Why Remote Workers Spend More On Housing and Rent

First - and most significantly - those working from home tend to have higher end jobs which pay more, so they would consequently already be paying for more rent, mortgages, property taxes and other housing costs.

But as remote work becomes more widespread due to the pandemic - and post-pandemic adjustments - such higher costs will have to be absorbed by people on the lower end of the pay scale, meaning that their cost of living will rise, while employers costs will decrease. JL

Sarah Holder reports in CityLab:

Employees who find themselves without an office tend to increase their own spending — on more room. Households with at least one adult who worked from home spent more money on housing, on average, than ones that all worked outside of the house: Remote renters spent between 6.5 % and 7.4% more of their income a month, and homeowners who worked remotely had mortgage and property taxes that were 8.4% to 9.8% greater than non-remote households. Remote workers spend less on transportation but that’s not enough to make up for the housing differentials. Offsetting costs might blunt some of the enthusiasm for remote work,
A Craigslist search for one-bedroom apartments in San Francisco pulls up a post for a work-from-home special: a NoPa flat for $1,200 a month. But the sunny studio unit is “day-use only” — the target tenant is someone doing remote jobs from home who wants a whole other apartment dedicated to teleworking. And who’s willing to pay for it.

As some employers consider remote-forever policies, there have been a few attempts to quantify the economic impacts of this digital turn away from the office. The focus tends to be on what the move might cost (or save) employers, in terms of productivity or salaries. Other research has delved into the savings, in gas, time and carbon emissions, from Covid-altered commuting regimes. 

But a new working paper distributed by the National Bureau of Economic Research looks at another, hidden cost: Employees who find themselves without an office tend to increase their own spending — on more room. Or, more rooms. About 0.3 to 0.4 more rooms, to be exact.

Between 2013 and 2017, households with at least one adult who worked from home spent more money on housing, on average, than ones that all worked outside of the house, the study found: Remote renters spent between 6.5 % and 7.4% more of their income a month, and homeowners who worked remotely had mortgage and property taxes that were 8.4% to 9.8% greater than non-remote households.

The study is a snapshot of the pre-coronavirus world, when only about 3% of U.S. employees did their jobs from home. By February 2020, that number had swelled by some estimates to 8%. And by May, that share had exploded, with about 35% of U.S. workers who once commuted going remote. How many will ultimately return to the office remains a subject of discussion, with employers announcing their commitment to hybrid, or flex, or immediate, or never-again office returns. According to a Pew Research Center survey, more than half of workers who can do their jobs remotely say they will want to continue doing so after the pandemic ends. A December survey from Upwork predicted that 27% of workers in the U.S. would still be largely remote by the end of 2021.

Up and down the income ladder, remote workers kept paying more for housing. 

The study authors anticipate a more modest shift to remote work post-pandemic, with 10% of previously in-office workers adopting a permanent home-office lifestyle. Such a transition, the study estimates, would translate into $15 billion in additional housing costs annually. That doesn’t count all the non-housing expenses that remote workers might rack up, for new equipment, no-longer-free snacks, desks and ergonomic gaming chairs, which the study did not include in their analysis.

“Some of the offsetting costs might blunt some of the enthusiasm for remote work, when people see the prices in the suburbs — where they can actually get a house where remote work is feasible — have gone up by 20% year over year,” said Christopher Stanton, a Marvin Bower Associate Professor at Harvard Business School and the co-author of the study. 

The extra housing costs aren’t much of a hardship for the highest earners; as the chart below shows, it’s the remote workers on the lower end of the earning scale who are already spending a bigger share of their income on housing. “Anyone who has transitioned to remote work from a small apartment will tell you is that it’s not very pleasant,” Stanton said. 

Stanton said he didn’t set out to study the costs of remote work: He was trying to figure out which cities were attracting remote workers before the pandemic, and why. While crunching data from the American Community Survey, however, he identified a pattern: a software engineer in Boise, Idaho, who works remotely for a company in San Francisco gets paid less than a software engineer who lives and works in San Francisco, but more than a software engineer who works for a local firm.

“The puzzle is why the person in Boise doesn’t try to get a remote job,” Stanton said. “It could be that the [remote] person in Boise needs the extra compensation to pay for housing.”

Not everyone can just rent an extra work space — or an apartment they can use as an office, or a bigger home entirely — when they go remote, regardless of need or discomfort. Higher-income workers were over-represented in the work-from-home cohort, and therefore in the study. These workers could be occupying bigger homes anyway, regardless of whether they had an office to escape to.

The study tried to control for these variables by comparing remote and non-remote workers who were of similar ages and similar income levels and similar household structure. Up and down the ladder, they found, remote workers kept paying more for housing. If whole companies go permanently remote, the skew toward the highest earners will flatten. 

There’s a big caveat, which is that the study only looked at people who went remote but still lived within the same general commuting zone — like someone working in San Francisco who moved to Oakland, not Miami, or someone working in New York City who just kept working out of their Brooklyn home. That removes an important “safety valve,” Stanton said: If people go remote and find themselves needing more space, they might move to a substantially cheaper housing market to find it. 

But sticking closer to home may be the favored path for many, especially if companies ask for some face-time each month. A San Francisco Chronicle analysis of USPS moving data showed that the majority of San Franciscans who left the city during the pandemic moved not to Florida or Texas, but to another Northern California county; a Zumper report that analyzed national rent shifts found a similar story, with “cheaper, neighboring cities” appearing to be the 2020 destinations. 

Wherever they live, remote workers might be spending less on transportation than if they were commuting each day. But that’s likely not enough to make up for the housing differentials, the study, which only analyzed vehicle expenses, argued: In fact, remote households tended to own more vehicles (perhaps a feature of their generally high-earning, often suburban lifestyle). 

The big question is: Who will cover the extra $15 billion in housing costs that workers could rack up if they go remote full-time? 

“The precise number that we calculate is how much you would have to compensate a non-remote household for the additional housing expenses to leave them just as well off as if they were in the office,” said Stanton. “That number doesn’t say anything about whether employers would compensate workers for this increased cost.”

Ditching the office saves employers and costs employees

Remote companies could cover more of their workers' housing costs and still have thousands left over.

The paper suggests that closing a physical HQ saves employers money that could be funneled into salaries — or profits. Let’s say that employers choose salaries. Assuming the average worker takes up 150 square feet of office space, “increased housing expenditures from remote work would offset about one-third of any savings on office space,” the authors found, with variations depending on where the office is located. A San Francisco employer could save $6,000 per worker, per year by closing their office, even after increasing employee compensation. Baltimore, Detroit, and Fort Worth land at the bottom of the list, with smaller gaps between office expenses and housing costs. 

Though commercial rents are tumbling in many cities, it’s still too early to see how a long-term office abandonment might change this national landscape of compensation and housing cost. Offloading office space is harder for companies stuck in long-term leases, and even firms like Salesforce, which has been bullish on WFH, haven’t yet announced plans to leave their physical real estate behind. And so far, besides offering bonuses to offset home-office upgrades, employers do not appear to have shown much interest in raising salaries to reflect their lower office expenses. (Several tech companies are taking the opposite approach, announcing pay reductions for employees that choose to move to lower-cost cities.)

One CEO who had decided to give up his company’s office space recently told Stanton that he planned to spend the savings on big staff retreats at lavish resorts.

“I was like, yeah, OK,” Stanton said. He suggested that maybe morale would be better served by a home office fund.