There has been much recent popular discussion about the potential for firms to save office space costs by allowing remote work. This NBER working paper’s analysis shows that the increased cost of housing needed to support remote working, will offset a significant portion of any savings on commercial real estate from remote work. This is because households with remote workers spend more of their income on housing to live in larger dwellings to accommodate having a home.
This NBER working paper estimates housing choice differences between households with and without remote workers. Prior to the pandemic, the expenditure share on housing was more than seven percent higher for remote households compared to similar non-remote households in the same commuting zone. Remote households’ higher housing expenditures arise from larger dwellings (more rooms) and a higher price per room. Pre-COVID, households with remote workers were actually located in areas with above-average housing costs, and sorting within-commuting zone to suburban or rural areas was not economically meaningful. Using the pre-COVID distribution of locations, we estimate how much additional pre-tax income would be necessary to compensate non-remote households for extra housing expenses arising from remote work in the absence of geographic mobility, and we compare this compensation to commercial office rents in major metro areas.
The findings in this paper indicate that nominal cost savings to firms are overstated by about 30% relative to hybrid remote work where workers stay in the same local areas. Cost savings will possibly be greater for firms if households are allowed to sort to lower cost areas, but it is yet to be determined whether frictions to mobility or preferences for places will limit this reallocation.