How the remote work revolution could change California’s housing crisis
A huge number of people have been working from home for the better part of the year. The long-term implications for housing will likely benefit higher-earning workers and hurt lower income Californians.
A year from now, what will your Monday morning look like?
After your umpteenth consecutive weekend hugging your mother, your friends and complete strangers in poorly ventilated spaces, do you picture yourself pouring coffee in your thermos to begin your bleary-eyed commute into work? Or are you about to begin your bleary-eyed all-staff on the morning Zoom?
The answers to those questions will depend on your job, your income level, your employer and, if you’re lucky enough, your preference. They will also dictate whether the next decade of California’s housing affordability crisis looks radically different from the last.
Within a matter of months, the pandemic-necessitated rise in teleworking has inverted parts of the state’s real estate market in ways housing economists never imagined possible. The median rent in San Francisco has dropped nearly 25% since stay-at-home orders began in March. Oakland, Los Angeles and San Diego have also seen rents drop or at least taper, instantly flattening a decade-long spike.
As younger professionals flee overcrowded and overpriced apartments in urban cores, rents and home prices in many suburbs, exurbs and mid-size cities have shot up significantly.
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Fresno, Bakersfield and Chula Vista, a San Diego suburb, have seen some of the biggest post-pandemic rent increases in the country. The median price of a single family home in California set an all-time-high of over $700,000 four months ago, with some of the steepest increases in the Inland Empire and Central Valley.
With the prospect of widespread vaccination on the horizon, private employers, local governments, urban planners and state officials are reluctantly playing the role of housing crisis Nostradamus: Is what we’re seeing in 2020 an aberration or a new normal?
“The longterm piece, that’s the million if not billion dollar question,” said Jeff Bellisario, executive director of the Bay Area Council Economic Institute.
Nobody really knows the answer. But here are our best guesses.
Ok, so just how prevalent will remote work be in the future? Are companies really going to let people do this forever?
Probably pretty prevalent. The number of days California workers can stay home in sweatpants will likely rise even after the water cooler is no longer a potential superspreader site.
Right now, an astounding 40% of the U.S. labor force is working remotely full time. Firms, nonprofits and even some government agencies have generally discovered productivity has not dipped, and that workers for the most part prefer complaining about Slack and Zoom to complaining about their hour-long commutes. Plus, companies can save on office space and other expenses.
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A national survey from the Federal Reserve Bank of Atlanta found that employers expect the number of work from home days to triple after the pandemic. That shift is likely to be more acute in California than in other parts of the country because the state’s industry mix (e.g. tech and professional services) is generally more adaptable to remote work. Facebook and Google have said they plan to offer more flexible work from home arrangements through 2021 and beyond. Twitter said it will allow staff to work from home permanently if they wish.
But while more and more California companies will compete for talent by offering work-from-home perks, it’s unlikely a huge chunk of the workforce will be completely untethered from the office. Google just bought more office space in several cities, and many firms believe some employee to employee interaction to be essential. Plus, many office tenants are locked into long-term commercial leases.
“All of these tech companies have built these campuses to try to maximize interaction, and they expect to grow their employee head counts,” said Bellisario.
Other California-based companies have seized on remote working to simply relocate their headquarters out of state entirely. In the last nine months Oracle, Hewlett Packard and perhaps most symbolically commercial real estate company CBRE have trumpeted plans to jump to Texas.
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Won’t people just work from home more in cities once bars and restaurants and the other great things about cities open again?
Louis Mirante, legislative director for California YIMBY (Yes In My Backyard), thinks so.
While he acknowledges there may be some marginal out-migration from denser urban centers because of telecommuting, he argues Californians will still want to live in apartments in major cities because of the professional and social benefits conferred by urban life.
“If you use price as a signal as to where people want to live, it’s still in places like San Francisco or Oakland,” said Mirante. “If you look at where price is telling economists where folks want to live, it’s still dense, urban areas.”
Even after the post-pandemic price drop, at $2,377 for a two-bedroom the median rent in San Francisco is still the most expensive of any major city in the country, according to Apartment List.
But while urbanists like Mirante remain confident that demand for denser housing environments will rebound once people aren’t scared to share apartment building elevators anymore, there is evidence to suggest that the pandemic has unleashed a desire for more space that will outlast the virus.
Many of the homebuyers sending single-family-home prices across the state skyrocketing are millennials who, now in their 30s, are taking advantage of record-low interest rates to finally buy a house. While the suddenly pressing need for a backyard where a COVID puppy can happily frolick is the proximate reason, younger would-be homebuyers are also looking for the spare bedroom they can convert to a home office when telecommuting more frequently in the future.
“You’re now seeing many of the millennials getting to the age where they’re getting married and starting a family, and you see the coronavirus hit and it gives them a reason to move out to the suburbs,” said Oscar Wei, an economist with the California Association of Realtors. “You’re seeing a little more demand there for suburban homes.”
