Can teleworking give rise to new residential dynamics? (Note)

Purpose of the article: To analyze the effect of teleworking on the real estate market and then discuss these trends in terms of land use planning in metropolitan France.

Summary:

• The real estate market is experiencing a historic year in terms of both the number and geography of sales. In a rare, if not unprecedented, development, real estate inflation in France’s ten most populous cities has been below the national average. Prices have even fallen in central Paris.
• However, the desire of city dwellers to move to the outskirts of city centers or to the countryside predates the health crisis. Teleworking has probably encouraged those most eager to leave to maximize the comfort of their living environment, even if it means moving further away from their workplace.
• However, it is far too early to talk about an urban exodus. First, because teleworking only concerns a minority of people, generally lasts only two days, and does not mean that all teleworkers will leave. Young people have fewer choices than older people.
• Also, buyers are not going where they did not go yesterday. When they buy second homes, they look at seaside resorts. When they move, they stay close to the major cities. Isolated towns still suffer from low demand.
• The areas that are most accessible by transport, have good internet coverage, and offer an urban lifestyle are the most likely to attract and retain residents. Local authorities, with the help of the state, must take action in this direction.

Since the health crisis and the exponential growth in teleworking that it has caused, you have no doubt heard that residents of the largest urban centers, particularly Parisians, are leaving. Living in a smaller community, closer to nature and in larger homes are the reasons behind this supposed urban exodus. As a bonus, people are leaving large cities and their suburbs in favor of medium-sized towns, leading to a rebalancing of regional development in favor of rural France.

Firstly, while it is too early to talk about an urban exodus, it is not too late to point out that large cities have never been the only attractive areas, even before the health crisis. Secondly, a significant reduction in regional inequalities is a very optimistic scenario. Teleworking does not concern everyone, nor all areas. Such a phenomenon can only really begin if local authorities, with significant help from the state, coordinate their efforts to offer certain basic goods and services to all individuals.

1. Will post-COVID residential dynamics be different from those before?

1. An unprecedented period in the real estate market… but for how long?

According to Meilleurs Agents[1], the number of real estate transactions in 2021 is expected to reach 1.2 million sales, exceeding the historic record set in 2019. Between September¹, 2020, and 2021, prices rose faster in rural areas[2] (+6.4%) than in the ten most populous cities in France (+4.1%). This observation is historic, to say the least, especially since this reversal in the rate of inflation between these areas is the result of strong demand for municipalities located outside major urban centers.

The office market has also been affected by the health crisis. According to BNP Paribas Real Estate, although it picked up in France in the first half of 2021 (+35% compared to H1 2020), demand for space is well below its 2019 level. A study by Natixis[4] reveals that teleworking may lead, in the long term, to an increase in the vacancy rate for offices in Paris. However, the question is whether this is true everywhere. In Lyon and Aix/Marseille, rents have already increased as a result of demand.

In fact, it appears that it is mainly the Paris metropolitan area where the real estate market has been most negatively affected by the health crisis (Graph 1) compared to other major cities. In Paris, residential real estate prices fell by 1.5% between September 2020 and September 2021. However, prices stopped falling in the third quarter of 2021. Furthermore, according to BNP Paribas Real Estate[5], the office markets in Paris (Central Business District and La Défense) have already returned to sales levels close to their ten-year average. So, while this is a historic period, particularly for Paris, there is no guarantee that it will remain so.

Graph 1: Change in real estate prices in 2021 for the ten most populous cities in France

2. Teleworking: an open door to new trade-offs?

The distance between the workplace and home is measured not so much in kilometers as in travel time. Teleworking allows you to be instantly « at the office » from just about anywhere. In this respect, it is a minor revolution, as location is undoubtedly the most decisive factor for a household moving house. This probably explains the strong demand for houses, whose prices have risen twice as fast as those of apartments, according to Meilleurs Agents, whereas in the past the trends were almost identical. No doubt those most eager to leave have chosen to maximize the comfort of their living space a little more, even if it means spending a little more time commuting to work.

