Searches for homes with gardens – by definition properties which need more space and consequently are more likely to be located in lower density areas – on property search website Rightmove rose by 84% year-on-year for renters and 42% for buyers in May 2020.
Why is this happening? Firstly, the requirement to work from home might be a driver in housing demand. Ramani and Bloom’s research found a correlation between population density and the share of jobs that can be done from home – and as such, a negative correlation between the areas with a higher share of work-from-home jobs and the percentage change in house prices. Not only do people generally want a larger space in which to work from home – particularly if they are currently living in a smaller, more expensive city centre residential space with no dedicated office or desk – but there is also no longer a requirement for them to live right next to where they work. The pandemic has also reduced the value of living in a city centre, separate to a shorter commute; amenities such as theatres and restaurants are currently inaccessible.
(For the sake of consistency, I’m going to use the British English ‘doughnut’ from now on, but if you’re looking for Ramani and Bloom’s paper, you’re better off searching for ‘donut’.)
So we have a shift in workers’ preferences to live in the suburbs – the ‘doughnut’, moving away from the central ‘hole’. But while these factors might dissipate once vaccination programmes have rolled out – a city’s financial district is unlikely to continue its resemblance of a ghost town – earlier research from Bloom argues that increases in working from home will be persistent. Leesman data supports this theory; of 48,000 respondents, 85% expressed a preference to work from home a minimum of two days per week.
Perhaps individuals are taking the opportunity they have been given – away from the office – to relocate elsewhere in the United States? Not so; Ramani and Bloom note that housing demand hasn’t shifted significantly from these larger conurbations to less expensive cities. Ramani believes this desire for a hybrid working strategy, with a pull to the office at least once per week, is enabling a geographical shift to local areas, rather than a reallocation across the country. As Ramani explains: “What hybrid working doesn’t enable you to do is pick up your bags and move across the country. Instead, people are now willing to live an hour away in exchange for a bigger house, because they don’t have to commute in every day.”
Consequently, the research indicates a surge in house prices in suburbia, and a fall in prices in the city centres. What sort of knock-on consequences could this effect have on the economy of those cities – and at a societal level?
Ramani makes some poignant remarks about decisions policymakers will need to consider should the doughnut effect stick. Will cities need to rethink their transport network and infrastructure? Theory dictates fewer, or less-frequent, trips on the NYC Subway or the London Underground. Certainly, rush hour would involve fewer workers crammed tightly inside carriages.