COVID Era Impacts on Working from Home and Housing Market Impacts

While the COVID-19 pandemic has triggered many social and economic disruptions, it has also changed working arrangements and has accelerated the shift to work from home (WFH). During the COVID-19 outbreak in the early of 2020, many businesses across the United States closed and millions of workers experienced the work from home trend out of necessity. This sudden and massive work from home experiment generated major lifestyle changes for workers, homeowners, business owners, and our communities.

A new NBER working paper, “Working from Home Around the World¹,” provides some insight into the big shift to WFH and discusses implications for workers, organizations, cities, and the pace of innovation. The study surveyed full-time workers who finished primary school in 27 countries as of mid-2021 and early 2022 and found strong support for a three-part explanation of how and why the pandemic catalyzed the big shift to WFH. The pandemic has driven a mass, compulsory social experiment in WFH, which generated a tremendous flow of new information and greatly altered perceptions about the feasibility and productivity of WFH. Individuals and organizations have re-optimized accordingly and allowed much more WFH days than prior to the pandemic.

The NBER paper also examined WFH levels during the pandemic, people’s plans, and desires to work from home. It stated that full WFH days averaged 1.5 days per week across 27 countries, and employees wanted more WFH days than employers’ plans in every country after the pandemic. Moreover, it presented that people placed a sizeable value on the option to WFH a few days per week, as WFH saved time and costs of commuting and grooming, and provided more flexibility in time use over the day. Specifically, the study concluded that employees valued the option to WFH 2-3 days per week at 5 percent of pay, on average, with higher valuations for women, people living with children and those with longer commutes.

Additionally, when this study investigated post-pandemic WFH levels, the results showed that employers’ plans for WFH levels after the pandemic correlated strongly with WFH productivity surprise gains during the pandemic. Across different countries, there was evidence that planned WFH levels rose with the cumulative stringency of government-mandated lockdowns during the pandemic. However, there was no evidence that cumulative COVID death rates affected employers’ plans for post-pandemic WFH levels or current WFH levels.

While “the big shift to WFH presents especially acute challenges for dense urban centers,” it also had a significant impact on the housing market as WFH has enabled homebuyers to relocate to low-density areas that have higher housing affordability conditions. The most recent analyses of NAHB Home Building Geography Index (HBGI) showed that home building activities have shifted from higher density core areas to low-density and low-cost markets since the beginning of the COVID-19 pandemic. The analyses also indicated that the market share of single-family and multifamily construction in large metro core and inner suburbs dropped in the second quarter of 2022, compared to the fourth quarter of 2019 (pre-COVID).

WFH does not only change where we work but also where we live. Homebuyers with WFH options have more choice when they choose where to live. As homebuyers are looking to relocate to low-density areas (residential outmigration), many populous urban areas have experienced especially large declines for inward commuting. Consequently, WFH has raised the preference and attractiveness of the suburban and exurban living, and reshaped the housing market in many remarkable ways.

Note:

1. Aksoy, Cevat Giray, et al. “Working from Home Around the World.” NBER Working Paper No. 30446, September 2022, JEL No. D22,E24,J20,L23.