Remote work drove more than 60% of home price surge: Fed study

The rise of remote working was a primary driver for the significant home price surge over the last few years in the US. This is according to new research conducted by The Federal Reserve bank of San Francisco. This will likely continue to drive up costs and inflation as the shift becomes more permanent.

The price of homes rose 24% in the two years ending November 2021. The study concluded that more than 60% of the increase in home prices was due to the rise of remote work during the COVID-19 pandemic. Although many employees have returned to the office, it is estimated that approximately 30% of work being done is remote in the latter half of 2022. During the pandemic, as many as 60% of all employees were estimated to be working remotely.

“The transition to remote work because of the COVID-19 pandemic has been a key driver of the recent surge in housing prices,” economists Augustus Kmetz and John Mondragon of the San Francisco Fed and Johannes Wieland of the University of California, San Diego wrote in their report.

During the pandemic, the study noted that many people relocated to cities with cheaper housing, more attractive amenities, or a better lifestyle. The increase in home prices was largely due to fundamental changes rather than a speculative bubble.

“Our results suggest that rising house prices over the pandemic reflected a change in fundamentals rather than a speculative bubble,” said the researchers.

“This implies that the evolution of remote work may be an important determinant of future housing costs and inflation,” they added. The researchers arrived at their results by adjusting data to account for the migration to cities that were more attractive to remote workers.

“Even so, after adjusting for the role of migration, our estimates show that 1 percentage point more remote work causes house prices to increase by about 0.9 percentage point, smaller than the initial estimates but still very large,” they added. Home prices continued to surge to record highs during the pandemic boom when workers were not bound to a specific location. The real estate market has since cooled off substantially due to rising mortgage rates and surging inflation. As many companies continue requiring workers to return to the office, workers have returned to the major cities, and this has caused a spike in the prices of rent around the country.