Prior to the pandemic, less than 5% of paid workdays in the U.S. were spent at home, but that number today is about 30%, according to Matt Yglesias, a senior fellow at The Niskanen Center, a Washington, D.C.- based think tank which led a recent discussion on “The Future of Hybrid Work and the Housing Crisis: Opportunities and Threats.” While the panelists agreed that hybrid and remote work will continue to be available to some workers, it remains to be seen how many workers will eventually return to the office more frequently or full-time. Still, there are implications for the housing market.
“Hybrid work allows for a larger commuting range,” says Adam Ozimek, chief economist for the Economic Innovation Group, a bipartisan public policy organization based in Washington, D.C. “When you’re only commuting a couple of times each week, your maximum commuting time can be greater. That opens a wider geographic region for housing options.”
In turn, Ozimek believes that this could equalize housing prices a little by making homes and apartments in more distant suburbs, towns and rural areas more desirable and comparable to housing values in the city and inner suburbs.
Fully remote work, says Ozimek, is likely to benefit smaller places that lack easy access to cities and therefore have had lower housing values.
Public policies that encourage more development of housing in cities and in smaller towns can take advantage of new opportunities due to migration patterns to address the national housing shortage, Ozimek says.
Urban adaptation to hybrid work
Decreased public transportation ridership and fewer office workers downtown are challenges for mayors and other elected officials that can be addressed with new policies to encourage development to offset the national housing shortage, says Alex Armlovich, a senior housing analyst with the Niskanen Center.
“In New York, subway ridership levels are down to 1990s levels, but ridership is even lower in some other cities,” Armlovich says. “These cities have a five-to-10-year opportunity to save their transit and end the housing crisis if they develop the right policies.”
Armlovich suggests the playbook cities can use is similar to what New York did for the financial district after 9/11. Lower Manhattan was revived with the approval of about 25,000 housing units after 9/11, which meant more neighborhoods downtown became 24/7 communities instead of 9-to-5 areas.
Other neighborhoods with longer commutes to downtown, such as Ridgewood, Queens, have seen increased demand for apartments since more people don’t need to commute daily, says Armlovich. More retail and restaurants have opened now that more people are there full-time, he says.
“Policymakers need to tap into the surplus commercial buildings and get creative to give people a reason to go into the city and live there,” says Daryl Fairweather, chief economist of Redfin real estate brokerage.
Manhattan’s commercial real estate vacancy rate is actually relatively normal, says Armlovich, in part because of the long leases for office space. However, he says some of the Sunbelt cities that have experienced growth in the last few years face more serious issues with their office markets.
Small and medium size cities that have seen an influx of residents due to remote or hybrid work are suffering because of a lack of affordable housing, particularly for long-term residents. Out-of-town buyers have driven prices up for the limited number of homes that are available. Cities that introduce rezoning to allow for multifamily housing and other higher density development are better able to cope with their new population, says Armlovich.
Demographics and hybrid work drive housing preferences
While hybrid and remote work fueled demand for larger homes and larger lots early in the pandemic, the rapid rise in mortgage rates quickly changed that trajectory, says Fairweather. Affordability issues mean some buyers are looking for smaller homes again. Other would-be buyers plan to rent longer while they wait for rates or prices to decline or to save more money for a purchase.
In the meantime, household formation continues to be a tailwind pushing up demand for all types of housing. Fairweather anticipates at least seven more years of higher rates of household formation due to the large millennial generation. Gen Z is a smaller cohort, so Fairweather says there’s some uncertainty about demand for housing as that generation matures.
Multifamily developers would do well to build larger apartments suitable for families or roommates within communities that include integrated coworking spaces, suggests Ozimek. New developments that address the socialization aspect that younger people miss when they work remotely are more likely to attract renters than those that don’t offer places for residents to connect.