Tuesday, December 06, 2022

The impact of pandemic on how people live and work can change downtown for decades to come

The Research Assignment is a brief overview of interesting academic work.

The big idea

If companies allowed more of their employees to work permanently from home, businesses would move to downtown, while people would live primarily in the periphery, leading to fewer traffic jams and declining downtown property prices.

These are our key findings from a model we created to predict pandemic-driven change in Los Angeles. Many of these changes began to occur in the spring of 2020 when we began this research. We wanted to build a model that could show the effects of more widespread teleportation over a long period after the pandemic.

Our model is like an artificial world – think of Sim City – in which virtual people choose where to live and where to work. Virtual companies provide jobs to workers, while virtual real estate developers provide offices, warehouses and housing and set prices that match supply and demand.

Using pre-pandemic information on where people lived and worked, as well as their commute, we built the model of the Los Angeles metropolitan area with economist Matt Delventhal. The model also uses pre-pandemic data on commercial and residential property prices.

From 2012 to 2016, less than 4% of workers in the Los Angeles metro area teleported, according to our calculations from the American Community Survey. Today the figure is almost 40%. Based on estimates that about one-third of Los Angeles workers have jobs that can be done remotely, our model predicts three major long-term effects if telecommuting becomes permanent at about this level:

  • Residents would increasingly move from suburbs to the suburbs, while companies would move to the center.
  • Average residential and commercial property prices will fall in central city locations, while house prices will rise in the suburbs.
  • Traffic jams would ease everywhere and commuting time would decrease.

Why it matters

The arrival of the pandemic in early 2020 has improved the daily lives of millions of American workers and the businesses they employ.

Working from home, unusually before the pandemic, became a necessity, which made employers and workers realize that telecommuting is enjoyable and productive. This has led to large migrations of people who have become estranged from their employers.

In Los Angeles, increased telecommuting led workers to move to the suburbs, causing property prices to rise. Our model takes it a step further and assumes that these changes will be hedged.

This prediction may come true. NPR recently reported that homebuyers moving out of cities since 2020 have driven low-income tenants out of the suburbs.

This suggests that our model can be a valuable tool in helping business leaders, economists, policymakers, and others make informed decisions while trying to make sense of the pandemic’s far-reaching economic impact on their cities.

What is not yet known

Any model is a simplification of reality. In our model, all the workers and employers are identical. However, the actual reactions of different types of workers and businesses to increased telecom may differ.

Another important unknown is the continuing effect of telecommuting on productivity. During the pandemic, employers and workers did not report significant productivity losses – if anything, workers reported being a little more productive at home.

At the same time, productivity often benefits from opportunities to build and maintain professional networks. These networks can weaken as more people spend more time on telecommuting.

What’s next

We continue to observe and study how the increase in telecommuting can affect city centers. For example, barber shops, restaurants and other businesses that have long concentrated in traditional business districts may find that they have to follow a large exodus of residents to suburbs or smaller cities to survive.

However, not every worker or business can relocate. Our latest newspaper models the distribution of jobs and residents across 4,502 U.S. locations and examines well-being and income gaps that arise between those who can telework and those who cannot.

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