Workplace Flexibility May Help Address Affordability Concerns

The COVID-19 pandemic greatly impacted many aspects of everyday life, perhaps few more markedly than where we choose to work and live. Earlier this year, we surveyed renters and owners to see how work and housing preferences have evolved since the onset of the pandemic. To track how attitudes may have changed, where possible, we repeated questions from prior iterations of our National Housing Survey®, including some dating back as far as 2010.

In summary, we found that:

• The percentage of fully remote and hybrid workers has remained surprisingly constant in the post-pandemic era (35% in Q1 2023, down from 36% in Q3 2021).
• Among fully remote and hybrid workers, the willingness to move farther away from the workplace has increased (22% in Q1 2023, up from 14% in Q3 2021).
• For renters, concerns about affordability have risen so much that it has become the top consideration for their next move (46% in Q1 2023, up from 21% in Q4 2014).
• For owners, affordability is a greater concern, too, (30% in Q1 2023, up from 19% in Q4 2014) and is their second-most important consideration for their next move after neighborhood considerations.
• The suburbs have consolidated its lead as the preferred location to buy a home for both renters (38% in Q1 2023, up from 35% in Q3 2010) and owners (44% in Q1 2023, up from 37% in Q3 2010).

The staying power of remote and hybrid work

In Q1 2023, more than one-third of non-retired consumers reported working remotely (either fully remote or hybrid), a number that has barely changed since we asked the question in 2021. Even the mix between fully remote and hybrid workers has remained largely unchanged, with 14% reporting they work fully remotely and 21% working a hybrid schedule, compared to 13% and 23%, respectively, in 2021. Other research studies have reported similar results.^{1, 2}

The consistency of the percentage of people working remotely indicates to us that, despite headline-grabbing news of companies demanding that workers return to the office, so far, remote and hybrid work may be here to stay. This is likely due in part to the benefit for employees of having access to a wider range of housing markets (enabling commuting and other cost savings, along with greater variety of amenities to select from). It also grants employers access to a larger pool of job candidates.

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Expanding location where remote and hybrid workers would consider living

According to our latest survey, among remote and hybrid workers, a greater share reported a willingness to live farther from their workplace. In 2023, 22% of remote and hybrid workers indicated they may be willing to relocate to a different region or increase their commute by more than 20 minutes, whereas only 14% of remote and hybrid workers were willing to do so in 2021.

Among the remote and hybrid respondents, both homeowners and renters reported an increase in willingness to live farther away, although renters were more willing to do so than homeowners in both time periods. For renters, the share went from 21% in Q3 2021 to 29% in Q1 2023. Notably, even homeowners had a 7-percentage point increase in willingness to move farther away despite being traditionally "stickier" than renters when it comes to moving – rising from 10% in Q3 2021 to 17% in Q1 2023. Remote-working younger consumers (aged 18-34) reported the highest willingness to commute farther or relocate and showed the greatest increase between the two survey periods (18% in Q3 2021 to 30% in Q1 2023).

We believe this greater willingness to live farther from the actual or nominal workplace may be an indication that some workers are feeling more secure about their remote work situation and/or their ability to find another job if their current employer were to change its policies.

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Affordability is of greater importance to renters and homebuyers when selecting a future home

We asked respondents what factors are most important to them in selecting their next home. In 2023, affordability topped the list at 36%. This was a nontrivial 16 percentage point increase from 2014, the last time we asked this question.³ In 2014, the top consideration was the neighborhood, at 49%. By 2023 the importance of the neighborhood, measured by top consideration share, had declined to 33%.

While affordability rose as the leading consideration for both homeowners and renters from 2014 to 2023, the increase was greatest among renters. For homeowners it went from 19% to 30%, while for renters it jumped from 21% to 46%. The change in preference for renters is truly remarkable, since not only did it more than double, but it represented a complete reversal of the relative importance of neighborhood cited by consumers as the top consideration in 2014.

Additionally, despite the talk of needing extra rooms for home offices, home size remained the least important consideration for both renters and owners, below affordability, neighborhood, and home quality. This was also the case in 2014.

The striking shift toward affordability as the top consideration among overall survey respondents for their next move substantiates the need of households to find ways to manage around the significant rise in mortgage rates, home prices, and rents of the past few years. Home affordability may also be a reason why we saw an increase in remote workers' willingness to relocate or live farther away from their workplace, particularly given that, historically, a shorter commute to denser job markets was considered a premium amenity.

