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What Flattened the House-Price Gradient? The Role of Work-from-Home and Decreased Commuting Cost

Author

Listed:
  • Jinwon Kim

    (Department of Economics, Sogang University, Seoul, Korea)

  • Dede Long

    (Department of Economics, California State University, Long Beach)

Abstract

During the COVID-19 pandemic, house prices increased more in the suburbs than in city centers, flattening house-price gradients in most US cities.This paper explains this phe- nomenon, focusing on the pandemic-induced adoption of work-from-home(WFH)practices. Our theoretical framework shows that WFH reduces not only the frequency of physical com- mutes in a city but also the time-cost of individual commutes by lowering urban congestion levels, both of which alter residents’ locational preferences and consequently the bid-price for housing. To provide empirical support for our theoretical hypotheses, we leverage granular Google Maps travel time data to develop a novel measure of the change in time-cost induced by the COVID-19 shock, along with a county-level WFH potential index, to explain the shift in house-price gradients during the pandemic. We find that the time-cost change and the city-level WFH potential play a significant role in flattening the house-price gradients, contributing equally to the combined effects.

Suggested Citation

  • Jinwon Kim & Dede Long, 2022. "What Flattened the House-Price Gradient? The Role of Work-from-Home and Decreased Commuting Cost," Working Papers 2205, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:2205
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; Unemployment; Equity Prices; SearchModels;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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