Is an Exodus From High-Priced Cities Looming, as More Folks Work From Home?
As more companies allow employees to work from home permanently, many trade the big, expensive cities for cheaper suburbs and urban areas. The post Is an Exodus From High-Priced Cities Looming, as More Folks Work From Home? appeared first on Real Estate News & Insights | realtor.com®.
When Lauren Woulard traveled to New Orleans for Mardi Gras and then to Orlando, FL, to visit an old friend, the New York–based publicist thought she’d be back in her itty-bitty Bronx studio by the end of March. She was wrong.
Instead, Woulard, 31, wound up crashing with her friend as COVID-19 tore through New York City. By May—after working remotely for three months—she decided to make the move to Central Florida permanent. She discovered she enjoyed living in a smaller city with a slower pace of life. Finding a three-bed, 2.5-bath townhouse in East Orlando for the same $1,600-a-month price of her Bronx apartment clinched the deal. She moved in last month.
“People are reconsidering living in these high-priced places, especially now that it’s been proven you can work from home,” Woulard says. Her spacious rental has amenities like an in-unit washer and dryer, a two-car garage, and lake views. “I sometimes walk into the house and go, ‘Should I do cartwheels? What do I do with all the space?'”
Woulard is far from alone. The new realities of pandemic life is leading more and more city-dwelling Americans to reevaluate their living situations—and the long-term ramifications for the nation’s hottest urban hubs could be vast and transformational.
With no access to the usual perks of urban life (nightlife, museums, sports events), spending a small fortune for a cramped apartment or condo seems to make a lot less sense, and early, preliminary data suggests more die-hard urbanites are seeking new homes in towns or smaller cities. That, together with the fact that big employers, including tech titans Facebook and Twitter, are more amenable to their employees working from home, means that workers may be loosening their ties to hugely expensive, job-rich cities like New York or Seattle.
“That conversation is occurring in a lot of households in America right now: Why are we living here at this high cost, in this intense, stressful, crowded environment when we can take our jobs and move someplace less crowded and less expensive?” says Patrick Carlisle, chief market analyst in the San Francisco Bay Area for real estate brokerage Compass.
Renters and the very wealthy—who can more easily change residences on short notice—are leading the charge in seeking out safe, stand-alone homes with yards and enough space to school the kids, work in a real home office, and entertain friends (someday).
Estimates vary wildly on how many Americans are working remotely during the pandemic. The National Bureau of Economic Research found that 37% of jobs can be performed from home, with higher percentages in expensive, tech-centric cities like San Francisco, Silicon Valley’s San Jose, and Boston. These tend to be higher-paying jobs.
The great work-from-home experiment seems to have been successful enough that some companies, including Square (Twitter CEO Jack Dorsey‘s other company), are pledging to make it a permanent perk. Nationwide, a financial services company, is closing just over half of its offices. Those who worked in those locations will now be able to telecommute permanently.
About half of remote workers polled by Gallup recently, 49%, would prefer to continue working from home even once their offices reopen. (More than 1,300 people working remotely were surveyed, from May 11 through May 17.)
“Since I didn’t have to go into an office, I didn’t need to be pinned to a certain city,” says Woulard.
Early telltale sign of urban exodus: Falling rental prices
There likely won’t be a mass exodus from the big cities in the short term. But there are signs the landscape is already shifting, as housing prices are beginning to fall in the most expensive, bellwether cities.
In notoriously high-priced San Francisco, the median rent for a one-bedroom apartment dropped 11.8%, to $3,280, in July compared with a year ago, according to rental site Zumper. Rents were down 8% in Silicon Valley’s San Jose, CA, to $2,300; 3.6% in Los Angeles, to $2,150; and 2.7% in Seattle, to $1,800. They also dipped 1.7% annually, to $2,890, in New York City. Prices typically slip when demand falls.
“People are paying these high rents, and right now they don’t have any of the advantages of living in the city,” says Carlisle.
What’s unclear is whether homeowners will follow suit. They typically move slower than renters, since they have to worry about selling their property, or at least renting it out. These days, they might also be concerned about having potentially infected buyers tramp through.
“Selling one’s house and finding another place to live is not something you can do at the drop of a hat,” says Carlisle. “For people who own houses … they’re thinking, ‘Is this the time I want to be selling my biggest asset?'”
In Manhattan, median co-op and condo sales prices fell 17.7%, to $1,000,000 in the second quarter of the year, according a recent Douglas Elliman report. (The report did not look at Northern Manhattan, which includes Harlem and beyond.) The large drop may be at least partly due to fewer sales and more big-ticket purchases in the previous year to avoid a mansion tax that made luxury home sales more expensive for buyers.
It was a bit more complicated in San Francisco. House prices rose about 3% year over year, to reach an all-time median high of $1.8 million, in June, according to Compass. Condos didn’t fare as well. Prices dropped 4%, to $1,195,000, as the market for them cooled a bit.
“These trends will unfold slowly,” says realtor.com® Chief Economist Danielle Hale. “You’re talking about people uprooting their whole lives.”
Employers may rethink office policies and location
Many companies are looking into creating a hybrid work-from-home model, where employees come to the office for only part of the week, says Brian Kropp, chief of research in the human resources practice at Gartner, a research consultancy. This will limit exposure to the virus and make it easier to maintain social distance.
But with fewer people using shared office space, some executives will likely realize they can downsize the amount of space they need. While it may be tough to break long-term commercial leases, they may choose to at least partly shut down some of that space to cut maintenance costs.
Kropp estimates that it costs companies about 20% of each employee’s salary in overhead costs to have them come into an office five days a week.
Businesses might also choose to get rid of centralized corporate offices and open smaller offices in less expensive, more far-flung locations.
Even after a COVID-19 vaccine becomes readily available, offering workers the option of telecommuting could give businesses more flexibility to hire talent in other parts of the country—or the world.
Meanwhile, workers can get a larger house with more land for a lower price the farther from the city center they go—and an extreme commute may not be so bad if it’s only once or twice a week.
“You’ll see spreading out to the suburbs and even farther out,” says Kropp. “If you’re working remotely, there’s no difference between being 30 miles and 300 miles away.”
Many of real estate agent James Harris‘ clients were living in apartments or condos in Los Angeles or even in East Coast cities, until the pandemic made that unbearable. Now they’re seeking bigger, single-family houses farther out where they don’t have to share common spaces with the neighbors.
“Buyers and renters are having a heightened appreciation for space,” he says.
Don’t count out the big cities yet
Still, some of the appeal of working from home in a more remote location will likely wear thin eventually.
“Most workers and companies will learn that it’s harder to do team building or develop effective leadership when you’re not [working] with people in person,” says Randall Dunham, director of executive global studies at the University of Wisconsin-Madison.
He anticipates only a quarter of workers will want to stay 100% remote—and those are the folks who may be tempted to move.
Plus, big cities have weathered natural disasters and human-made crises before and come out on the other side.
“Right now we’re at peak hysteria, so there are many, many doomsday scenarios for the fall of New York,” says New York City–based real estate appraiser Jonathan Miller. “After 9/11, the same thing happened. Within about three years the urban-suburban move reversed.”
Once a vaccine becomes widely available, those who left urban areas may feel safe enough to return.
“People wanted to move to New York. People wanted to move into San Francisco. That was their dream,” says Compass’ Carlisle. “Some of the magic has definitely worn very thin over the last couple of months. Whether that magic will come back … I don’t know.”
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