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  5. Work-from-Home Implications for Labor Mobility and Real Estate Markets
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Work-from-Home Implications for Labor Mobility and Real Estate Markets

Paper Session

Sunday, Jan. 8, 2023 8:00 AM - 10:00 AM (CST)

Hilton Riverside, Grand Salon C Sec 13 & 16
Hosted By: American Economic Association
  • Chair: Maisy Wong, University of Pennsylvania

The Donut Effect of Covid-19 on Cities

Arjun Ramani
,
The Economist
Nicholas Bloom
,
Stanford University

Abstract

Using data from the US Postal Service and Zillow, we quantify the effect of Covid-19 on migration patterns and real estate markets in US cities. We find three key results. First, within large US metro areas, households, businesses and real estate demand shift from central business districts (CBDs) to lower density suburbs and exurbs. We label this the “Donut Effect”, reflecting the hollowing out of city centers and growth of suburban outer rings. Second, we observe sizeable donuts in large cities, smaller donuts for mid-sized cities and essentially nothing for small cities, on average. Third, most households leaving city centers move to suburbs of the same city, some move to small metros and few move to rural areas. To rationalize these findings we note that post-pandemic working patterns will typically be hybrid, with workers commuting a few days a week. This is less than pre-pandemic, making longer commutes more common, but is frequent enough to keep most, though not all, workers near their place of work.

Neighborhood Choice After COVID: The Role of Rents, Amenities, and Work-From-Home

Fernando Ferreira
,
University of Pennsylvania
Maisy Wong
,
University of Pennsylvania

Abstract

We investigate how neighborhood preferences and choices changed one year after the beginning of the COVID pandemic. We study a Neighborhood Choice Program that helped graduating students choose where to live by providing new information about rents and amenities. Using panel data on neighborhood rankings before and after information, we find that changes in rankings favor neighborhoods where social and professional network shares are higher by 2.2 percentage points, rents are lower by $432, and are 2.4 kilometers farther from the city center. Interestingly, we did not detect this movement away from downtowns when the program was offered prior to the pandemic. We then estimate a neighborhood choice model to recover MWTP for amenities both before and after the pandemic. Our estimates reveal that MWTP for network shares post COVID is markedly lower than prior to COVID. Finally, we perform counterfactuals to quantitatively assess how changes in preferences affect where people live, and find that weaker network preferences are most impactful, while heterogeneity by commute and work-from-home are less relevant.

Work From Home and the Office Real Estate Apocalypse

Arpit Gupta
,
New York University
Vrinda Mittal
,
Columbia University
Stijn Van Nieuwerburgh
,
Columbia University

Abstract

We study the impact of remote work on the commercial office sector. We document large shifts in lease revenues, office occupancy, lease renewal rates, lease durations, and market rents as firms shifted to remote work in the wake of the Covid-19 pandemic. We show that the pandemic has had large effects on both current and expected future cash flows for office buildings. Remote work also changes the risk premium on office real estate. We revalue the stock of U.S. commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 15% decline in office values, or about $800 billion in value destruction. These valuation changes have repercussions for local public finances and financial sector stability.

Work-from-Home Technology Boon and its Consequences

Morris A. Davis
,
Rutgers University
Andra Ghent
,
University of Utah
Jesse Gregory
,
University of Wisconsin-Madison

Abstract

We study the impact of widespread adoption of work-from-home (WFH) technology using an equilibrium model where people choose where to live, how to allocate their time between working at home and at the office, and how much space to use in production. Motivated by cross-sectional evidence on WFH, we model WFH as a complement to work at the office. Simulations of the model and recent real estate price data indicate that the pandemic induced a large change to the relative productivity of WFH, one that will permanently affect incomes, income inequality, and city structure.
JEL Classifications
  • R0 - General
  • R1 - General Regional Economics