Author Topic: Percent loss in value of residential real estate oligopolies due to hybrid work  (Read 4957 times)

LearningMachine

  • Full Member
  • ***
  • Posts: 224
How steep the demand curve is matters as well. There are absolutely people who currently either don't live in expensive cities or take long commutes solely because they can't afford to live closer. Small drops in price have the potential to increase demand from people who are priced out of the market.

The demand to relocate out of expensive cities seems to be high according a survey by Blind, which verifies employees by asking them to provide their company email address.

Roughly third are willing to relocate even with a pay cut.  In addition, 40-45% will relocate without a paycut, depending on city/company.

Here are results broken down by company and by city:
https://www.teamblind.com/blog/index.php/2020/09/14/44-of-professionals-are-happy-to-take-a-pay-cut/
https://usblog.teamblind.com/wp-content/uploads/2020/05/PayCut.pdf
https://docs.google.com/spreadsheets/d/1zF_jxowBZYkiJIeatZAm3soelVBpoFf1TbjEZVwxBpA/edit#gid=171959972
« Last Edit: October 13, 2020, 08:55:59 PM by LearningMachine »


KJP

  • Hero Member
  • *****
  • Posts: 1209
How steep the demand curve is matters as well. There are absolutely people who currently either don't live in expensive cities or take long commutes solely because they can't afford to live closer. Small drops in price have the potential to increase demand from people who are priced out of the market.

The demand to relocate out of expensive cities seems to be high according a survey by Blind, which verifies employees by asking them to provide their company email address.

Roughly third are willing to relocate even with a pay cut.  In addition, 40-45% will relocate without a paycut, depending on city/company.

Here are results broken down by company and by city:
https://www.teamblind.com/blog/index.php/2020/09/14/44-of-professionals-are-happy-to-take-a-pay-cut/
https://usblog.teamblind.com/wp-content/uploads/2020/05/PayCut.pdf
https://docs.google.com/spreadsheets/d/1zF_jxowBZYkiJIeatZAm3soelVBpoFf1TbjEZVwxBpA/edit#gid=171959972

I don't think that's the demand curve Bizaro was referring to.  You appear to be trying to identify the number of people currently living in cities who would move elsewhere if they believed they could.  I believe he's asking about the demand from people who would like to live in cities (or different cities) but currently do not because it is not practical for them (cost, location) to do so.

Is it possible that widespread WFH actually increases demand for certain cities, because people who historically had to work in say, Omaha, Des Moines, Little Rock or Tulsa can now live in NYC,  Boston or LA?  Likewise, is it possible that housing in Minneapolis becomes more in demand because WFH frees people from living in, for example, Duluth?

Put another way, your comments seem to assume that people are in cities because that's traditionally where good jobs have been.  But what if it's the other way around:  Goods jobs are traditionally in cities because that's where people want to be?  If it's primarily the latter -- and if the desire to live in cities going forward has not changed -- when how would widspread WFH affect demand for urban housing?

Applying this framework to the Detroit example, vacancies were high and housing prices low, not just because people left but also because other people did not want to move in. 
« Last Edit: October 14, 2020, 05:10:42 AM by KJP »

LearningMachine

  • Full Member
  • ***
  • Posts: 224
Put another way, your comments seem to assume that people are in cities because that's traditionally where good jobs have been.  But what if it's the other way around:  Goods jobs are traditionally in cities because that's where people want to be?  If it's primarily the latter -- and if the desire to live in cities going forward has not changed -- when how would widspread WFH affect demand for urban housing?

Totally agree that high tech employers want to be able to attract top talent wherever they are.  This is why big tech companies are leasing new NYC office sqft even in the middle of the pandemic.  They want to be able to attract the top technical talent in the biggest metropolitan region of almost 20 million people.

