How shifting to remote work drove the real estate price surge

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Stacey Devoe, a Halifax real estate agent, noticed the increase in calls as early as 2019. The calls came from people who wanted to escape high-priced real estate markets in Ontario and British Columbia and find cheaper, better alternatives in Nova Scotia.

The arrival of the pandemic a year later drove the trend to another level. Freed from having to be in Toronto or Vancouver offices every day, remote workers from other parts of Canada suddenly discovered the appeal of living by the Atlantic.

In showing properties to people outside Halifax, “we often get asked, ‘What’s the internet like? Is it fibre optic?,’” Ms. Devoe says. For many potential buyers, it’s a crucial question because they are continuing to work from distant offices.

Exactly how this remote-working trend will play out is one of a multitude of questions hanging over Canada’s real estate market. It may be a more important question than people realize.

Half of remote workers would quit before returning to the office full-time, survey says

A recent working paper from economists John Mondragon of the Federal Reserve Bank of San Francisco and Johannes Wieland of the University of California, San Diego, argues that more than half the real estate boom in the United States over the past couple of years was the direct result of the shift to remote work.

To be sure, Canada and the U.S. differ in many ways. Both countries, though, have experienced remarkably similar takeoffs in real estate prices since the start of the pandemic.

In the case of the U.S., a buying frenzy from December, 2019, to November, 2021, drove home prices 23.8 per cent higher, the researchers note. In Canada, a similar frenzy drove prices 25.2 per cent higher, according to the Teranet House Price Index.

The easiest way to explain these near-identical real estate experiences is to point to the simultaneous fall in interest rates in both countries. Unfortunately, this explanation carries dire implications. If home prices boomed in Canada and the U.S. because of falling rates, they will nearly certainly tumble as central banks hike interest rates.

But what if a big chunk of those gains isn’t so much about interest rates as about remote work? Then the future becomes more uncertain – but potentially more positive for property owners.

In the best case for homeowners, rising rates may not have as much impact as expected if the trend to remote work is driving much of the recent home-price gains and that trend continues to pick up pace.

Granted, there are many possible scenarios here, because remote work has a dual effect on real estate trends.

First, it encourages people to move from high-priced cities to less expensive locales. This is what Ms. Devoe is seeing in Halifax.

Second, it encourages prospective home purchasers to buy bigger homes than they otherwise would, whether they are changing cities or staying put. People who expect to work remotely – or to participate in a hybrid arrangement that requires them to show up in the workplace only a couple of days a week – have good reason to upsize their housing requirements to accommodate a home office.

Mr. Mondragan and Mr. Wieland attempt to separate these two effects of remote work in their paper. They argue the first effect – people moving to cheaper cities – may be important for local economies but doesn’t by itself move the dial nationally. From a countrywide perspective, the faster home-price growth in cities that attract remote workers is offset by the slowing home-price growth in the cities they leave.

The researchers are more interested in the second factor: the desire for more housing in total as a result of remote work. After working through some intimidating math, they conclude the increased desire for space raised U.S. home prices by a stunning 15.1 per cent during the pandemic – considerably more than half the total increase in home prices during that period.

Their results suggest the recent boom is rooted more in fundamentals than in financial speculation. If the trend to remote work reverses, home prices could tumble, the researchers write. Conversely, if remote work continues to gain in popularity, home prices could enjoy some unexpected support.

Canadians may want to ponder these thoughts. With many real estate markets cooling, all eyes are now on interest rates. The researchers’ findings suggest that remote-work trends may be just as important.

The future of the remote-work trend could have particularly big consequences for cities, such as Halifax, that attracted large numbers of remote workers during the pandemic. From December, 2019, to November, 2021, home prices in Nova Scotia’s capital boomed 49.1 per cent, according to Teranet.

The question now is whether such red-hot markets will grow even more heated if remote work becomes permanent practice or cool off abruptly if people return to the office. The percentage of employees working most of their hours from home surged during the early stages of the pandemic, but then levelled off to around 23 per cent by late last summer, according to Statistics Canada.

Ms. Devoe doesn’t sound worried. Her phone continues to buzz with inquiries from people in Ontario and British Columbia, many of them intent on working remotely. “We have ocean, beaches, trails, a slower pace of life,” she says. “People are pursuing the dream.”

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