During the pandemic Toronto’s urban premium fell from 42% to just 8% as more people worked from home
The Public Service Alliance of Canada’s contract settlement with the federal government has given 120,000 of its members “additional protection when subject to arbitrary decisions about remote work,” which may result in an increased demand for suburban homes and lower the demand for office space and secondary and tertiary services such as retail and restaurants near and around those offices.
At the same time, the goal to return to pre-pandemic transit ridership levels in places like Ottawa, where office workers are abundant, will become even more challenging to achieve because tens of thousands of pre-pandemic daily commuters will disappear at least partially from the transit network.
The federal government is currently pushing back on PSAC demands because it believes such changes would limit managers’ ability to coordinate teams.
On the surface, it seems like a typical labour dispute. But it could impact how and where people live, work and play. If the workers’ right to work remotely is recognized in their contracts and they are free to work remotely (from home or elsewhere), the demand for real property will shift even further to low-density suburbs and beyond, and away from high-density urban cores.
A recent paper by Jan Brueckner, Matthew Kahn and Gary Lin — A New Spatial Hedonic Equilibrium in the Emerging Work-from-Home Economy? — concluded that working from home would put downward pressure on housing prices and rents in “high-productivity counties,” which are often the places with a higher concentration of office towers populated by white-collar knowledge economy workers.
A further increase in long-term remote work will likely lower the urban-suburban differences in housing prices and rents because suburban values will increase more rapidly. The long-term impact could be that homeowners near the urban core see their housing values appreciate slower than their suburban counterparts, which could also mean better outcomes for renters seeking accommodations near their work locations.
Do Brueckner and colleagues’ findings from the United States apply to Canada? A comparative analysis of suburban-urban housing price differences in the Greater Toronto Area (GTA) suggests they do.
The City of Toronto, with an area of 630 square kilometres, is often considered the urban component of the GTA. The municipalities surrounding the city constitute the suburban part of the regional housing market.
Before the pandemic, housing prices in the city commanded a much larger premium relative to those in the suburbs. But during the pandemic, the urban premium was cut by more than half, partly because of the rapid increase in suburban housing values.
More specifically, the average price of a single-family detached house in December 2019 was 42 per cent higher in Toronto than that of a similar suburban house. The urban premium for detached housing fell to just eight per cent in December 2021, partly because remote work made suburban homes more attractive.
A similar trend was observed for condominium apartments, which commanded an urban premium of 28 per cent in December 2019 and only 10 per cent in December 2021.
Drawing broader and long-term conclusions from the pandemic-driven drop in urban premiums might be tempting. That, though, would be a mistake. The shift in spatial equilibrium from remote work is still in progress and is being simultaneously influenced by other market forces, such as rising interest rates.
Urban premiums for detached housing increased 24 per cent in 2022 as suburban housing prices declined more because of higher mortgage rates. A similar increase in urban premiums was recorded for condominiums. Employers’ efforts to get workers back into their offices may have also factored in the growth of urban premiums in 2022.
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Brueckner, Kahn and Lin also make a nuanced point about how remote work might lower the ability of local public-sector unions to negotiate higher wages. Consider that slower growth in property values in the urban core will adversely impact future property and other local tax revenues, which are the primary own-source revenue for most local governments in Canada. It will be harder to negotiate higher wages with declining municipal revenues.
As a result, remote work may be favourable for federal government employees, but not as much for their local government counterparts.
Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.
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