Although the COVID-19 pandemic has worsened many aspects of inequalities around the world, it may have an unexpected impact on long-term housing wealth inequality in large cities.  

Unlike other crises, this pandemic is altering people’s working, lifestyle, and living arrangements in an exceptional way that may change the housing prices dynamics across metropolitan suburbs. 

The classic monocentric city model suggests that the value of land parcels, and so residential buildings, decreases as the distance and transportation costs to the business centres increases.

Living close to the CBD minimises the commuting costs to work and increases the chances of enjoying recreational services such as theatres, museums, or universities.  

Competition for residential locations close to business districts means higher land costs in these areas and considering the limited urban land supply, a limited number of people can afford locating in the central areas. 

However, with the changes to working arrangements, many employees may consider moving to outer suburbs that offer better environmental quality, more family-friendly settings, and more space at affordable prices.  

We suggest that the pandemic will impact the trade-off between accessibility and space, which are the core elements of the monocentric city model.  

It means for workers who can adopt remote working arrangements, the importance of work accessibility weakens.  

As such, they may consider choosing residential locations that are located further from CBD areas and accept higher transportation costs and longer work trips, as they require to travel less frequently to their workplace.  

The higher demand and prices for housing in outer suburbs may lead to more homogenous house prices across metropolitan areas and lessen the housing wealth gap in the long term.  

While there are not yet enough data available to statistically examine this phenomenon, the emerging evidence supports our argument.  

According to Morgan Stanley, it is expected that at least 30% of people will work from home for the long term after the pandemic.  

Zillow, a leading US online real estate website, reports that three-quarters of Americans working from home due to COVID-19 would like to continue with this arrangement if they are provided with the option.  

Sixty-six per cent of these respondents would likely consider moving if they had the flexibility to work from home as often as they want.   

Therefore, it is not surprising that the pandemic has led to a sudden and strong shift in housing demand from the US central cities and dense neighbourhoods to the suburbs and neighbourhoods with lower population density.  

In Australia, a very similar pattern can be observed. Ninety percent of Australians want to keep working from home, in some capacity.  

A 2021 Realestate.com.au report shows that the views per listing for sale properties in lifestyle locations surged by more than 100%.  

The early 2021 CoreLogic data shows that the 2020 house prices in regional Australia have risen at a higher annual rate (7%) than in capital cities (2%) for the first time in more than 15 years. 

Furthermore, a recent survey among property investors shows that after the pandemic, the majority of property investors in the three most populated states of Australia prefer to invest in regional areas than the capital cities of the three states (see table below). 

While higher price growth for residential properties in outer suburbs means less housing wealth inequality for home-owners across metropolitan areas, this trend may have some unintended implications.

Further pressure on first home buyers

The outer suburbs have traditionally been considered as one of the most affordable residential areas for the first homebuyers and low or moderate-income households.

Higher demand for real estate residentials in outer suburbs and more homogeneous housing prices across suburbs may further hinder economically vulnerable groups and some of the first homebuyers from entering the housing market.

Urban planning and infrastructure

For several decades many experts and researchers have promoted density and compact cities as a sustainable and inevitable urban future.

Density has been considered a tool to curb sprawl, which results in the expansion of the city footprint into critical habitat areas, precious agricultural land, and green spaces.

Higher demand for detached houses in sprawling residential areas will most likely intensify the conversion of agricultural land to residential areas and put more pressure on urban fragmented infrastructures in many cities.

This piece is based on a recent study published in International Journal of Housing Markets and Analysis.