Labor Mobility: From Fixed Factor to Open Question in Multifamily Investment

When looking at real estate trends, and especially the demographic-based fundamentals that underpin real estate values, we have seen a lot of change in very little time. The pandemic has shifted the labor market expectations of homeowners and renters alike, adjusting where developers are focused and, because no two jurisdictions are alike, impacting the way investments are underwritten and loans are made available. Whether that shift will be permanent is an open question, but there are a few things we can note.

What do the economics tell us?

Higher housing costs typically translate into longer average commuting distances, but with a clear distinction in their effects between those on homeowners and those on renters. Historically, the empirical evidence underscores that homeowners, and especially highly-leveraged homeowners, are more likely to seek new jobs in local labor markets than renters are, and that renters are less likely to accept long commutes and more likely to move nationwide than homeowners are. In other words, the labor mobility of renters – i.e., the ease and willingness with which renters can move from job to job within and across industries – tends to be greater than that of homeowners.

Is labor mobility changing?

We have seen an apparent increase in labor mobility over the last couple of years, but that increase has been across the board – for renters and homeowners alike – notwithstanding the more recent spike in interest rates and the greater impact such spikes have on homeowners versus renters.

What does this mean for commercial real estate?

Homeowners historically moved less than renters, meaning they also switched jobs less than renters did because homeowners generally had more of a commitment – financial, familial, social – to where they live. However, this dichotomy may no longer be as pronounced as it once was. With remote and hybrid work options seemingly here for the long run across a wide swathe of industries, and entrepreneurial at-home/local startups continuing to grow at least on pace with the surge in workers changing professions altogether, labor seems not only better able to move – but also actually moving – more and more to where workers want to live, not necessarily where their jobs take them. That could continue proving disruptive, and providing opportunities, in multifamily markets even after the current trend in residential rents begins to normalize along with real estate values.

As a result, lenders and developers, particularly in multifamily, have been forced to reevaluate where they are investing. They must position themselves to be where the renters are moving, of course, but in order to do so efficiently requires a solid understanding of why that is happening. For now, we continue to watch as the dust settles and our world moves toward a new equilibrium point for labor mobility and the demand for housing that is linked to it.