Is remote working a keeper? A look at how this shift could unfold

If companies allowed more of their employees to work from home permanently, companies would move to city centers while people would mainly live in the periphery, leading to less traffic congestion and falling inner-city real estate prices.

Those are our key findings from a model we created to predict pandemic-induced changes in Los Angeles. Many of these changes started happening in the spring of 2020, when we started this research. We wanted to build a model that could demonstrate the effects of more widespread telecommuting over a long period after the pandemic.

Our model is like an artificial world – think of Sim City – in which virtual people choose where they want to live and work. Virtual companies provide jobs to employees, while virtual real estate developers provide offices, warehouses and housing and set prices that match supply with demand.

Using pre-pandemic information about where people lived and worked and their commute, we built the model of the Los Angeles metropolitan area with economist Matt Delventhal. The model also uses pre-pandemic data on commercial and residential real estate prices.

From 2012 to 2016, less than 4% of workers in the Los Angeles metro area telecommuted, according to our calculations from the American Community Survey. Today that figure is almost 40%. Based on estimates that about a third of workers in Los Angeles have jobs that can be done remotely, our model predicts three main long-term effects if telecommuting becomes permanent at about this level:

Residents would increasingly move from city districts to the suburbs, while businesses would move to the center. Average prices of residential and commercial real estate would fall in city center locations, while housing prices in the suburbs would rise. Traffic congestion would decrease everywhere and commuting time would decrease.

Why it matters

The arrival of the pandemic in early 2020 turned the daily lives of millions of American workers and the companies that employ them upside down.

Working from home, uncommon before the pandemic, became a necessity, prompting employers and employees to realize that telecommuting is enjoyable and productive. This resulted in large migrations of people becoming detached from their employers.

In Los Angeles, increased telecommuting led to workers moving to the suburbs, fueling real estate prices. Our model goes one step further and assumes that these changes will become entrenched.

This prediction may come true. NPR recently reported that, since 2020, homebuyers relocating from cities have evicted lower-income tenants from the suburbs.

This suggests that our model could be a valuable tool to help business leaders, economists, policymakers and others make informed decisions as they attempt to understand the far-reaching economic impact of the pandemic on their cities.

What is not yet known

Each model is a simplification of reality. In our model, all employees and employers are identical. However, the actual responses of different types of employees and companies to increased telecommuting may differ.

Another important unknown is the lingering effect of telecommuting on productivity. During the pandemic, employers and workers have not reported substantial productivity losses; if anything, employees have reported being slightly more productive at home.

At the same time, productivity often benefits from opportunities to build and maintain professional networks. These networks can become weaker as more people spend more time telecommuting.

What’s next

We continue to observe and study how the emergence of telecommuting can affect city centers. For example, barbershops, restaurants and other businesses that have long been concentrated in traditional business districts may find themselves having to follow a large exodus of residents to suburbs or smaller towns in order to survive.

However, not every employee or company can move. Our latest paper models the distribution of jobs and residents across 4,502 locations in the US and examines well-being and income gaps that arise between those who can telecommute and those who cannot.

Andrii Parkhomenko is an assistant professor of finance and business economics at the University of Southern California. Eunjee Kwon is an assistant professor of real estate at the University of Cincinnati.

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