House prices: urban exodus of upsizers shifts property demand

Call it the revenge of the suburbs. Urbanites no longer sneer about the boredom of life in city outskirts and commuter towns. The pandemic has blunted the appeal of paying large sums for cramped accommodation in densely populated areas. Workers who can do their jobs from home now want more space. 

The office is not dead. Employees will still need somewhere to meet colleagues and clients. Between a fifth and a quarter of the workforces in advanced economies could work from home at least some of the week, McKinsey calculated. A long commute is much less daunting if only undertaken two days a week.

The resulting rise of the suburbs and the slump of the city centre has been dubbed the “doughnut effect” by Stanford University researchers. House prices and rents in highly populated city centres dropped last year relative to their hinterlands. For example, average values in the Presidio, located directly adjacent to the San Francisco city centre, fell almost a tenth. They rose by more than 8 per cent in Marin County, across the bay. 

Lex chart showing that house price growth is greatest in less crowded areas of big cities

Similarly in Britain, people are moving a few stops out along commuting lines. In Brentwood, a satellite of London and home of popular reality television show The Only Way is Essex, agreed sales nearly doubled in the past six months, according to property website Zoopla. In Australia, regional house prices grew by 7 per cent in 2020, more than three times faster than the largest cities. 

Demand for spacious homes is likely to outstrip supply. Professionals now prize dedicated workspaces. A desk stuck in a corner of a spare room may no longer suffice.

If all the office workers in Germany’s 126 largest cities — almost 8m of them — wanted as much space in their home office as they had at work, it would total 93m square metres. By comparison, Germany has added just 80m square metres of additional housing stock in the past 11 years, said Deutsche Bank. Similar constraints are evident elsewhere, though it would be easier to build more houses if demand shifted out of conurbations.

Lex chart showing that UK rents rose in the suburbs

Cities will regain some of their lustre with the resumption of nightlife and culture. When travel bans are lifted, foreign buyers of prime property may return. Meanwhile first-time buyers are taking advantage of flagging prices. But the pull of the city centre has been weakened. Spreading out has big implications for property prices, public transport and taxes. 

The Lex team is interested in hearing more from readers. Please tell us how you think working from home will change property demand in the comments section below.


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