Canadian real estate experienced a major shift during the pandemic as remote work was embraced. Unanchoring careers from pricey cities, people fled to more remote and affordable smaller cities, bringing a surge of economic activity (and higher home prices), at the expense of big cities. Policymakers are now attempting to reverse this move by pushing employees back to pricey cities, hoping to stop the outflow and return spending. There’s just one problem—the reversal would also see the capital that fueled the small city boom return to the big cities. That can mean the remote home that commanded a massive premium just a few months ago, can look like an overpriced commute in a few weeks.
Canadian Governments Are A Prime Candidate For Remote Work
Canada’s workforce was primed for a shift to WFH for a very long time. Back in 2019, estimates from Statistics Canada (Stat Can) show that roughly 40% of all work could be done by telecommuting. One of the largest sectors ready for telecommuting is public administration, where they estimate 58.2% of jobs can be done outside the office. In other words, most government gigs can be done at home. That’s a lot of money that can be saved—workers would save the commute and not be chained to pricey cities, and taxpayers could save on office space.
Naturally, WFH took off when the pandemic struck, especially with public servants. Stat Can reported a whopping 43% of Canadians worked at home in January 2022, falling to a still-lofty but much smaller 25.4% in April 2022. The perception of this trend helped launch demand for housing much further from city centers.
Canada’s Small City Real Estate Boom Came At The Expense of Big Cities
One big example is Greater Toronto real estate. The perception of a new normal removed a premium from downtown and transferred it to distant suburbs. Home prices just 1 km from downtown saw annual price growth of 1.9% in 2021, during the height of home price growth. Fueled by cheap credit, the further out people moved the higher the premium—with annual growth hitting 19% 64 km outside of the city. A suburban growth premium always emerges in a bubble, but this was an unusually large one—especially since downtown Toronto fell behind inflation.
This also helped fuel the growth of distant suburbs and rural regions not too far outside of the cities. An economic boom that took spending from downtown cores and transferred it out toward smaller regions. This helped boost employment across the country, except in major cities where the unemployment rate is reaching recession-like levels from the activity transfer.
Now that narrative is quickly reversing as big cities try to reverse the flow of economic activity and re-stimulate the downtown premium. Most likely at the expense of reduced economic activity in the suburbs.
Canada’s Rise, Fall, and Revision of Working From Home
The public was convinced that WFH was more prevalent than reality, according to Stat Can. A study, that slipped under the radar, revised the agency’s WFH estimates significantly. The 43% of workers noted above was slashed by a third. It also revised April 2022 to 22.4% of the labor force, reducing the share of the population by 29.3% from the initial reported data. It’s overreported, meaning the narrative fueling the growth in those regions is too. However, over 1 in 5 workers are still on the WFH bandwagon, and employers aren’t keen on that.
A study of employer intentions shows they’re ready to reverse even that revised growth soon. Three-quarters (76%) of employers plan to mandate workers back to the office. The Government of Canada (GoC) has even eliminated the WFH tax credit, in an attempt to lower the incentive.
In response to requests from politicians in major cities, and the companies who love them, most government employers are trying to bring workers back to the office. Not necessarily full-time but typically 2-3 days—just enough to anchor employees to their major downtown cores.
Here’s a brief (and incomplete) list of public services that recently resumed a “prescribed presence” policy, mandating a minimum number of days in office:
- Nova Scotia: The provincial government has ordered about 3,500 non-union staff back into the office full-time by October 15th, 2024. The move apparently reverses much more generous pre-pandemic work terms.
- Ontario: Canada’s largest province implemented a mandatory 3-days in office earlier this year. Non-union legislative staff began a 4-day in-office minimum in July.
- Toronto: The City of Toronto updated its remote work policy and ordered staff a prescribed minimum of 2 or 3 days per week at their city office, effective November 2023. The new policy also requires remote employees to remain within a “reasonable” distance of their City work location.
- Manitoba: The province has yet to implement a return-to-office mandate, but the Premier isn’t a fan of the hybrid work model, calling it “disruptive” and expressing concerns about downtown Winnipeg’s hollowing out. Smaller government agencies have implemented a return-to-office policy, such as the Winnipeg Regional Health Authority (WRHA), which ordered its employees to the office this past July.
A number of governments have already asked employees to return to the office, some almost immediately once mandatory office closures were lifted. This includes:
When home prices detach from fundamentals, they advance based on credit and expectations. Even the Bank of Canada (BoC) warned that home prices in many regions are rising solely based on the expectation that they’ll rise further. Cheap credit helped those buyers to actually pay that premium.
The narrative that WFH is the new normal didn’t just move government employees, though. It also convinced others that this new normal meant workers didn’t have to be in major cities. This helped to bring jobs and capital into distant suburbs, small towns, and rural regions.
Now that the government is attempting to anchor employees to major cities, that leaves a lot of questions. In an attempt to restore the economic activity to downtown cores, policymakers are trying to reallocate that spending back downtown. If the capital that inflated the value of these regions leaves, do these markets retain the premium that households paid?