PSAC workers’ remote work push could drive down urban housing premiums

By
Millicent Wong
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258
financial post

  1. property

During the pandemic, Toronto’s urban premium fell from 42% to just 8% as more people worked from home

Published on May 01, 2023 • Last updated 6 hours ago • 3 minutes read

Downtown Ottawa may be calmer now that the PSAC contract rule has given public employees additional protections from arbitrary decisions about remote work. Downtown Ottawa may be calmer now that the PSAC contract rule has given public employees additional protections from arbitrary decisions about remote work. Photo by TONY CALDWELL/Postmedia

The Public Service Alliance of Canada’s contracting with the federal government has 120,000 of its members “additional protection against arbitrary decisions about teleworking”, This can lead to increased demand for suburban housing and reduce demand for office space and secondary and tertiary services such as retail and restaurants in and around these offices.

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At the same time, the goal of returning to pre-pandemic ridership levels in places like Ottawa, where office workers are plentiful, will be even more difficult to achieve as tens of thousands of pre-pandemic daily commuters will disappear, at least in part, from the transit network.

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The federal government is currently pushing back on PSAC requirements because it believes such changes would limit managers’ ability to coordinate teams.

On the surface, it appears to be a typical labor dispute. But it could impact how and where people live, work and play. If workers’ right to remote work is recognized in their contracts and they are free to work remotely (from home or elsewhere), the demand for real estate will expand even further into low-density suburbs and beyond and away from dense populated suburbs shift urban cores.

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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 knowledge economy workers .

Further growth in long-term remote work is likely to narrow urban-suburban disparities in home prices and rents as suburban values ​​rise faster. The long-term impact could be that homeowners closer to the city center will see their home values ​​rising more slowly than their suburban peers, which could also mean better outcomes for renters looking for accommodation closer to where they work.

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Do the results of Brueckner and colleagues from the United States apply to Canada? A comparative analysis of price differences between suburbs and cities in the Greater Toronto Area (GTA) suggests that this is the case.

Covering an area of ​​630 square kilometers, the City of Toronto is often referred to as the urban component of the GTA. The surrounding communities form the suburban part of the regional housing market.

Before the pandemic, real estate prices in the city were much higher compared to those in the suburbs. But during the pandemic, the urban premium has been cut by more than half, partly due to the rapid rise in suburban home values.

More specifically, the median price of a single-family home in Toronto in December 2019 was 42 percent higher than that of a similar suburban home. The city’s premium for single-family homes fell to just 8 percent in December 2021, in part because remote work made suburban homes more attractive.

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A similar trend was observed for condominiums, which had an urban premium of 28 percent in December 2019 and just 10 percent in December 2021.

It might be tempting to draw broader, long-term conclusions from the pandemic-driven drop in urban premiums. However, that would be a mistake. The shift in geographic balance away from telework is still ongoing while being influenced by other market forces such as rising interest rates.

City premiums for single-family homes rose 24 percent in 2022 as suburban housing prices fell more sharply due to higher mortgage rates. A similar increase in urban premiums has been recorded for condominiums. Efforts by employers to get workers back into their offices may also have factored in growth in urban premiums in 2022.

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Brueckner, Kahn and Lin also nuanced how remote work could affect the ability of local public sector unions to negotiate higher wages. Keep in mind that slower growth in core real estate values ​​will negatively impact future real estate and other local tax revenues, which are the primary source of income for most local governments in Canada. With declining municipal income, it becomes more difficult to negotiate higher wages.

As a result, remote work may be beneficial for federal employees, but not so much for their local government counterparts.

Murtaza Haider is 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 through the Haider-Moranis Bulletin website, www.hmbulletin.com.

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