Indicators Report: Pandemic spurred significant shifts in where workers live

WILKES-BARRE — Last week, the 2021 Indicators Report, compiled by The Institute for Public Policy & Economic Development at Wilkes University, took a deep look at the implications of telework on commercial real estate.

This week, Executive Director Terri Ooms talks about the effects on residential real estate and telework.

Ooms said COVID-19 has accelerated several major economic changes, including:

• Increasing use of telework across many industry sectors

• Increased emphasis of e-commerce and a growing logistics industry

• Automation and adoption of new technologies across all industry sectors

• Rising residential real estate market activity amid signs of migration out of larger cities.

Ooms said the report examines how trends that have emerged or accelerated during the pandemic are impacting real estate markets (commercial and residential) as well as economic development in Northeastern Pennsylvania — a question that impacts our economic competitiveness.

“How the region responds to these economic shifts will impact Northeastern Pennsylvania’s economic competitiveness as a post-pandemic economy comes into view,” Ooms said.

Residential real estate

& migration impacts

Ooms said the pandemic has also spurred significant shifts in where workers live.

“Largely driven by decreasing need to live in close proximity to one’s employment, workers could choose to live in smaller cities, suburbs, or rural areas to take advantage of lower costs of living,” Ooms said. “Financial hardships of residents of expensive coastal metro areas is also a driver of this migration.”

An analysis of rental cost data showed rising rents in markets with lower pre-pandemic rent levels, and decreasing rents in more expensive markets. In New York City, average rent for a 1-bedroom apartment fell by 18 percent since February 2020. The nearby Newark, New Jersey market, which is more affordable, saw a 20 percent increase in that time, demonstrating that migrations of this type may be relatively short in distance.

In another example, the markets in San Francisco, Oakland, and San Jose, California, among the most expensive in the country, all saw declines in rents of at least 10 percent, while the more affordable market of Sacramento, also in Northern California, saw a 10 percent increase in rents since the pandemic. Philadelphia, a mid-priced market, saw a 4 percent decline in 1-bedroom rents on average (Zumper, 2021).

The analysis similarly found that 75 percent of residents in counties with median annual income below $65,000 saw increasing rents since February 2020, while 60 percent of residents of counties with median annual income above $100,000 saw rents decrease. This indicates that housing demand, a proxy of pandemic migration, is flowing from higher income markets lower income ones (Zumper, 2021).

Ooms said Northeastern Pennsylvania’s housing market has historically been relatively affordable, with housing costs below the statewide average and well below expensive markets like New York City. The region’s median household income is also below the national average — around $54,000 per year in both counties, compared with more than $63,000 statewide and over $65,000 nationwide, according to U.S. Census Bureau 2019 American Community Survey estimates.

Based on these trends, Ooms said it is expected that Northeastern Pennsylvania has seen increased rents amid an inflow of residents from larger and more expensive metro areas since the beginning of the pandemic. Further, anecdotal evidence from around the region has suggested that residential real estate market activity is high for both rental and owner-occupied housing.

The Zillow Observed Rental Index (ZORI), a seasonally-adjusted measure of rental housing cost, increased nationwide by less than one percent between February 2020 and February 2021, despite averaging 3.5 percent annual growth per year in the previous five years. Regionally, rental cost growth was nearly six percent during the most recent year, outpacing the 4.4 percent annual growth seen in the previous five years.

More detailed regional data was available for owner-occupied homes (including single family homes, townhouses, condominiums, and other owner-occupied housing types) in the form of the ZHVI, Zillow Home Value Index. Home values nationwide grew by nearly ten percent between February 2020 and February 2021, twice the average rate of the previous five years. Regionally, the difference was far more pronounced – a 13 percent growth in home values compared with 2.6 percent per year over the previous five years.

At the ZIP code level within the three-county Metro Area, most localities had home price increases that was near or higher than the nationwide home price increase between February 2020 and February 2021. The ZIP codes where local rates of home value increase most significantly outpaced the national average were largely along the Interstate 81 corridor and in the southern part of Luzerne County. The only ZIP codes where less than five percent increases in the ZHVI were seen in from 2020 to 2021 were in the rural areas in the Northwestern part of the region, particularly Wyoming County. This pattern is consistent with migration from larger metro areas, which could be expected to first follow transportation corridors like Interstate highways.

Ooms said whether this increase will be sustained is a long-term question to monitor.

“It is possible that some workers who have relocated to regions like Northeastern Pennsylvania will return to the larger, more expensive cities they came from, especially if some employers recall their employees to partial or full in-person work,” Ooms said. “Nonetheless, Lackawanna and Luzerne counties appear to be on the receiving end of the pandemic-related wave of migration that has been called the ‘Great Reshuffle.’ However, detailed data on the exact number of new residents entering the region and from what regions from which they are relocating, will not be available from government sources for some time.”

Ooms said a potentially growing population in the region would also be meaningful to the regional economy’s workforce needs. Prior to the pandemic, unemployment rates were low across the region and some businesses reported difficulties filling open positions. While existing workforce development efforts will be necessary to encourage labor force participation and equip workers with the necessary skills and training to meet market needs, permanent migration into the area would provide a helpful new source of workers.

“However, there is not yet data on the education levels and job skills of those that migrated into or out of the region during the pandemic, so the readiness of new residents to fill open positions is uncertain,” Ooms said.