The shift in remote work brought on by the COVID-19 pandemic may account for more than half of the overall price increases and rent increases in the housing market during the pandemic, according to research published by economists Augustus Kmetz, John Mondragon, and Johannes Wieland. As home prices increased by 24% from November 2019 to November 2021, questions emerged about whether the price increases are supported by fundamental factors, such as shifts in demand from remote work, or driven by speculation fueled by fiscal stimulus and accommodative monetary policy.
In the paper, titled “Remote Work and Housing Demand,” the authors suggest rising house prices over the pandemic have reflected a change in “fundamentals” rather than “a speculative bubble.” Furthermore, the evolution of remote work “may be an important determinant of future housing costs and inflation.”
According to the paper, remote work increased dramatically following the onset of the COVID-19 pandemic, with fully remote or hybrid work increasing from a pre-pandemic market share of 5% to 60% in spring 2020. While the share has decreased over time, remote work still accounts for nearly 30% of the working economy as of August 2022.
For the analysis of the paper, the researchers studied the relationship between the share of jobs done remotely in 2020 compared with pre-pandemic shares of remote work. Areas with more remote work before the pandemic were found to have experienced larger increases in remote work during the pandemic. Kmetz, Mondragon, and Wieland found the type of jobs in a city (technology sector vs. service sector), relative affordability and availability of housing, and climate impacted the share of remote work in different areas of the country.
According to the researchers, core-based statistical areas (CBSAs)—county groups constructed around population centers and adjacent counties connected by community—with higher shares of remote work began experiencing “significantly higher house price growth than those with less remote work” as early as the end of 2020, with effects continuing into 2021. The researchers found similar upward pressure on rent prices in CBSAs with higher shares of remote work.
“At the same time, we find no evidence that the push to remote work had a similar effect on nonhousing-related prices and that it may have even had a negative effect on commercial rents,” the authors write. “Together, this evidence suggests that remote work caused a relative increase in the demand for all types of housing.”
After controlling for the effects of migration, the researchers found that “most of the effect of remote work on house prices arises from its direct effect on housing demand.” Estimates suggest that 1 percentage point more remote work in a CBSA causes house prices to increase by about 0.9 percentage points, according to the paper. Data suggests that remote work increased by 16 percentage points during the pandemic, implying that remote work resulted in house prices rising by about 15% from November 2019 to November 2021.
