Return to the Office? Not in This Housing Market

In May of 2021, Sara Corcoran got a great job as an assistant project manager for a construction company in Dallas, working from home. Because the position was fully remote, she and her husband bought a 3-bedroom mobile home in Wylie, a lake community about 30 miles northeast of Dallas, in November. She loved the affordability of Wylie, where they paid $500 a month, less than half of what they had paid to rent a two-bedroom apartment in North Dallas, and that she could “smell the lake and see the stars.”

But eight months later, her company suddenly called everyone back to the office and told her she wasn’t remote any more, she says. “They said, ‘We’re going to have everyone come back to the offices, we want to see your smiling faces,’” she says. Its offices are southwest of Dallas, an 80-mile commute one-way. She went in for two days, and after getting home at 8 p.m. and paying $15 per day in tolls, she quit. She had a new job lined up two days later.

Last week, when President Biden called on Americans to “get back to work and fill our great downtowns again,” he joined a cadre of politicians and businesses across the country calling for employees to return to their offices. They may not realize how out of touch they sound to workers like Corcoran, who have seen home prices rise 30%, rents rise roughly 16%, and the price of gas increase 78% over the past two years.

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More than a third of jobs—often but not always ones performed by people with a college degree—can be performed from home, according to a University of Chicago analysis. What these workers hear when their employers call them back to the office is that they’re expected to either pay a big chunk of their paychecks to live close to the office or save money on rent and weather longer—and more expensive—commutes, as if the last two years of work-from-home hadn’t happened at all. Around 46% of companies had workers back in their offices in January or February of this year, compared to 29% at the end of 2021, according to a Challenger, Gray & Christmas survey.

Companies say they want workers back to foster collaboration and to help resuscitate the downtown businesses that have struggled with the absence of office workers. Many, like Google and Apple, are allowing employees to adopt a hybrid work structure, in which they come into the office two or three days a week. But that still requires workers who have become accustomed to having breakfast and dinner with their families over the past two years to either spend hours commuting three days a week, or spend the big bucks to live close to the office. In January, the median home prices in Mountain View, where Google has its headquarters, was $1.9 million. Even a family with two workers who make the average annual salary at Google—$134,386—would have to pay more than a third of their income each month to afford such a house.

Before the pandemic, the most expensive real estate was located in big cities like New York and San Francisco, close to jobs. Now, though, real estate prices have soared in suburbs and exurbs of these big cities, too. (Exurbs are places further away from city centers than suburbs and that are less dense than half of American zip codes). There’s more competition from workers who only have to go into the office a few days a week, and are moving their families further out in an effort to get more space. In short, it’s expensive everywhere.

Home values in exurbs are up about 30% from February 2020, and nearly the same amount in suburbs, according to an analysis by Nicholas Bloom, an economics professor at Stanford who studies remote work. They’re up only about 5% in city centers. Some exurbs in popular metro areas like the San Francisco Bay Area are more than 80 miles from the city center, meaning people in search of affordable housing may be facing a two-hour—or more—commute each way.

The U.S. is drastically short on housing

This quandary stems from a years-long shortage of housing in the U.S.. As new families look to buy homes, the pace of homebuilding has not kept up with supply. The U.S. was short 3.8 million units by the end of 2020, according to Sam Khater, the chief economist at Freddie Mac, and this deficit of units had increased 50% from 2018. Add to that a surge in investors purchasing single-family homes to rent out to families, further limiting supply, and a generation of Boomers who are choosing to age in place rather than sell their homes, and you have a perfect storm of housing unaffordability.

More than two in three metro areas saw median home prices increase at least 10% in the last three months of 2021 from the previous quarter, according to data from the National Association of Realtors. Over the past year, the median single-family home price rose 15%. Median earnings, by contrast, were up just 2.6% from a year before, even as consumer prices for goods like gas and food continued to climb.

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Bloom, the economist, argues that allowing hybrid work is actually a “win-win,” because workers can double the distance they live from the office. If they are only going into the office a few times a week, they can live two hours, rather than one hour, from their office, which allows them to afford a lot more areas. He gives the example of the Central Valley in California, which is around a two hour drive from Silicon Valley, and where homes cost much less than they do closer to offices like Google’s. “You have a horrible day one day a week, but the trade off is that you get to live somewhere far away with reasonable housing and good schools,” he says. Most professional workers say they want to come into the office 2.5 days a week, he says.