My point is that the game has changed a little.  In order to attract and retain top talent, tech companies are now also competing over offering WFH and hybrid work benefits.  This means for that newly hired Facebook engineer, he no longer is required to get to office daily, and his/her desirability of being able to walk to work has gone down, and the living options for that engineer have gone up quadratically within the region. The desirability of being close to cities is still there, but his residence doesn't have to be walkable distance to work.  Now, that engineer might still want to be in the wider city region of slightly bigger radius for dating life and other reasons, e.g. expanding their desired region from within 1 mile of work (pi * 1 square mile) to within 10 miles from work (pi * 100 square miles).  However, for folks with families, dating infrastructure might not be as important a reason, and they can expand their radius for the area farther from within 1 mile of work (pi * 1 square mile) to within 20 miles of work (pi * 400 square miles).

The desirability of being close to cities is still there, but work doesn't have to be in immediate vicinity within the region anymore.

I am already starting to see that folks who used to want to live within 1 mile radius of work are now willing to look much farther out within the region, while still having access to all the city has to offer.
« Last Edit: October 14, 2020, 09:59:46 AM by LearningMachine »

LearningMachine

  • Full Member
  • ***
  • Posts: 224
Is it possible that widespread WFH actually increases demand for certain cities, because people who historically had to work in say, Omaha, Des Moines, Little Rock or Tulsa can now live in NYC,  Boston or LA?  Likewise, is it possible that housing in Minneapolis becomes more in demand because WFH frees people from living in, for example, Duluth?

What do we think is the buying power of each of these folks working for a company currently located in a city that is not very expensive compared to the buying power of the analyst or software engineer working for a company that had already picked to be located in a big city for talent?  Probably lower, right?

While WFH a lot more of the time will be standard, WFH 100% of the time will probably take some time to pick up.  Assuming it picks up for some percentage of these folks and that these folks are able to move, what is the radius of the area they will be targeting within their new region?  Will it be 1-mile radius (p* 1 square mile) like it was for some of those rich analysts and software engineers, or will it by 20-mile radius (p* 400 square miles)?  Probably latter, right?
« Last Edit: October 14, 2020, 10:40:18 AM by LearningMachine »

Gregmal

  • Hero Member
  • *****
  • Posts: 5975
There are two very distinct groups in the big urban based workforce. The younger folks, work to play. They want to be in the city. Not half an hour away. Then theres the older crowd. They work to support families and lifestyles. The latter is flexible. But the former? Dont think so. 25 year old tech/finance bros dont want to live anywhere but where the action is.

There was a piece recently posted somewhere(might have been here, I forget) about how the current 30-40 age group, the one that largely drove rental rates across the country through the ceiling the past 10 years, are shifting significantly towards home ownership. The most preferred areas are about 15-25 miles from urban centers.

bizaro86

  • Hero Member
  • *****
  • Posts: 1548
How steep the demand curve is matters as well. There are absolutely people who currently either don't live in expensive cities or take long commutes solely because they can't afford to live closer. Small drops in price have the potential to increase demand from people who are priced out of the market.

The demand to relocate out of expensive cities seems to be high according a survey by Blind, which verifies employees by asking them to provide their company email address.

Roughly third are willing to relocate even with a pay cut.  In addition, 40-45% will relocate without a paycut, depending on city/company.

Here are results broken down by company and by city:
https://www.teamblind.com/blog/index.php/2020/09/14/44-of-professionals-are-happy-to-take-a-pay-cut/
https://usblog.teamblind.com/wp-content/uploads/2020/05/PayCut.pdf
https://docs.google.com/spreadsheets/d/1zF_jxowBZYkiJIeatZAm3soelVBpoFf1TbjEZVwxBpA/edit#gid=171959972

I don't think that's the demand curve Bizaro was referring to.  You appear to be trying to identify the number of people currently living in cities who would move elsewhere if they believed they could.  I believe he's asking about the demand from people who would like to live in cities (or different cities) but currently do not because it is not practical for them (cost, location) to do so.

Is it possible that widespread WFH actually increases demand for certain cities, because people who historically had to work in say, Omaha, Des Moines, Little Rock or Tulsa can now live in NYC,  Boston or LA?  Likewise, is it possible that housing in Minneapolis becomes more in demand because WFH frees people from living in, for example, Duluth?

