Study: Work-from-home policies pushed up housing prices

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A new study found that the rapid adoption of work-from-home technology during the pandemic had significant consequences across the country, such as pushing up home prices and increasing inequality.

A new paper in the Review of Economic Studies, published by Oxford University Press, found that the pandemic induced a substantial increase in the relative productivity of those working from home. This has increased housing prices, reduced office rent costs, and will permanently increase income inequality and change where people live within a metro area.

The researchers predict that the mass adoption of remote-work raised the productivity of those working from home permanently relative to working at the office.

“The COVID-19 pandemic prompted a radical shift in how much people worked from home, which in turn boosted the productivity of working from home due to mass adoption of remote-work technologies,” said Morris Davis, the paper’s lead author. “The increase in productivity is predicted to lead to higher lifetime incomes for those workers in occupations with tasks that are most easily accomplished at home – predominantly high-skill workers – and thus a side consequence of the increase in productivity of working at home is a widening of income inequality.”

Morris also said: “The change in work-from-home productivity also increased the demand for housing, consistent with the increase in house prices we observed between 2020 and 2022.”

In the first quarter of 2020, the median sale price of houses in the U.S. was $329,000. That jumped to $479,500 by the final quarter of 2022, according to the Federal Reserve Bank of St. Louis. That’s a 47.6% increase.

Other research estimated that full days of work from home quadrupled from 2019 to 2022 and beyond.

The paper found that this change in relative productivity caused a permanent shift toward working from home and away from work at the office. This, in turn, reduced the demand for office space and led to a 7% decline in office rents in central business districts. Simultaneously, residential rents increased, especially in the outer suburbs, due to increased demand for home office space. That translates into a rise in housing costs of 14% in areas near downtowns and 24% in the outer suburbs.

While the authors speculated that these productivity gains would have happened eventually, they said the pandemic accelerated the process.

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