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A greater preference for the suburbs

We also asked consumers whether they would prefer to buy a home in an urban, suburban, or rural location. In 2023, 42% of respondents said they would prefer to buy a home in a suburban area, compared to 37% when we last asked the question 13 years ago. Most of this increase came largely at the expense of urban areas.

There were some notable distinctions in how location preferences changed among demographic groups. For homeowners, the increase in preference for a suburban location from 37% to 44% came at the expense of both rural and urban locations. For renters, the 4-percentage point decline in preference for an urban area matched the rate for homeowners but benefited both suburban and rural locations. Renters also continued to show a stronger preference than homeowners for purchasing in an urban area: In 2023, 27% of renters said they would buy a home in an urban area, compared to only 15% of homeowners.

The suburbs also consolidated its lead as the preferred location for renters and homeowners, which we interpret as being driven in part by affordability pressures, a desire for more space, and increased workplace flexibility. According to the most recent data from the American Housing Survey examining how consumers describe their current location, 52% said suburban, 27% said urban, and 21% said rural.⁴ Since our current housing stock reflects where people live today, in order for consumers' stated preferences and reality to align more closely, we would need to see a sizable increase in the rural housing stock. This is an important implication that, were it to occur even in part, would likely add to already strong demand for newly constructed homes.

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Implications

These survey results confirm that the share of homeowners and renters who have either a hybrid or remote work arrangement has held steady since 2021. When coupled with the reported rise in the importance of affordability, it's not surprising to us that respondents expressed a greater willingness to live farther from their current location. Of course, renters indicated the greatest affordability concerns, as well as a willingness to consider areas farther away from their current location. For those considering homeownership, this sort of greater location flexibility increases the odds of finding a home within budget.

Additionally, the traditional premium attached to new home construction may be less of a barrier to potential homebuyers if they can move to a different market – whether that is another ten miles out of town or a different metropolitan area entirely. This could include suburban and rural areas, and it has likely already contributed to the strength of new home sales relative to existing home sales seen over the past year. Therefore, until home affordability pressures subside or the option for remote work diminishes, we believe the greater share of new home sales relative to existing homes is likely to persist.⁵

Our research findings also hold broader implications for the link between housing and the labor market. In short, the growing share of remote-working renters and homeowners who are willing to live farther from their employer's location implies access to a wider labor market, which could be useful if a downturn in economic activity led to greater rates of job loss. Having access to a larger labor market may also reduce the adverse effect on local home prices when a major employer or industry contracts. The decoupling of local labor markets from housing markets has the potential to both reduce labor market rigidities nationally and housing market vulnerability more locally. Overall, we consider this is a positive development for workers, employers, and the ability of households to pay their rent or mortgage.

The authors thank Steve Deggendorf, Doug Duncan, and Matthew Classick for valuable contributions in the creation of this commentary and the design of the research. Of course, all errors and omissions remain the responsibility of the authors.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

¹WFHResearch_updates_June2023.pdf, Survey of Working Arrangements and Attitudes, June 2023 (ITAM, Stanford University, University of Chicago). Note the NHS sample and methodology includes general population non-retired consumers, including full-time and part-time, whereas the WFH sample includes full-time workers only. Questions are also slightly different.

² The Census Household Pulse Survey has been tracking telework/work from home since the pandemic, with a slightly different question, about working from home in the last seven days. Week 55 Household Pulse Survey: March 1 - March 13 (census.gov)

³ During the time period Q4 2014 to Q1 2023, the Fannie Mae Home Price Index increased 82% (from 174.7 to 318.3), while the BLS Average Hourly Earnings, all private employees grew 35% (from 24.6 to 33.2 dollars per hour, seasonally adjusted).

⁴ HUD sponsored and Census collected data in the 2017 American Housing Survey (AHS)

⁵ The ratio of new home sales/existing home sales increased from 11.5% in 2018 to 13.9% in the last 12 months (May 2022-May 2023).  New home sales as a percentage of total home sales increased from 10.3% in 2018 to 12.2% in the last twelve months (May 2022-May 2023).  Source: NAR and Census Bureau, ESR analysis