I suspect that almost all work that can be done remotely can be done even more cheaply the more remote you make it (not outside-the-city, but outside-the-continent). I also suspect that it's not all that long before many or most mid-level fully-remotable jobs become irrelevant entirely. Partially-remotable jobs (WFH 80% or less of the time, where the in-office human connections are (seen as) important part of the job) don't actually let people live somewhere truly cheap.
I think you're also missing many of the motivations for preferring a suburban area near (but not in the core of) a big city - schools and general sortation (having most neighbors in similar socioeconomic situation).
I made the text quite general, but focused on the US in my examples - in the US you cannot hire non-US citizens even for remote positions so this argument does not really apply here. I meant specifically doing cost of living arbitrage in a given country. Maybe that was not clear enough in the essay, my bad then.
I also have to disagree on the irrelevance argument - many sales jobs, high-finance jobs (given as examples they involve quite a lot of contact with external parties) can easily be done remotely with work trips to clients if needed and they will be there for quite a long time before we can replace most employees with AI. Most other white-collar jobs require zero actual face time. We have seen it work during COVID, you cannot argue that companies suffered then as revenues and profits were going higher in that period.
I generally believe that we have still decades before AI can fully replace white collar workers, but that is a topic for another debate.
Here in your last argument I must partly agree - initially the movement of people will be somehow restricted by such constrains, but with time smaller communities should spring up across the whole country - with future generations less inclined to move into cities we should see it happen.
Taking this into account, I believe that to be a good forecaster, one needs to have a holistic understanding of the world. For example politics is seldom about policies, rather it is about selling a specific narrative on current events, be it cultural or economic. Even here, I have hardly scratched the surface.
Fancying myself a good forecaster I adhere to the above. That is why besides focusing on current events sometimes I think and write about more high-brow issues. So it happens that this “sometimes” comes today, with a topic that has been brewing in my mind for quite a while now. It impacts basically everyone on this planet. And the situation is dire.
Today I will write about one of the most pressing issues we as a society have. The housing cost crisis was one of the main US election campaign topics as part of the affordability debate. Along with high interest rates (relatively, compared to the last 10Y), housing is on the minds of many young people, struggling to afford a once mediocre accommodation.
I may have just hinted at my thesis in the article’s title, but there is plenty to unpack here.
Prisoners by Choice
My thesis is very simple - we purposefully inflate cost of housing by socially enforcing suboptimal behaviors. This is a crisis of our own device and we have every power to reverse it. But first, why are actually real estate prices so high.
Short Intro to Microeconomics
Real Estate Supply
Real estate is a specific type of good. There are two main reasons for that:
Number of goods is on the X axis, while the price is on the Y axis
To summarize, in the short term, each city, town, village, state, country, etc. will have fixed supply of housing. This means that the price of real estate in each of the municipalities / regions is determined by demand there.
Real Estate Demand
Real estate demand is where the issue lies. Most people live in big cities, where there are the most high paying jobs, the most lively nightlife, the best restaurants, etc. Young people flock there to chase the American dream. But New York City (or any other big city) is not a bottomless pit. It is constrained by size and housing supply.
It is only natural that when many people from all over the country flock to the few big cities, the housing prices will rise beyond affordability for more and more people. Unless someone can either reverse the trend of moving to the cities or build housing supply in a matter of months, not years, we are stuck with higher and higher prices.
Prisoners by Choice?
Do we have a choice? My answer is yes we do. We can influence real estate demand by incentivizing living outside the big cities and we can do it very easily by embracing remote work.
Why Are There Big Cities?
First let’s take a stroll down the memory lane. It is crucial for my argument to understand why there are big cities in the first place. After all, people must have had good reasons to flock together. We do not need to go far, just before the advent of the internet is enough to see the rationale.
In a capitalistic society (or any other for that matter), people need to create value. By value I mean any good that may be valuable to other people. It is everything, from food, through simple consumer goods, industrial goods, to basic services and more complex ones.
Even 100 years ago, there was only one way to create and exchange value - one needed to live near other people or frequently travel to large clusters of people to exchange the goods and services for money. Information exchange was done in a similar way - you could either travel with important message or send it by post for it to be delivered in a matter of several days.
It was only logical, that to shorten the time needed to exchange value, many people decided it is best to live close by. But somewhere between then and now, something broke.
Population growth
First major change that the society has witnessed throughout the last 100 years is the population growth.
The US population has grown more than 3x in the last 100 years
With such growth, it is only logical that the big cities populations grows to an unsustainable level if the tendency to flock together remains the same (it did). Of course, cities grow, both vertically (skyscrapers) and horizontally (in area), but at some point we reach the limit:
New cities also appear and grow, from benign examples like growth of San Francisco due to amount of innovation from Silicon Valley to extreme success stories of cities like Dubai or Singapore. But population grows faster than we can build new metropolises.
The effect - constantly increasing real estate prices.
The Rise of the Internet and Digital Economy
The second major change that has happened in the last 100 years is the invention of computers and most importantly internet. Suddenly, people were able to communicate instantly, share ideas and work together regardless of where they are. Nowadays I can sit in Europe on a video call with people from Japan, Thailand and Kenya, sign contracts with them and work, despite thousands of miles between us.
Additionally with the rise of the internet the nature of work has changed. The move to the service economy accelerated and today many people work on digital products - from software to investment memorandums, most of the corporate work moved to digital space.