The hybrid model also presents less of a blow to downtowns because office workers are still coming in a few times a week. Most restaurants, bars, and other businesses that are located in downtowns will still survive. It is more of a threat to commercial real estate prices, which is probably why companies like WeWork with big investments in office space are scorning the idea that people can work remotely at all. “Those who are least engaged are very comfortable working from home,” said WeWork’s CEO Sandeep Mathrani, last year.

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But a transition to more permanent remote work won’t kill downtowns. It will just change them. Places with a high concentration of office workers, like Manhattan’s Midtown, or San Francisco’s Financial District, have become so office-centric that they’re dominated by offices and chain restaurants where people stand in long lines for salads. With fewer office workers, central business districts could add more affordable housing, arts and cultural spaces, and other so-called “third spaces” where people spend time away from home, argues urbanist Richard Florida. That will make them more desirable, because they can become spaces where people can walk or bike, within 15 minutes, to all the amenities they desire.

As for the service workers who catered to office workers, their jobs won’t just disappear, but they may move. Affluent people who work from home still want to go out to eat, meet friends at bars, and see live music as they did when they lived in city centers. Bloom, the Stanford economist, says the migrations to suburbs and exurbs will have a “donut” effect on cities, in that more people will be concentrated on the edges rather than in the center. Services for remote workers will start to move to the donut edges, too—and indeed, jobs on the periphery of metro areas have recovered much more quickly than those in city centers. This could end up being more affordable for service workers, who can live either in more affordable center cities or in rural locations.

Matthew Delventhal, a labor market economist formerly of Claremont McKenna College, found that if 33% of workers in Los Angeles telecommuted (up from about 3% before the pandemic), home prices in the region would fall 6%. Life becomes easier for almost everyone— because fewer workers are commuting, commutes become easier for people who are still going into a workplace. Some service jobs moved to the periphery of cities, where workers were relocating, making them more accessible to people who live even further from city centers.

“There are a lot of benefits to having people less tied-down geographically,” he says.

Workers want to be able to afford family time

Ryan Pollard is a case study in these welfare benefits. Before the pandemic, Pollard commuted 3 hours a day from his home in one Portland, Ore., suburb to a job in another Portland suburb. He and his wife worked at the same software company, and because of their combined commutes, there were times when their youngest daughter, now 9, would be in daycare 12 hours a day.

During the pandemic, their employer switched to fully remote, and the family went from renting a house to being able to buy one in Vancouver, Washington—about a 6 hour drive from their office.

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“I look back at the hours that I spent in my car or away from my kids and it kind of makes me cringe a little bit, especially with the little one, not seeing her for 12 hours a day,” he says. “Now, we’re walking her to and from school and that’s incredible. I’m not going to trade that for anyone.”

Pollard still works for the same software company; his wife got a new job at another company that allows fully remote work. Neither wants to consider any job that doesn’t let them work remotely.

Many others agree, and research suggests that allowing workers to be remote could help get more people from the sidelines into the labor market. More than half of unemployed survey respondents said they’d prefer a work from home job, and 17% said they’d only consider a work-from-home job, according to Bloom, the Stanford professor.

In a tight labor market, where there are 11 million open jobs, employers demanding a return to the office may find themselves short on the kind of diverse workers they all say they want to hire. They’ll also lose the many workers who reevaluated what was important to them during the pandemic, and decided to put family first. Around 61% of people who are working remotely are doing so by choice and not because their office is closed, according to a recent Pew study; earlier in the pandemic, only 36% were working from home by choice.

Scott McDonald, 45, creates flooring quotes for the construction industry, an office job. He had lived in the same North Carolina town where his employer was located because he wanted a short commute, but it wasn’t very close to his three kids, who split time between divorced parents. When his job went remote, he moved from an apartment to a three-bedroom house that could easily accommodate his children.

He heard President Biden call workers back to the office in the State of the Union, but scoffed—he never has to go back to an office again. “The pay would have to be astronomical to convince me to give up time with my family and replace it with a commute,” he wrote on Twitter.

McDonald knows this may limit his job options in the future, especially since he doesn’t have a college degree. But he gets to sit down with his family for meals, and talk with his kids about their days—he doesn’t want to trade that in.

“I’m not super-skilled,” he says. “But they say it’s a worker’s market.”