Housing, not in-person work, will help Philly rebound from the pandemic, economist says

Lancaster-based economist Adam Ozimek gained prominence during the COVID-19 pandemic for his research on remote work, becoming a go-to source for news outlets across the country.

Ozimek is also a Temple University graduate, a former Philadelphia resident, and an alumnus of local economic research firm Econsult Solutions and the West Chester-based Moody’s Analytics.

Now as chief economist at the Washington D.C.-based Economic Innovation Group, Ozimek is tasked with keeping an eye on workplace trends as well as researching an array of topics including immigration policy. (He also co-owns a bowling alley, arcade, and bar called Decades in Lancaster City.)

The Inquirer caught up with Ozimek to talk about the latest changes in remote work based on his 2023 research and how they might affect Philadelphia.

This interview has been edited for clarity and brevity.

We are at a short-term equilibrium, but long-run remote work is a technology that’s going to continue to evolve and shape the labor market and economy. Those impacts have not stopped accumulating.

In-person recalls [to the office] have basically hit their max. If your employer wanted you back at the office, you’re back. If your employer wants you to be remote, you’re remote. It’s unlikely that businesses who have gone remote for this long are going to reverse that decision. You’ll always have anecdotes, but not enough to move aggregate numbers, and the long-run pressure is toward greater remote work.

Fully remote and hybrid remote are not really as close substitutes as is sometimes thought.

If you want to live in a really rural part of Pennsylvania that’s four hours away from Philadelphia, hybrid work is not a substitute for full remote work. It’s full remote work or another job. Hybrid work keeps you tethered to the geography of your employer.

Obviously, some people still want to be back in the office, or some jobs are necessarily going to require some office time. That’s something pushing in favor of hybrid work from the employee side.

There’s a push from the employer side as well, which is that if you open a job up and decide you’re going to hire a hybrid role, you effectively expand your labor market. You maybe doubled the distance. Previously, someone needed to live within 45 minutes of the office to make the commute doable. But if they only have to be in twice a week, well, maybe now they’ll drive in from an hour and a half away.

But if you go fully remote with the position, now your labor market becomes the entire region, or the entire state, or the entire time zone, maybe the entire country or the entire world. Your ability to hire is so much more greatly expanded if you go fully remote than if you go hybrid.

The other factor is that becoming a fully remote company allows you to much more drastically shrink down your office space.

There is a more important sense in which remote work will make places more similar, rather than less. Post-pandemic, rural places that have traditionally lost population have seen relatively stronger population growth. Whereas large urban areas have seen weaker population growth because remote work is allowing people to leave cities for lower-cost places.

As those remote workers move to low-cost places, they have a variety of positive economic spillovers that help make them more like the more successful parts of the country. They create jobs in those areas. They start businesses. They make demand for other types of workers stronger.

[In recent decades] skilled people were leaving some parts of the country and moving into large urban areas, superstar cities. When you lose that skilled population, you lose innovation, entrepreneurship, and dynamism. Now places with lower cost of living can draw remote workers who essentially bring their jobs with them. That is going to be a powerful force for economic convergence that helps make the country more equal geographically.

Philadelphia is interesting. One of the big pressures that remote work has created is that it pushes people out into the suburbs, where there are relatively fewer employers, and pushes them out of the downtown areas where there are more employers but higher cost of living. What’s interesting about Philadelphia is that in comparison to a lot of other places, that ship sailed a long time ago.

A lot of employers have already decamped to the suburbs, so there’s already a greater equalization between the economies of the downtown and the suburbs in Philadelphia then there are in other places. That has made the post-pandemic adjustment easier in the city in some ways. The damage was done a long time ago.

If you look within the city, you see a microcosm of these wider trends where the downtown area has seen lower housing demand. But you’ve seen stronger housing demand in northern Philly, West Philly, areas where commute-wise, it’s a little less convenient, but cost of living-wise, it’s more convenient. This push out of the downtown has led to more of a within-city change than between-the-city-and-the-suburbs change. You’ve seen people pushed out of the downtown, but instead of going out to Montgomery, Bucks, or Chester County, they’ve gone to different parts of the city. That’s distinct from other cities that are seeing this push out of the city itself.

I can’t vouch for that data specifically, but what’s useful for cities to understand is that a decline in demand for living in the downtowns does not need to lead to less living in the downtowns. Demand is a curve, not a fixed quantity. You can increase supply, and more people will come because prices fall. So cities can really help to offset the problems of declining downtown demand for remote work by simply building more.

You can see the impact on demand in downtown living if you look at price changes. If you look at Zillow’s home value index, downtown prices have been much, much weaker than some other parts of Philadelphia. That reflects the demand. But that doesn’t mean that downtowns need to empty out. Make it easier for developers to build: better zoning, better regulations, things to lower costs.

That matters for office employment, too. The percent of office space you need relative to the amount of residential space has gone down. But if you increase the size of your labor market by building more residential, that’s going to create demand for offices in the long run too. So for cities that are struggling, you just have to become a bigger city. There’s so many ways that cities get in the way of more building with zoning and other regulations. Just build.