The large factories are a thing of the past in the first world countries. Manufacturing moved to Asia and majority of Americans are employed in digital services economy (as per The Economist, 62% of American workforce was employed in white collar jobs in 2022). They can communicate, sell and buy without leaving their homes. I can sign contracts with counterparties that I have never met in real life that reside thousands of miles from me and yet the flocking to cities continues.
Old Habits Die Hard
We have seen an extraordinary improvement in the speed of communication along with a massive switch to the digital economy. Most goods now are either fully digital or available for delivery in a matter of a day, regardless where you live in the US. It is astonishing that with such convenience available, people still flock to the cities.
So much improvements and yet we are still in a manufacturing age, where employees are expected to show up in the office to work. They flock to the big cities to have a high paying job with prospects, but pay absurd amount of money for accommodation and spend their days on Zoom calls and in collaborative spreadsheets.
While the COVID experiment with remote work showed us that it is more than possible, there are many critics of remote work. I want to spend some time to deconstruct their criticism.
The Networking / Culture Argument
Many corporations and proponents of post-COVID return to office policies quote the networking / culture effects that die out in remote setup. But do they?
Critics say that online environment does not allow for creating close bonds. For them, when people cannot meet face to face, the relationships they create between each other are superficial or non-existent. Additionally they say that working in person creates a collaborative environment that in effect helps to create more value.
I believe that the rise of social media and games give us the perfect argument against these statements:
How can it be that people can create lasting relationships and collaborative environment in one place online, but cannot in the other? It cannot be - these arguments are fueled by old habits and inability to perceive and make adjustments to new developments in the world.
Networking argument proponents will say to me that nothing beats face time. And they are partly right - even gaming bros meet up at some point to deepen the bond. But let’s be honest - most of us hate the work events. Most of us would be much happier if we could curate our own relationships, not the forced ones at work.
Additionally there is an easy solution to this - offsites. Be it annual company-wide and more regular department-wide, the employees can meet and deepen their bonds on eg. quarterly offsites. Focused on bonding, they can be a great tool to network and have some fun in the process.
There are plenty of examples of people and companies that successfully implemented good networking and culture in remote settings. We cannot deny the reality any longer.
The Lazy Employee Argument
The third most popular argument of remote work critics is laziness. Without proper monitoring of employees they are lazy and avoid work at all cost. While the first two arguments had some basis, especially the networking one, this one is absolutely absurd.
In the age of data, where every employee, team, department, vertical and company has KPIs to meet, one can easily spot the lazy. When I was young, there was a saying that once on the internet, nothing dies (paraphrased from another language). Online working environments show everything - every action on a spreadsheet, every message on Slack, everything is recorded somewhere. There is an abundance of data on each employees performance, deliverables and work style. If your company says that it can only enforce a good work culture in the office, then there is something seriously wrong with it. Everything is available online. If each unmet KPI required an explanation, you could quickly weed out the quiet-quitters.
Based on my personal experience I can easily say that I can slack both in remote setting as well as in office and neither is especially difficult. Also I will risk a statement that majority of workers are not looking to be lazy. Our society rewards ambition and many of us work regardless if anyone is watching behind our back.
Lazy employee argument proponents - open your eyes, the world has already moved on. It is you who are behind.
Why Remote Work Will Fix The Housing Crisis?
Lastly, it is important to say why remote work is the remedy to the housing affordability crisis. After all one can argue that such a complex problem should require a more sophisticated solution.
The key part of my thesis are incentives. Everything in our life, be it law, regulations, prices of goods and services, behaviors - everything creates some incentive for us. Simple example - the threat of prison is an incentive against committing crime. Salary is an incentive to work. I think you understand the framework.
What remote work does to people is that it incentivizes cost of living arbitrage. Why should I live in NYC and pay 40% of my salary for rent if I can move to the Mid-West and pay half of it? Maybe I can move back to where my parents live?
When presented with opportunity to decide fully for themselves when it comes to the place of living, many people will choose to leave big cities in favor of smaller ones across the country. With people spread more equally across the country, the real estate demand will also spread more equally, forcing the prices to go down in currently congested places and to slightly go up in currently deserted ones. The average of the two will leave us with overall better affordability.
Additional benefit of this solution is that people will live closer to their families, nurturing the natural bonds and helping each other. They will create organic communities, not based on work, but based shared values and interests. One could even argue that it may help with the political divisions, but I will not go that far. It is not the subject of this essay and I do not want to present remote work as a miracle cure for everything - just for the housing affordability crisis.
What About Offices?
This is actually a good question. Currently majority of the prime real estate in big cities is occupied by office space. What would happen with them if most of white-collar workers will not attend them?
At some point during the switch from in-person to remote, most of the office space would have to be repurposed into residential space. One can say that this will be costly, but will it be as costly as building new real estate? And what about the cost of transportation - we should also take it into account. When you live in the suburbs, the commute to work can take even two hours. Lost time plus cost of fuel / tickets is a sunk cost in my thesis.
It will be a daunting job to repurpose this much of real estate, but change requires effort. Especially if this is change for the better.
Summary
The rise of the internet and digital economy fixed a lot of issues we had and pushed us into a new age of progress and growth. Why not allow it to fix one more problem we have?
I am not saying that we should force people to work remotely. But I believe that we should encourage it. Considering the amount of interest remote job postings get, it will not take long before many people try it and start to spread across the country.
I post such content as well as global events prediction from probabilistic perspective on https://www.prophetnotes.com