If We Can Work From Anywhere, Why Work From Here: Thoughts From Steve Kemler
Steve Kemler, Managing Partner of the Stone Arch Group, says that while the pandemic has certainly pushed people out of dense urban areas in recent months (at least temporarily), the overall direction of this population shift is actually nothing new. Population growth in major US cities has been slowing for years, and the population of America’s three largest cities – New York, Los Angeles, and Chicago – has actually been shrinking for years. Chicago’s growth turned negative in 2014, New York’s did so in 2016, and Los Angeles’ followed suit in 2017. While growth in smaller cities like Atlanta and Denver remains positive, the pace at which those cities are expanding has been slowing consistently since at least 2010.
The real question, then, is to what extent Covid-19 might accelerate this trend. The evidence so far seems clear: metropolitan population declines are likely to continue, if not accelerate.
photo/ Joel Duncan
Having been suddenly forced to adapt to working entirely from home, many companies have realized that relatively few personnel actually need to report to an office every day – if at all. Facebook has announced plans to transition 50% of its employees to working entirely remotely over the next 5-10 years. Twitter and Square now allow any employee who wants to continue working remotely to do so permanently, and Shopify has declared itself a “digital by default” company.
This shift is of course enabled by technology: video conferencing has improved significantly in recent years, messaging platforms like Slack have bridged the gap between phone calls and email, and shared document systems like Google Docs and Office 360 have made remote collaboration nearly frictionless. With the advent of 5G networks, a remote worker could feasibly work from even the most rural locations. Verizon’s 5G network, which is just beginning to roll out, isn’t limited to downtown Manhattan – places like Boise, Sioux Falls, Omaha, and Spokane already have service.
One result of the sudden shift to remote work is that urban residential real estate prices are likely to fall, as workers transition to remote environments and density falls in core urban areas. Some city centers were already facing oversupply of residential units before Covid hit; in New York City, 25% of luxury condominiums constructed since 2013 remained unsold as of September 2019. Any softening of demand in such areas could have a substantial impact on prices. Combined with a macroeconomic picture that is likely to get much cloudier in the coming months, an exodus of urban white collar workers could drive a painful correction in urban residential real estate prices.
And yet the impact on residential real estate prices may not just be felt in urban cores. In the mid-to-long term the shift is likely to also be felt in otherwise undesirable suburban bedroom communities.
If price declines are driven by residents leaving a given community to work remotely elsewhere, then a key predictor of how far prices will fall is the proportion of a given area’s residents who would live elsewhere if proximity to work were not a factor. Residential real estate prices in America’s biggest cities will likely see some painful days ahead – but over time the pain could also be significant in the surrounding commuter areas that don’t have good schools, a nice downtown and other attractive attributes.
Author: James Daniel
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