Phillip Mendonça-Vieira

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Remote Work Isn't Gentrification

October 26, 2020

Before the pandemic, fully remote work was rare. Now, many large tech companies are embracing remote work — and in tandem announcing that compensation will be scaled by geographic location.

This can be a bit awkward. Typically, workers in the SF Bay or NY metro region are able to command large wage premiums but now everyone works from home. Intuitively, it seems odd that equivalently experienced or productive workers are paid (sometimes, substantially) differently.

Should tech workers be paid the same across locations? Not everyone thinks so. One disagreement I have seen emerge a few times is centered on the impact of remote work on local housing markets. The argument goes something like this:

In San Francisco it is common to see well-heeled tech workers buy up houses, drive up markets, and displace people from their historic neighbourhoods.

As more and more companies take up remote work, more and more people will be earning tech worker wages while living in regions with lower median incomes.

I feel like these workers will inevitably compete with lower-paid locals for housing, and therefore accelerate their displacement.

Doesn't this mean that paying remote workers roughly the same everywhere can be harmful?


Let's unpack this a little.1

In the micro-sense, this is often what gentrification looks like up close. High-income people outcompete low-income people for the same housing units, and thereby displace them to other neighbourhoods, or out of their cities altogether.

But in the macro-sense, the causal mechanism underpinning gentrification is driven by three broad trends:

  1. Higher productivity returns to “superstar” regions due to agglomeration effects.

  2. Inadequate regional land-use policies and investment patterns for absorbing population growth.

  3. Growing global wealth inequality fueling housing financialization.

The first trend is why so many people want to live in nice big cities, since there is so much more opportunity. People are paid more to work in San Francisco et al not because it has a higher cost of living, but because it's so much easier to hop between comparable jobs.

The second trend is zoning bylaws restricting density, thereby forcing high-income people to compete with low-income people. But it's simultaneously also a huge underinvestment in public transportation and other public goods, i.e. everyone wants to live near a BART or Caltrain station, or near nice schools, etc, but we don’t build more of them.

Finally, the third trend is that, in the Piketty sense, Capital’s share of Income is growing faster than Labour’s share of Income, which leads to flush credit markets encouraging over-leveraged investments and private equity firms flush with cash chasing returns, etc.

While individual high-income households sometimes compete directly with low-income households, it’s private equity firms that are buying houses by the thousands and entire apartment buildings by the handful with the express purpose of renovating them and squeezing out low-income tenants.

To bring this back to tech companies and tech workers, your personal impact on your local housing market really will vary according to where you live.

If you live in an economically depressed area – i.e. Pittsburgh, Detroit, Baltimore, Cleveland, and so on, all cities that today have far fewer residents than they used to, and lots of vacant housing to show for it – it's a net positive for you to earn more and spend more in your local economy as opposed to just competing for the same scarce resources in the SF Bay Area.

Or, you might just live in an area that has OK housing policy and or is able to grow at a rate capable of equitably accommodating the demand they face. In either case, you’re not displacing anyone. Paying people who live in those regions more is a kind of income-redistribution away from the superstar region.

More broadly, however, is the impact that “being paid less” also has. Whenever a worker is underpaid relative to the value they produce for the organization, that surplus value doesn’t disappear: it’s ultimately captured instead by their shareholders.

For many companies, and this is true for every company in the S&P500, their largest shareholders are institutional investors. This extra capital doesn't sit still: it's then reinvested and often used to finance real estate trusts and acquisitions.

So in a very real if indirect sense, it is the act of underpaying workers relative to the value they produce that ends up giving firms the excess cash to then go and gentrify their neighbourhoods.

Food for thought!

  1. In 2017, on a lark, I spent three months researching and writing a ~40 page paper on the nature of rent control. This doesn’t make me an expert, but I think I’ve spent more time reading about land use and real estate development patterns and economics than the average bear. Bears, for one, can hardly read at all. 

# 2020-10-26