Put another way, your comments seem to assume that people are in cities because that's traditionally where good jobs have been.  But what if it's the other way around:  Goods jobs are traditionally in cities because that's where people want to be?  If it's primarily the latter -- and if the desire to live in cities going forward has not changed -- when how would widspread WFH affect demand for urban housing?

Applying this framework to the Detroit example, vacancies were high and housing prices low, not just because people left but also because other people did not want to move in.

That is exactly what I meant.  :D

I think places that are desirable for lifestyle reasons will probably remain desirable for those exact same reasons.

CorpRaider

  • Hero Member
  • *****
  • Posts: 2569
    • The Corpraider
Yeah I'ma fade this.  Youngs trying to get dates through the local church group so they can go get some papa johns?  Nah man.

thepupil

  • Hero Member
  • *****
  • Posts: 2237
so this is all of course anecdotal, but I beyond multifamily / condos, I have seen very little evidence of any loss in value of well-located  residential real estate. the single family market seems to be universally doing well, both close to cities and further out

my zestimate (which seems correct based on some recent sales/comps, but not a huge # of data points because inventory / transaction activity is so low) has gone from $470 / foot (2019 real price) to ~$513/foot. there's no reason to pay those prices unless you value the convenience and lifestyle of living near the city / in good school districts, access to restaurants, airports, amenities, etc. i don't think WFH has drastically changed the value of those things.

as long as people are realistic on pricing, homes continue to sell w/i a couple of days of listing.

this probably has more to do with how low rates are, but you'd think that if everyone wanted to have 4K sf and an acre in the exurbs, people wouldn't be tripping over themselves to buy 2K sf on 1/4 acre near the city (for more $)

i think WFH will make people priced out into the exurbs have a better life, they won't have to commute every day, but it's not clear to me that there will be marked decrease in pricing for well-located close-in convenient real estate near cities. maybe if rates rise significantly that will change.

here's an example of the type of thing that i think needs to correct pretty hard:

https://www.zillow.com/homedetails/7171-Woodmont-Ave-UNIT-307-Bethesda-MD-20815/166716517_zpid/

2015 built condo offered at $740K / $690/foot, sold for $800K in 2016. you can see this was a rental asking $3,300 / month pre-covid). this building is popular with downsizing boomers who want to live a convenient walkable and luxurious lifestyle (not a thing during covid, but probably will still be afterwards).

This building was built at the exact time (I think by the same developer) as a rental building across the street, where you can rent a similar unit for $3,600 / month, that's before any incentives.
https://www.flatsatbethesdaavenue.com/floor-plans/apartments?bed_count=2

I'd say the market rental rate for the condo is $2,700 - $3,000

so if you bought the condo for cash at $740K, you'd have $800/month in HOA and $700/month in property taxes=$1,500 of cost and you'd be getting about $3,000 / month in imputed rent for a $1,500 / month "NOI" = $18K / year = $18K / $740K = 2.4% cap rate.

The fact that it's "expensive" doesn't really matter so much as there are 100's more of these being built and rent growth is not likely in the near term or intermediate term.

 single family homes trade at similar cap rates, but there' no more land to create more of those and demand > supply. 

« Last Edit: November 29, 2020, 06:53:10 AM by thepupil »

LearningMachine

  • Full Member
  • ***
  • Posts: 224
so this is all of course anecdotal, but I beyond multifamily / condos, I have seen very little evidence of any loss in value of well-located  residential real estate. the single family market seems to be universally doing well, both close to cities and further out

my zestimate (which seems correct based on some recent sales/comps, but not a huge # of data points because inventory / transaction activity is so low) has gone from $470 / foot (2019 real price) to ~$513/foot. there's no reason to pay those prices unless you value the convenience and lifestyle of living near the city / in good school districts, access to restaurants, airports, amenities, etc. i don't think WFH has drastically changed the value of those things.

