The COVID-19 pandemic has had a profound impact on the way we live and work. One of the most significant changes has been the rise of remote work, which has allowed many people to move to new locations in search of a better quality of life. This has led to a phenomenon known as “pandemic migration.”

While the term may suggest a trend of increased mobility, the latest U.S. Census data on mobility during the pandemic shows continuation of long-term decline in the share of households that have moved each year.

Prior to the 1980s, annual migration rates averaged 20% and has fallen to 8.7% recently. But what appears to have changed are the distances that people move, with the median distance more than tripling in 2022 from the decade prior. Also, one-quarter of homebuyers traveled over 470 miles to find their new home. 

Increasing numbers of longer-distance moves across counties and states have supported clear population shifts over the course of the pandemic as people have flocked to smaller towns and rural areas in search of more affordable housing and a slower pace of life.

And while there are a host of factors that influenced migration patterns, including politics, monetary and fiscal policies of different regions, the increase and ability of remote work was a significant motivator for many households. In fact, the share of work done from home increased from 8% in 2019 to 30% in 2023 – a rate at which remote work appears to be stabilizing.  

Economic implications of mass worker migration

While it is too early to say what the long-term impact of pandemic migration will be, the migration of workers has important implications for economic outcomes of U.S. cities, wage inequality and housing markets in general.  

Following the 1980s, we have seen a trend of clustering of higher-wage, college-educated workers in a select group of super-star cities, such as San Francisco, Seattle, Boston, Los Angeles, which have been cradles of technology and innovation.

However, the economic dominance of a limited number of cities has been a critical driver of income inequality nationally and varying home prices across markets.  

In trying to understand what drives migration, several well-known academic papers have argued that migration decisions are largely driven by the following: wages, cost of housing and amenities.

While workers in big cities have higher wages, when accounting for cost of housing (usually manifested in smaller housing and longer commutes), their real wages are lower. but they get to enjoy the big-city benefits.  

Despite the excitement that big cities offer, their attractiveness has been compromised in recent years by increasingly more unaffordable housing, long commutes and worsening crime and homelessness. It was not surprising to see households starting to leave large cities during the pandemic when desirable city amenities, such as bars, restaurants and concert venues were not available.  

The outmigration led by remote work resulted in an important economic shift currently underway – decentralization of higher-wage, college educated talent from very expensive cities such as San Francisco, Los Angeles, Seattle and others, to smaller metro areas which didn’t previously serve as economic engines of production and consumption.

As these workers and firms cluster in smaller cities, they develop their own agglomeration economies and positive knowledge spillovers, i.e. co-location of talent and creative workers results in economic and knowledge benefits to local economies and its residents. This can result in increasing income for all residents in the new city, not just the newly relocated worker.

Teleworking also improves access to high-paying jobs for workers who previously didn’t have the access if they didn’t live in a big city. Over time, redistribution of higher-wage workers to smaller areas can reduce income inequalities between super-star cities and smaller cities.

That doesn’t mean absolute wage equalization across metro areas as cities that were already productive continue to offer relatively higher wages (as they remain more unaffordable), but the wage gap between workers in the new location would be reduced.  

Outmigration’s notable impact on the housing market

In addition, outmigration from urban areas means that demand for housing and home prices in centers have been challenged while demand for housing in suburban and smaller cities has intensified. 

As a result, in San Francisco metro, the epicenter of pandemic outmigration, home prices have only increased 6% from the onset of the pandemic, while in the cities in the South (such as Tampa, Austin, Nashville, Raleigh, Austin – to name a few) that grew notably due to pandemic migration, home prices have risen 40%, and as much as 70% in some markets, during the same period.

While these stark differences in home-price changes reflect some equalization of housing markets, the differences in their median home prices are still wide. More expensive cities, such as San Francisco, still hold median home value at about $1.4 million, while median price in Tampa is about a third of that at $450,000. 

In addition to inter-metro convergence of home prices, the demand resulting from remote work has led to narrowing of intra-metro home prices as prices in suburbs and exurbs of large cities saw relatively higher appreciation over the last few years compared to the urban center.

Again, while San Francisco metro (which encompasses San Francisco city/county and San Mateo County) saw an increase, home prices in San Francisco city alone were down 1% since the onset of the pandemic, while they were up 32% in suburban Contra Costa County. 

And while home prices are unlikely to fully converge, slower growth of home prices (and decline) in urban centers of large cities offers improved affordability, particularly to lower income workers who can now move closer to the city and save on commuting cost and housing.

On the other hand, there has been a growing concern that affordability in fast-growing smaller cities leads to gentrification of households who are being priced out by high-income migrants. And there is some truth to that too as recent migration data shows relative outmigration from cities with outsized home price growth in recent years.

Where are those households moving then? They are moving further out to urban fringe and more affordable towns – and with it extending the boundaries of cities but also urban sprawl. 

How migration will affect long-term home prices

Decentralization of income across cities could lead to a more balanced demand across regions and smaller dispersion of home price both across cities and within a city.

High-cost cities would see some declines, while more affordable markets see higher home price gains. Given the overarching trend of migration to more affordable regions where it is easier and less costly to build, overall impact on home prices may result in a slight decline of national home prices long-term, or a slower rate of appreciation.  

What does this mean for super-star cities?  

Although big cities are at an important historical juncture, a demise is not a threat particularly as many large cities see population return post-pandemic. But, while some perks that made cities attractive may follow remote workers out of urban centers, fewer commuters would reduce pollution and congestion which would help boost desirability of urban centers.

Demand for commercial space may decline (further) and drag down its prices, but commercial real estate will likely be creative in finding new uses for the space, which may drive more creativity, mixed-use developments and incubate 24-hour-cities that will spur demand for urban living again and overall utilization of commercial space. 

There are other implications to consider. For example, decentralization of workers also means fewer transit riders and erosion of tax base. Large cities are already struggling with decline of ridership and the impacts of transit budgets.

As for loss of tax base, while urban centers will lose the revenue, smaller towns where remote workers are moving to will see improvement in their tax base and capital to improve public services, education and institutions that have been in decline for decades.  

Dr. Selma Hepp, PhD, is Chief Economist at CoreLogic.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Selma Hepp at [email protected]

To contact the editor responsible for this story:
Deborah Kearns at [email protected]