The rise of remote work could forever expand what “suburb” really means. If you only need to come to San Francisco once a week, Sacramento — a two hour plus train and bus ride away — is a feasible and much cheaper place to call home. If you only need to reach downtown Los Angeles once a month, the thought of living in Bakersfield is more palatable. It’s not surprising home prices and rentals are spiking where affordable single-family homes are within a long but ultimately doable drive of a major job center, as long as the drive is rare enough.
What about people who can’t work from home?
Workers in jobs that are more likely to offer telecommuting in the future skew higher income. Workers without that luxury tend to skew lower on the income ladder, and are more likely to be Black or Latino.
Despite the dramatic dip in median rent in places like San Francisco and Los Angeles, experts say the rental market in lower income communities has only softened slightly. While rents may not be rising as much as they used to, the housing crisis for these households is in many ways more dire as the pandemic-induced recession has caused widespread job losses and wage reductions: Even if your rent drops 5%, you’re in bad shape if your income drops by 50%.
“Let’s keep in mind there’s a whole segment of the housing market that won’t see a big change in rent,” said Gloria Bruce, executive director of the East Bay Housing Collaborative. “I don’t really think remote work does much for people who are overcrowded, where they were already spending 50% of their income on rent.”
Ironically, Bruce says it’s possible the rise of remote work could unleash a new wave of gentrification in the far-flung suburbs lower income households have fled to over the past two decades. Places like Vallejo in the Bay Area, or Palmdale and Lancaster in Southern California, could see an acceleration of a pre-pandemic trend: an influx of higher-income remote workers searching for more space.
“People of color and poorer people keep being the ones who have to make room for the housing market desires of those who are higher up the income scale,” said Bruce. “It’s just another version of what we’ve been seeing in various ways for decades.”
“I don’t really think remote work does much for people who are overcrowded, where they were already spending 50% of their income on rent.”
— Gloria Bruce, executive director, the East Bay Housing Collaborative
What about carbon emissions?
It sounds like anathema for urban planners: Surging demand for larger homes farther and farther away from cities, the very definition of sprawl. For the past 50 years, California has primarily built new single family housing beyond its suburbs instead of apartments closer to its cities, resulting in horrific commutes and rising greenhouse gas emissions.
But is sprawl really sprawl if you’re working from home half the time?
“I think (remote work) is probably the single most important emission dropping factor if we got serious about it, next to (building energy) efficiency,” said Dean Florez, a member of the California Air Resources Board, the agency in charge of meeting the state’s ambitious emission goals.
Florez points to the remarkable drop in driving that occurred in the weeks following the March stay at home order. A UC Berkeley study found that in the Bay Area alone, regional carbon dioxide emissions dropped by 25%, mostly due to less road traffic. The Metropolitan Transportation Commission, the Bay Area’s regional public transit governing body, recently voted to mandate large employers keep 60% of their workers away from the office to meet greenhouse gas goals.
Incentivizing remote work via tax credits or other policy instruments may also be an easier sell to state lawmakers than forcing cities to allow more apartment buildings near transit, an approach that has generated a whirlwind of backlash in recent years.
While a drop in greenhouse gas emissions seems like a natural benefit of more telework, research suggests it’s not the silver bullet it may appear initially. When employees work from home, residential energy use goes up substantially, and large single-family homes tend to be significantly less energy efficient than modern office buildings.
Should the state change its approach to housing because more workers will be remote?
If you believe remote work will only have a marginal effect on where current and future Californians want to live, you’re in the governor’s camp.
Jason Elliott, senior counselor to Gov. Gavin Newsom on housing and homelessness, doesn’t think telework will permanently blunt demand to live in the state’s denser, urban environments.
“When life returns to whatever our new normal is, people are still going to want to be in cities for the same reason they wanted to be in cities in January 2020,” said Elliot on Gimme Shelter, the California Housing Crisis Podcast. “Fundamentally our human nature to be connected hasn’t changed.”
Elliott also argues that shifting state housing policy away from building more densely near transit and towards accommodating telework in the suburbs is fundamentally unfair to lower income workers without the option to work from home.
But if Elliott is wrong, the rise in telework presents new winners and losers in the state’s housing crisis, depending on who you are and where you live.
“If somebody’s selling you remote work as a solution to California’s housing crisis, they’re selling you snake oil.”
— Louis Mirante, legislative director, California YIMBY
For middle and higher income earners stymied by years of high rent in costly urban centers (think San Francisco, Silicon Valley, L.A. and San Diego), the telework revolution will be a boon. If you choose to stay in your city, rents will be cheaper. If you choose to buy a home, you can expand the geographic radius of your home search to incorporate more affordable markets.
For renters and would-be homebuyers in places that used to be considered too far to commute from (think Sacramento, Bakersfield, Fresno), the news is not so good. Rents and home prices will continue to rise, barring an unlikely boom in new homebuilding.
And for those at the bottom of the income ladder — about 1.3 million Californians — the constant pressure to find a more affordable place to live will intensify in places it was already threatening.
“If somebody’s selling you remote work as a solution to California’s housing crisis, they’re selling you snake oil,” said Mirante. “And everyone should be on the same page about that.”