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

Jinwon Kim and Dede Long ()

No 2205, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

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.

Keywords: Inflation; Unemployment; Equity Prices; SearchModels (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2022
New Economics Papers: this item is included in nep-tre and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:2205

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