But although teleworking allows for a blurring of the boundaries between home and work, it does not really allow households to move as far away from the office as they would like. Even if they have to go there less often than before, they still have to go. This is probably why the outer suburbs of Paris, located on the outskirts of the Paris metropolitan area, saw prices rise by 8.3% between September 2020 and September 2021. Other cities very close to Paris thanks to high-speed rail lines, such as Orléans, Chartres, and Reims, saw prices skyrocket over the same year. These areas allow households to access their workplace while living in larger homes. Thus, location remains a key factor.

3. An acceleration of trends that are not so new

While it is plausible to witness what Meilleurs Agents calls a « new real estate geography, » made possible by teleworking, it should be noted that certain trends were already present before COVID. First, let’s remember that Paris has been losing residents for several years now. Between 2012 and 2017, the population declined by an average of 0.5% each year[6], while prices for older apartments rose by an average of 2% each year over the same period[7]. If we look at net migration (inflow minus outflow), there has even been a deficit since 1975, according to Apur[8].

Furthermore, a survey conducted by Obsoco[9] between 2017 and 2018 revealed that nearly one in two residents of the Paris region would like to leave, mainly due to very high real estate prices, severe traffic congestion, and high levels of pollution. However, 77% of them believe that work is the main obstacle to their desire to leave. It is important to understand that while teleworking has enabled some to take the plunge and leave, their desire to do so actually dates back well before the health crisis.

Finally, the appeal of areas outside major urban centers dates back well before COVID. In its June 2021 real estate barometer for medium-sized cities, the ANCT[10] notes that demand for these municipalities has been growing since at least 2018. For example, the average number of sales of existing homes between 2018 and 2019 increased by more than 10% in the 222 cities covered by the Action Cœur de Ville program. In addition, an IFOP poll commissioned by the ANCT and the Banque des Territoires shows[11] that 87% of French people prefer to live in a medium-sized city.

2. Without coordinated public action, there will be no territorial rebalancing

1) Flows that do not affect the entire population…

Teleworking still only concerns a minority of workers in France. According to Dares[12], in July 2021, 23% of employees teleworked at least one day and only 4% did so full-time. Most teleworkers are executives on permanent contracts, employed by large companies, working in the information & communication and financial sectors. While the proportion of executives, and especially companies in the above-mentioned sectors, is high in France’s largest cities, particularly Paris, this does not mean that people are leaving these cities. A priori, as was the case during the first lockdown, when the capital lost almost 10% of its population, it is mainly Parisians who have sought to change their living environment.

From a political point of view, the French government is encouraging the growth of metropolitan areas (see Box 2). Under these conditions, it is unlikely that we will see massive flows of people leaving large cities for smaller ones. Furthermore, it is far too early to say whether this phenomenon will last. It is entirely possible that some of those who have left, particularly families with children, will return in a few years’ time. The capital is home to a large number of universities and jobs for young people, who are therefore likely to return.

2) Nor all regions

The upturn in the real estate market has not been uniform across mainland France. According to Meilleurs Agents, the peri-urban sector has seen price growth of close to 10%, which is more than twice the national average (4.9%) and the top 50 most populous cities (+4.5%). This reflects strong demand for areas on the outskirts of city centers, which offer a more rural lifestyle without being too far from the center, where jobs and services are concentrated.

The real estate market also owes its strong momentum to second home areas. Seaside resorts have emerged as the « big winners » of the health crisis, with prices rising almost three times faster than in 2020 (+4.6% compared to 12.3% in 2021) and faster than the national average in 2021. A significant proportion of buyers have diversified their places of residence rather than replacing them. Conversely, housing prices in isolated municipalities have risen more than three times slower than the national average (+1.7%). Thus, buyers are not moving to places they did not go to yesterday.

