Economy update

Decreasing Remote Employee Pay- Will this Contribute to the Rental Bubble and Housing Crash?

Last updated August 12, 2021

Google announced decreasing pay for remote workers. Per Reuters, “employee living in Stanford, Connecticut, an hour from Google’s New York office, would be paid 15% less working from home, but a colleague living in New York would see no cut.” The longer the commute, the higher the pay cut.

A Google spokesperson stated the compensation package is based on the location of where the employees work.  So if they live in a local market with a lower salary, the salary will be based on that local market. This means either they move back to the cities where salary is higher or accept a pay cut for living in an area with a potentially lower cost of living. The nice part of remote work is saving time on commutes and gas. Most of these remote workers have relocated to cities with lower prices and more space, contributing to the mass migration out of New York and California. People were moving to Idaho, Montana, Nevada, and other less populated states. 

As you all remembered, the mass exodus from California and the tech areas contributed to the increase in housing prices in other parts of the country. Most significantly is Austin, Texas. Now, with the possibility of a permanent pay cut, will the employee move back to their original workplace? Of note, the Biden administration is also considering taxing the amount of mileage a person drives. This means if you live an hour away from work to have lower rent or mortgage, you will have to pay more for gas and the mileage tax. Will this make employees reconsider and move closer to work despite the rising rents? 

Rental Bubble

With the economy reopening, more employees are required to return to the office. As employees move back to the cities, the number of homes available for rent will decrease. Low inventory means a higher rent price, which equals a bidding war. A bidding war, in turn, leads to a higher price and inflation in the rental market.

When the employees move back to the larger cities, what will happen with their existing homes, the homes they were planning to live in and use as a remote office? Will they sell them or rent them out? When the inventory increases, the prices will decrease. In certain parts of the country, home prices have fallen. Now, we see “reduced price” on houses after being listed just a few days. “Reduce price” did not happen or show up on listings a few months ago.

There is a story of a couple in Canada who bought a home 1-2 hours away from their office as they could work remotely from home. With “fear of missing out,” they offered a higher price on the house. When the market reopened, the company they worked for requested them to return to the office. Remote work is no longer available. They have to commute for work. After realizing 3-4 hours commute each day will not work for them, they considered selling the home. However, the home price decreased, and they couldn’t afford to sell it at a lower price. They are stuck in a difficult situation. Will this story become the norm in the future?

The relocation of employees will create a rental crisis in one area and a housing crash in another. Will employees choose to work from home permanently and face pay cuts? Or will they return to high rents?

 

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