Zoom Towns and Cloud Commuting: The Impact of Remote Work on the Housing Industry
As the pandemic has created a shift in personal and professional priorities and the opportunity for more flexible lifestyle choices, one thing remains clear: remote work is here to stay.
The number of employees working from home offices is increasing, and some are also opting to keep their current jobs and relocate to less expensive and more desirable areas. Companies are now considering whether to maintain pay scales based strictly on job roles and responsibilities or adapt them to consider the area’s cost of living. Either scenario can potentially affect home prices, affordability, inventory, and financing options. What does this mean for future borrowers’ purchasing decisions, and how is the housing industry poised to help?
Remote Work Trends
The employment landscape in the U.S. is undergoing a significant transformation:
- Before COVID-19, 17% of U.S. employees worked from home five or more days per week. That figure swelled to 44% during the pandemic as organizations discovered that technology facilitated remote work and boosted productivity, while employees embraced the flexibility and convenience of a home office.
- According to the Wall Street Journal, around 25% of the 160-million strong work force will stay fully remote in the long term.
- The decade between 2020 and 2030 will see the number of Americans eligible to work at its lowest point since the Civil War. Companies may be stirred to do what they can to retain employees, including offering the option to permanently telecommute.
Some “cloud commuters,” defined as employees who can access shared data in real time no matter their location, will continue to live near their company’s physical headquarters, while others will relocate to more desirable—and often less expensive—regions with a higher standard of living. Companies must now decide whether to change their compensation models to reflect this evolution.
Geographic Pay and Location-Agnostic Salary: What Are the Consequences?
“Flexible employment opportunities, coupled with the shrinking availability of affordable housing in large urban areas, are pushing some workers to seek out a higher quality of life in the exurbs and suburbs,” says Arun Sundararajan, author, economic expert and the Harold Price Professor of Entrepreneurship and Professor of Technology, Operations and Statistics at New York University’s Stern School of Business. Sundararajan compares the current trend of relocating for remote work to the suburban migration that occurred in the 1950s as automobiles became cheaper and more widely available.
He goes on to say that teleworkers who relocate may experience economic consequences, as employers may eschew hiring employees with benefits for less-expensive consultants and contract workers. Moreover, full-time employees who move may undergo salary adjustments based on location. While companies like Reddit and Zillow have pledged to maintain location-agnostic pay that is reflective of job duties and experience rather than geography, other organizations including Google, Meta, and Twitter will reduce full-time remote employees’ compensation if they move to an area with a lower cost of living. WorldatWork’s Geographic Pay Policies Study showed that 50% of employees said a salary adjustment would be very or extremely influential in their decision to voluntarily relocate.
As Sundararajan points out, research shows that people are motivated more by relative pay than absolute pay. “The most dissatisfied employees aren’t the ones who are getting paid less than they want but the ones who are getting paid less than someone else who's doing the same work,” he explains. “That could really backfire on companies if they don't manage it well,” leading to resentment and decreased productivity. Equal salaries for employees in the same role with a variable cost-of-living adjustment bonus can provide a psychological feeling of parity.
What Do Remote Workers Who Relocate Want—and How Can Lenders Help?
For the housing market, migration from highly concentrated areas could potentially redistribute demand to regions where supply is plentiful, increasing the amount of available inventory and positively impacting the real estate market, he says.
If you take some of those people out of a highly concentrated real estate market and put them in these Zoom towns, there will be a greater number of transactions because you're matching someone's earning potential with the available supply.
Other potential effects on the residential real estate industry include:
- Decrease in desired house size: Whether due to a reduction in salary, increase in living expenses or a post-pandemic need to seek a simpler lifestyle, more than half of newly remote workers looking to move say that they want a significantly cheaper house, while more than a quarter are looking to reduce their living costs by 50% or more.
- Changes in sought-after house features: Remote workers are looking for amenities that make their increased time at home more comfortable and satisfying. Buyers are demanding not one but several multi-use spaces for home offices or work nooks, and neighborhood noise level is also a consideration for concentration and videoconferencing. Great backyard space via a yard or patio and features like a built-in grill and areas to entertain and relax creates a connection to the outdoors. And since these workers have eliminated their commute, they also want walkable access to a vibrant, diverse, feature-rich area with stores, markets, restaurants, parks, and other diversions.
- Buyer interest in unexpected markets. Most attractive to remote workers are locations with amenities like ski resorts and outdoor pursuits, as well as vibrant, culturally rich college towns, laid-back rural communities and regions previously considered only vacation destinations. As organizations like co-living company Common award grants to towns like Bentonville, AR, Ogden, UT, Rocky Mount, NC, and Rochester, NY, to create teleworking hubs combining offices and co-working spaces with affordable housing, there may be an uptick in other markets.
- Need for renovation funding. Borrowers whose income is reduced because of where they relocate and/or those who move to more expensive areas may find that they are only able to afford older homes in higher demand areas. Lenders can educate homebuyers on the availability of and process for obtaining renovation loans to purchase the home and fund necessary updates and installs.
- Education about Down Payment Assistance (DPA). Borrowers with reduced salaries as well as those relocating to higher-priced areas may need assistance obtaining the required minimum down payment. Lenders can make them aware of grants, second loans, Individual Development Accounts (IDAs), tax credits, job- or military-specific assistance and other resources.