The Impact of Remote Work on Suburban Real Estate Markets

The rise of remote work has not just changed how we approach our jobs — it’s also significantly impacted where we choose to live. Suburban real estate markets are experiencing a surge in demand as more people opt for roomier homes and quieter neighborhoods, freed from the daily commute by remote work arrangements.

But what are the broader implications of this trend for home prices and community development? With governments responding to widespread shifts in working trends, as well as ripples working their way through the real estate market, it’s only a matter of time before the long-term effects of these changes become manifest.

Office Usage and The Remote Work Shift

The shift to remote work has dramatically changed our relationship with the traditional office. Before the pandemic, the office was often seen as the epicenter of professional life. However, adopting remote work has led many to reconsider the necessity of a centralized workspace.

Companies find that employees can be just as productive, if not more so, from the comfort of their homes. This shift has had a domino effect, affecting everything from reduced office space leases to changes in daily commuting patterns.

As a result, both commercial and residential real estate markets, particularly in suburban areas, are undergoing significant transformations. According to a 2022 meta-analysis by the National Bureau of Economic Research in Massachusetts, “Many office workers who live in the suburbs faced a reduced burden of commuting to the city center over the past two and a half years.”

Surveys indicate that the time requirement of commuting to the office is the primary reason many workers desire to continue working from home. This shows a significant shift has been taking place, and this is also reflected in bolstered suburban real estate prices.

Another paper authored by Arjun Ramani and Nicholas Bloom in 2021 notes that while residents and companies in big US cities have shifted away from dense central business districts (CBDs) and into lower-density suburban zip codes, there is no large-scale migration from major US cities into smaller or more rural towns.

This disconnect might be explained by the prominence of workplace “hybridization,” where employees working from home are still expected to work from the office part-time.

WFH Numbers At a Glance

In a recent global survey spanning 34 countries, full-time employees are working from home less often than they would like. English-speaking countries show higher rates of remote work compared to Asian, European, and Latin American nations.

However, there’s variation within these groups; for example, Canada has higher remote work rates compared to New Zealand. Overall, two-thirds of employees work entirely on-site, while a smaller percentage work in hybrid modes or fully remotely.

• Global Average: Across 34 countries, people work from home an average of less than one day a week.
• English-Speaking vs. Other Regions: In English-speaking countries like Australia, Canada, New Zealand, the UK, and the US, the average is 1.4 days, while it’s 0.7 days in Asian countries and 0.8 days in European countries.
• Work Modes: 67% of full-time employees work solely on-site, 26% have a hybrid model, and 8% work entirely from home.
• Gap in Desires and Reality: Employees globally desire an average of 2 days of remote work per week, but employers are planning for an average of just 1.1 days.
• Preference Variability: Among those with remote work experience, 26% want to work from home full-time, while 56% prefer a hybrid model. However, 46% currently work fully on-site, despite these preferences.

Supply and Demand in the Suburban Market

The dynamics of supply and demand in suburban real estate markets have experienced notable changes due to the rise in remote work. As more people choose or are allowed to work from home, the appeal of suburban living has increased, leading to a surge in demand for suburban properties.

Unlike densely populated urban areas, the suburbs often offer larger living spaces, more amenities, and a quieter lifestyle—all attractive qualities for potential homebuyers. This increased demand puts pressure on existing housing stock, often resulting in elevated home prices as more buyers enter the market.

In a 2022 analysis by the Bank of Canada, it was observed that in 2016, properties in a similar neighborhood but 50 kilometers outside of downtown areas sold for 33% less than those in the downtown center. In 2019, the price cut had increased to 26%. If the pre-pandemic trend of closing the price difference had been maintained, the price reduction by 2021 would have been 21%; instead, given the events of the pandemic, the predicted decrease was only approximately 10%.

This means that the premium of proximity is shrinking, given the increased demand for suburban real estate in the wake of the WFH revolution, and the proportional decrease in demand for office space in central business districts of major cities.

Remote Work and the Rental Market

A recent study by the Economic Innovation Group reveals that remote workers tend to spend more on housing, both in mortgage payments and rent. In 2019, remote workers spent 30% more on mortgages and 33% more on rent compared to those who didn’t work from home.

By 2021, these figures slightly decreased to 10% more on mortgages and 20% more on rent. For example, a family previously spending $4,000 on a mortgage could expect to pay an additional $1,300 in 2019 or $400 more in 2021 if they transitioned to remote work.

Similarly, if they were renting for $2,500, they would pay an additional $825 in 2019 or $500 more in 2021. This reflects a counterintuitive, yet not wholly unexpected, shift in rental prices, specifically in urban and suburban areas.

Governmental Responses

The public sector has been one of the most prominently affected areas since the work-from-home trend has taken off. Now, years after the throes of the global pandemic, many government agencies are solidifying their policies vis-a-vis remote work and the hybridization of their office workers:

• Statistics Canada: Employees are equipped for both remote and office work, with office spaces featuring quiet rooms and collaborative areas.
• National Defence: Over half of the civilian workforce was already in a hybrid arrangement or never worked online even before formal experimentation started.
• Employment and Social Development Canada: Launched a flexible model that allows for a mix of on-site and off-site work.
• Correctional Service of Canada: Employees primarily working from home are now required to work on-site three days per week.
• Canadian Heritage: Updated its policy to require employees to work on-site two days per week, up from one.
• Fisheries and Oceans Canada: Many employees worked in the field during the pandemic; those on hybrid models work one to two days on-site.
• Environment and Climate Change Canada & Immigration, Refugees and Citizenship Canada: Both departments are encouraging more office attendance as COVID-19 restrictions are lifted.
• Other Departments: Public Services and Procurement Canada and the Department of Justice have flexible hybrid models and are in the process of reviewing them.

The issue of working from home was also at the forefront of a recent strike by Canada Revenue Agency employees represented by the Public Service Alliance of Canada. The strike was eventually broken by a tentative agreement between the PSAC and the CRA.

Both parties have committed to reviewing the directive on virtual work arrangements. Additionally, they plan to establish a panel that will advise the Commissioner and Deputy Commissioner on employee concerns related to remote work.

The Future of Suburban Real Estate

Demand for suburban housing in the 905 area surged higher than in Toronto since March 2020, with the gap in sales volume peaking in March 2021. During this peak, twice as many homes were sold in the suburbs compared to the city, a substantial increase from the 82% higher suburban sales volume in March 2019.

This shift has repercussions for real estate owners in high-productivity cities, including increased office vacancies. Contrary to expectations, rents have risen in both large and small Canadian cities, likely due to insufficient rental supply and would-be homebuyers opting to rent longer as housing prices began to decline in early 2022.

As the Bank of Canada continues keeping its ear to the ground on inflation, we can likely expect further rate hikes to try and keep the housing market under control. However, most recently, the Bank decided to hold its policy rate of 5%, given an unexpected slowdown in the Canadian economy in recent months.

Conclusion

The seismic shift towards remote work has had a domino effect on various aspects of life, most notably on suburban real estate markets. As employees seek out larger, more affordable living spaces, demand in the suburbs has skyrocketed, shaking up traditional real estate norms and affecting both homeowners and renters.

However, the push for a return to office life and its success could recalibrate these trends. As companies reassess their needs and employees weigh their options, the future landscape of suburban real estate remains uncertain but incredibly dynamic, influenced by evolving work arrangements and broader economic factors.

Alice Yang