The impact of working from home arrangements on urban sprawl when the firms pay for the home office

The Covid-19 pandemic has prompted a widespread adoption of working from home (WFH) arrangements between firms and working households. While WFH enables firms to save physical office space at the workplace, it necessitates additional floor space to accommodate home-based activities. This raises the question of whether land transfers from work to residential areas can be reconciled with urban sprawl containment strategies, maintaining the overall city size unchanged. To address this question, we employ a standard urban economics monocentric model. We aim to assess the potential for achieving urban sprawl containment despite the prevalence of WFH, depending on the type of agent who pays for the additional housing costs associated with the home office. We compare two WFH scenarios against a reference case without WFH: households covering the additional housing costs (Scenario 1) and firms covering the costs (Scenario 2). Our analysis reveals three key findings. Firstly, across the two scenarios considered, the introduction of WFH arrangements leads to an expansion of the city boundary. Secondly, the scenario where households cover the cost of the home office demonstrates superior urban sprawl containment compared to scenarios where firms cover the costs. Lastly, to effectively control city size between scenarios with and without WFH arrangements, the local authority could increase commuting costs by implementing a road pricing policy.