It should be noted that while the above observation reflects a geographical pattern, the differences between territories of the same size are also significant. Among the ten largest cities in France, Paris and Marseille have followed completely different dynamics (Graph 1). The office market in Lyon has also proven to be very resilient, according to BNP Paribas. In fact, talking about urban exodus seems simplistic, as the issue is much more complex. The question of city size may not be relevant, or at least we need to look further to understand the new residential dynamics that lie ahead.

3) Accessibility and service provision: key factors in attracting households and businesses

Accessibility is a key criterion when looking for a place to live, and it can be broken down into two criteria. First, accessibility by transport. The place where people decide to settle must be easily accessible by road, but above all by rail. Second, digital accessibility. The internet is a prerequisite for teleworking. For example, according to Meilleurs Agents, the five medium-sized cities that have benefited most from the crisis (Brest, Quimper, Orléans, Angers, and Reims) are all connected by high-speed rail to a central city, notably Paris, and all have at least four out of five homes connected to fiber optics, according to ARCEP data for Q3 2021.

Table 1: Physical and digital access in the five medium-sized cities with the highest inflation in 2021

Once physical and digital access has been secured, the population must also be able to benefit from a range of local public and private services that enable them to organize their daily lives. A study by the ESSEC Chair in Urban Economics[14] reveals that employees are primarily looking for quick and easy access to schools, healthcare, and local shops such as bakeries, restaurants, and cafés, which are key factors. This is precisely the problem facing isolated communities, which, in addition to being cut off, are experiencing commercial decline.

Thus, a region attracts households if and only if it is able to offer them an urban lifestyle. However, in some municipalities, these efforts may be hampered by certain specific local factors, such as poor amenities (pollution, proximity to a nuclear power plant or waste disposal site, etc.) or even the weight of history. In addition, local authorities need to coordinate their efforts to provide a sufficient quantity of local public goods and services, which is extremely complex. More than ever, municipalities must rely on inter-municipal cooperation. Finally, to achieve the goal of equality, the state and private operators must agree to accelerate digital coverage across 100% of the national territory and better connect certain hubs with each other. For example, traveling from Bordeaux to Lyon by high-speed train requires passing through Paris. In short, given the number and nature of the challenges, it is difficult to see the largest cities emptying out in favor of medium-sized ones.

Conclusion

Post-COVID residential dynamics are not so different from those before the pandemic. The appeal of medium-sized cities predates the health crisis, and teleworking has in fact accelerated this trend. This appeal is not necessarily synonymous with urban exodus. First, teleworking only concerns a minority of workers. Young people who want to study, work, network, find childcare, etc. are much more constrained than older people when it comes to leaving big cities. Finally, the decline in demand has mainly affected Paris, unlike Marseille or Nantes.

Regional inequalities are likely to persist. Buyers have purchased property in the same places they did yesterday. Isolated towns continue to suffer from low demand. Local authorities that are able to offer an urban lifestyle will be best placed to welcome city dwellers. Ultimately, as some researchers point out, attractiveness is not a question of size, and we must move beyond the dichotomy between urban and rural. Territories are like individuals: if they have one thing in common, it is that they are different, even when they are comparable.

Bibliography

Simon, Arnaud, and Fabrice Larceneux. « Introduction, » Revue d’Économie Régionale & Urbaine, vol. , no. 1, 2017, pp. 67-76.

Olivier Bouba-Olga, Michel Grossetti. The CAME mythology (Competitiveness, Attractiveness, Metropolization, Excellence): how to detoxify ourselves from it? 2018.

Jérôme Hubert, Rasha Daoud. A look at research in housing economics through the prism of the Journal of Housing Economics. Revue d’économie régionale et urbaine, Armand Colin, 2017

KIEL K-A and ZABEL J-E (2008) Location, location, location: The 3L Approach to house price determination. Journal of Housing Economics 17(2): 175-190.

Tiebout, Charles M. “A Pure Theory of Local Expenditures.” Journal of Political Economy, vol. 64, no. 5, University of Chicago Press, 1956, pp. 416–24.

ESSEC Chair in Urban Economics and La Banque Postale Research Department. Business relations with their local area. 2018.