Working from home? Then maybe you should be paid more to get a bigger place, say economists

Economists estimate that working from home could cost billions every year in housing space. Should companies pay for it?
Written by Daphne Leprince-Ringuet, Contributor

Working from home comes at a cost, and it's not only about eye-watering heating bills or making your own coffee: economists have now demonstrated that remote workers also spend a bigger share of their income on rent or mortgages to pay for the extra space needed to remain productive, even when they are away from the office.  

At the same time, employers save real estate money every time one of their employees stops coming into the workplace, which led the researchers to the conclusion that the burden of paying for office space moves from the employers to the workers when they are remote. 

Christopher Stanton and Pratyush Tiwari, both researchers at Harvard Business School, carried out an in-depth comparison of remote households (with at least one adult working from home) against non-remote ones prior to the COVID-19 pandemic, to estimate a so-called "remote premium" – the additional expenses that would be incurred by paying for more housing space for workers who will move to remote work in the future. 

SEE: Working from home: The future of business is remote (ZDNet/TechRepublic special feature) | Working from home: How to get remote right (free PDF) (TechRepublic)

Across all households, the economists established that an extra 3.8% of earnings would be necessary to cover the housing cost of switching to remote work. For those on lower incomes, the estimation jumps to 15% more income; on the other hand, the most well-off households would not require any additional compensation to offset the new expenses. 

Given the number of external factors that might influence the results of the analysis, the research goal was somewhat of a mathematical nightmare, and the economists had to model their way around a few stumbling blocks.  

In a scientifically ideal scenario, the households compared would have had to be perfectly identical, except for their choices to work remotely. Using data from the American Community Survey between 2013 and 2017, Stanton and Tiwari, therefore, looked at households with similar characteristics: for example, they would have been from the same commuting area, with similar income levels, and had the same number of children.  

They found that remote households spend more than 7% of their income on housing than non-remote households in the same geographical area. "This is caused, to a significant extent, by a consumption of more rooms by remote households," the researchers told ZDNet. In effect, remote workers' homes have up to 7% more space than households where all residents commuted to an office prior to the health crisis. 

To understand whether the extra space is effectively used for working purposes, rather than simply as a result of spending more time at home, Stanton and Tiwari carried out a similar analysis against households with a stay-at-home spouse, and found that, by a margin, remote households spend more on extra room. "The most plausible explanation for larger homes is that additional space is needed to accommodate remote work," concludes the research. 

As some companies near an entire year of WFH, more and more workers are seeing the appeal of logging in from their sofa on a regular basis even once the COVID-19 crisis subsides. Analysis firm CCS Insights predicts that in 2022, more than half of all office-based employees will still work mainly from home; while Forrester experts expect a 300% increase in permanent remote workers. 

Many large companies have already announced plans to make WFH a permanent option. Microsoft is working on the assumption that most roles will be at least partly remote, Facebook is aggressively opening up permanently remote hiring, while Twitter and Salesforce have rolled out plans to let employees work from home forever. And that's just to name a few. 

Also: ZDNet Recommends: The best products for every office

Using the data from their study, Stanton and Tiwari estimated that if 10% of non-remote households became remote in the US, the required compensation would total $15 billion annually. But if remote working is going to incur extra housing costs, who should pay the bill?  

It's easy to jump to the conclusion that the onus should be on the employer. Stanton and Tiwari, in fact, assessed how firms might be financially affected by the need to pay for their workers' extra home space. Based on the assumption that workers use up 150 square-feet in the workplace, the researchers calculated how much a business could save in real estate, and how paying for a "remote premium" for their workers in the same location might reduce those savings. 

They found that, on average, paying for the premium would offset companies' savings on office space by a third. But in areas where commercial rents are especially high, like the San Francisco Bay Area, firms would still save about $6,000 per worker per year. 

That is not to say that firms should definitely pay for their employees' house space. "We don't take a stand on whether firms should compensate workers for WFH," Stanton and Tiwari said. "But we suspect that in a competitive market they will end up doing so – that is, workers may capture some of the surplus generated from office savings. But we're not sure how much they will capture, as our data pre-dates the pandemic." 

On top of reducing the cost of office space, many firms have implemented remote-working policies after realizing that WFH might increase workers' wellbeing and productivity. If that is the case, argued Stanton and Tiwari, the discussion is easier: it seems to make sense to expect companies to contribute to their employees' home setup. 

"But suppose there is a productivity loss," continued the researchers. "Depending on how much the employee values remote work, they might be willing to pay all or some part of the additional expense of work from home, and the employer might be willing to pay the remainder of the cost depending on the extend of productivity loss." 

The past year has revealed many of the hidden costs of WFH, from investing in better broadband to acquiring an ergonomic chair; in many cases, it was expected that companies should cover basic IT devices, as well as health and safety equipment. But compensating workers for higher rents and mortgages seems to be taking the debate one step further. 

The idea is not without precedent: earlier this year, a federal court in Switzerland ruled that companies should pay a share of their employees' rent, when workers were required to work from home. In this particular scenario, the employee involved in the case was granted a monthly reimbursement of CHF150 ($157). 

Software company Buffer, for its part, has been fully remote since 2015, and provides employees with a monthly WFH stipend that includes reimbursement of co-working space memberships and $200 for "coffee shop working" purchases. 

SEE: WFH and burnout: How to be a better boss to remote workers

There can be, however, an entirely different perspective on the question. Facebook's Mark Zuckerberg, for example, recently suggested in a video conference that employees who moved to areas with lower costs of living could see their pay reduced as a result. A similar take was adopted in a report by economists from Deutsche Bank, who presented WFH as a "privilege" that employees should pay extra tax for

As Anna Stansbury, PhD candidate in economics at Harvard University explains, the circumstances vary with each worker, making it extremely hard to draw a clear line for everybody. "Working from home requires the workers to invest in technology, a workspace, and usually extra space," she told ZDNet. "On the other hand, for many workers, the move to allow more work-from-home will be a boon." 

"They may be able to avoid the cost and hassle of commutes, may be able to move further from cities, and so pay less for housing, and WFH may come with greater flexibility, which is particularly valuable for working parents and other carers. So, it's not clear that the move to WFH will be a net cost for all workers, and it's probably differentially costly for different workers." 

Stansbury anticipates some lengthy discussions between companies and their workers, to make sure that firms' policies are aligned with both businesses' and employees' best interests. With little official guidance in place, the nascent WFH space is filled with grey zones; solving those questions, however, is quickly becoming an HR priority. 

Editorial standards