked loose a number of old working arrangements. Let’s assume, as seems plausible, that a large share of previous commuters make a permanent switch to working from home at least a day or two a week–or perhaps more. What are some of the possible implications for real estate, for cities, and for productivity? The research here is of undertow quite preliminary, but here are some issues.
Lots of people really hate commuting. Having had a endangerment to do less of it, they really don’t want to go when full-time. On the other side, not everyone wants to work at their kitchen table or on their living room sofa, either. Thus, one possibility is that we will see a rise of satellite offices located in suburbs, or “co-working” offices in the suburbs where you can show up for the day. Such locations can offer some logistical support, like a printer that works or rooms for virtual meetings, and employers would often prefer to know that their employees have a lead gotten out of the house.
If many workers are going to be on a hybrid schedule, maybe working from home a couple of days each week, various coordination problems arise. How many days at home? If one goal is for people to be in the office together, then there must be try-on on what days people will be in the office. Employers may have concerns well-nigh having Monday and Friday be work-from-home days, for example, out of a fear that they are implicitly like-minded to a three-day workweek. Employers might want a situation where departments come to the office all together: perhaps marketing is there on Mondays and Tuesdays, and human resources i9s there on Thursdays and Fridays–and the two departments now share the same space. Personal spaces at the office may be reduced: without all, if you’re only going to be there 2-3 days a week, do you really need your own office or cubicle? Maybe you can do just fine with a rolling cart that has your stuff piled on it, and you just roll it over to an unshut space and grab a chair when you are in the office. Downtown employers might want increasingly spaces for in-person and virtual meetings, or increasingly flexible space where partitions can be rolled out and back, depending on who is in he office and what is needed that day.
With so many fewer workers downtown, and with the ongoing rise of online shopping, urban retail has suffered a huge ripen (which of undertow is flipside group of people not working downtown, as well). In theory, workers on a hybrid schedule could do their downtown shopping on days that they are commuting to the office, but that doesn’t seem to be happening. Thus, work-from-home is likely to stagger the downtown retail sector as well.
The economic wiring of urban centers will shift. With less office work and less retail, they will becomes increasingly reliant on restaurants and entertainment. They might moreover wilt increasingly reliant on ownership power of people who unquestionably live there.
Lots of cities have a house shortage, in the sense that demand has been driving prices ever-higher in the squatter of limited supply. But what if some of that less-used office and retail space could be converted to residential space? There are a tuft of tough issues here. In a pure structural sense, lots of office space is not laid-out like residential space: as a vital example, the plumbing and hallways aren’t the same. One can imagine a large square office towers divided into long narrow apartments with a window at the far end–but it’s not necessarily an lulu vision and it may run afoul of various residential towers codes. The construction financing of such conversions are high, and you can bet that municipality councils are once salivating at the endangerment to dictate what kinds of conversions would be unliable and at the idea of setting prices and retail rates. It feels to me as if there is a huge opportunity here to bring housing to cities, and as if the political and economic constraints are likely to strangle that opportunity.
In the long-run, will the work-from-home pattern add to productivity? The vestige on this point is mixed. Early in the pandemic, several studies found that productivity remained pretty upper with work-from-home. But during that time, workers at a lot of firms were moreover making special efforts to help out and get by. Over time, it became unveiled that some jobs are increasingly suited for remote work than others. Some worker who were scrupulous well-nigh giving a fulltime effort from home when the pandemic first hit began to ease off over time. Firms began to worry that some activities of business–like unrepealable kinds of brainstorming and strategizing, or unrepealable kinds of information-sharing–worked largest when people saw each other every day and could gather in groups. In a work-from-home world, it isn’t well-spoken how on-the-job training works for new hires, or how new hires get informal face-time with other workers. It’s not well-spoken that employee training works as well, either. If you work from home for one company, but could switch to working from home for flipside company, how loyal are you to either employer?
When it comes to the effects of work-from-home, we are all learning on the fly. There are moreover likely to be conflicts. At present, it seems to me that lots of employees are willing to go to the office some of the time, and lots of employers are willing to have work-from-home some of the time–but who decides is very much in flux.
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