The European Central Bank published an ECB Blog post showcasing Young Economist Prize finalist research that examines how the rise in working from home (WFH) has reshaped housing demand and inequality, using London as a case study. The analysis links the shift towards remote work to faster price and rent growth for larger homes and properties farther from the city centre, alongside distributional effects between workers in WFH-compatible and non-compatible occupations. Looking at 2018–2022 data, the research finds a positive relationship between distance from the centre and house price and rent growth, with average central London prices down 1% while peripheral prices rose 13%. By size, large houses (five rooms or more) rose 20% between February 2020 and June 2022, while studios and one-room properties fell 1%. Hedonic estimates suggest the space premium increased by 5% after February 2020, with the implied size premium for moving from an 86 m² home to 102 m² rising from GBP 79,000 to GBP 83,000, while the “commuting penalty” fell by 6% (a suburban location penalty of GBP 107,000 before the rise in WFH versus GBP 100,000 after). As causal identification is not feasible with the available data, a dynamic spatial heterogeneous-agent model is used to simulate a permanent shift in preferences towards remote work, producing equilibrium price increases across the city that are larger in the suburbs, and showing inequality effects including a four percentage point drop in home ownership among workers who cannot WFH, a rise in the housing-wealth gap (from around 2 times to 2.5 times), and welfare losses for non-WFH workers averaging nearly 3% of current consumption. A policy simulation easing office-to-apartment conversions in the city centre lowers central prices and rents and dampens suburban price increases in the model, reducing welfare losses for workers who cannot WFH. Applications for the ECB’s 2025 Young Economist Prize are scheduled to be open from 13 January to 12 February 2025, and the blog post notes that the views expressed are those of the author and not necessarily those of the ECB and the Eurosystem.
European Central Bank 2025-01-08
European Central Bank blog research finds working from home boosted demand for larger suburban homes and widened inequality in London
The European Central Bank published research by a Young Economist Prize finalist on how working from home affects housing demand and inequality, using London as a case study. Remote work is linked to increased price and rent growth for larger homes farther from the city centre, with significant effects between workers in WFH-compatible and non-compatible occupations. A dynamic model simulates a permanent shift towards remote work, highlighting increased suburban prices, a widened housing-wealth gap, and welfare losses for non-WFH workers.