as long as people are realistic on pricing, homes continue to sell w/i a couple of days of listing.

this probably has more to do with how low rates are, but you'd think that if everyone wanted to have 4K sf and an acre in the exurbs, people wouldn't be tripping over themselves to buy 2K sf on 1/4 acre near the city (for more $)

i think WFH will make people priced out into the exurbs have a better life, they won't have to commute every day, but it's not clear to me that there will be marked decrease in pricing for well-located close-in convenient real estate near cities. maybe if rates rise significantly that will change.

here's an example of the type of thing that i think needs to correct pretty hard:

https://www.zillow.com/homedetails/7171-Woodmont-Ave-UNIT-307-Bethesda-MD-20815/166716517_zpid/

2015 built condo offered at $740K / $690/foot, sold for $800K in 2016. you can see this was a rental asking $3,300 / month pre-covid). this building is popular with downsizing boomers who want to live a convenient walkable and luxurious lifestyle (not a thing during covid, but probably will still be afterwards).

This building was built at the exact time (I think by the same developer) as a rental building across the street, where you can rent a similar unit for $3,600 / month, that's before any incentives.
https://www.flatsatbethesdaavenue.com/floor-plans/apartments?bed_count=2

I'd say the market rental rate for the condo is $2,700 - $3,000

so if you bought the condo for cash at $740K, you'd have $800/month in HOA and $700/month in property taxes=$1,500 of cost and you'd be getting about $3,000 / month in imputed rent for a $1,500 / month "NOI" = $18K / year = $18K / $740K = 2.4% cap rate.

The fact that it's "expensive" doesn't really matter so much as there are 100's more of these being built and rent growth is not likely in the near term or intermediate term.

 single family homes trade at similar cap rates, but there' no more land to create more of those and demand > supply.

My handicapping model is mostly consistent with what you're saying.  Currently, I see three key features impacting what human neural nets' desire:
* #1. Avoid multifamily due to Covid risk
* #2. More willingness for some folks to commute some more miles from their employer as a result of WFH announcements while still staying near the city / in good school districts, access to restaurants, airports, amenities, etc.
* #3. Interest rates

Presence of all three features is already starting to have positive impact on pricing of residential real estate in exurbs. 

Currently, these features are also having somewhat positive impact on residential real estate in suburbs, next to key employers. When Covid is over, #1 feature will stop having an impact, while #2 will continue.   The impact of #1 stopping will effectively release a supply of multifamily housing that is currently being avoided, which will have some negative impact on price of houses that are currently being bid up just for feature #1.

To handicap the impact of #2, I've been looking at various pieces of data.  Here are a couple of the data points to consider.

First, here is what Zillow found at: https://www.zillow.com/research/coronavirus-remote-work-suburbs-27046/

Quote
Previous Zillow research 1 found renters, buyers and sellers overwhelmingly agreed that the longest one-way commute they’d be willing to accept when considering a new home or job was 30 minutes.

This new survey from Zillow and The Harris Poll finds those priorities appear to change if people have the flexibility to work from home regularly. When given that option, half of those who are able to do their job from home (50%) say they would be open to a commute that was up to 45 minutes or longer.

Next, I did a survey myself with two questions:
(a) What is the max you would have commuted pre-Covid when you had to work in office 100%?
(b) What is the max you would be willing to commute post-Covid assuming your company will let you WFH 50% without manager approval and 100% with manager approval?

The results are enlightening and consistent with Zillow.  Percentage of people who used to be willing to commute only 15-minutes has gone down drastically.  Percentage of people who used to be willing to commute only 30-minutes has also gone down a lot.  Percentage of people willing to commute 45-minutes or 60-minutes for their dream house has gone up a lot.
« Last Edit: November 29, 2020, 10:38:10 AM by LearningMachine »

thepupil

  • Hero Member
  • *****
  • Posts: 2237
What’s an example of an exurb that you think will do well because of WFH over the next 5-10 years.