The pandemic has upended many aspects of life from the way we shop, how we connect with friends or business partners, or where we work. For the moment, it also appears to have changed preferences for where people want to live with profound implications for the future.

Before the pandemic, people highly valued and were willing to pay up for homes with a high level of walkability, that is the ability to complete most of life's daily errands on foot as measured by Redfin's Walk Score?. We reported in February 2020 that properties with walkability had a utility for which buyers were willing to pay extra. Year-over-year home price appreciation (HPA) in the most walkable quintile of the 50 largest metros averaged 7.3%, but only 6.0% in the least walkable quintile (beginning in 2012:Q1 and updated through 2020:Q1).

Since the pandemic, price trends indicate a preference for living in walkable urban areas has given way to living in less walkable, lower density areas. This includes an increasing preference for more rural and resort areas. Demand has shifted to properties providing a different set of utilities, ones that buyers now value more highly. These include larger living spaces and lots, locations closer to relatives, and greater access to nature. Last August, the AEI Housing Center noted The Great American Land Rush underway in many metro areas across the country. As large numbers of American workers became untethered from a central office, many moved to less dense areas with less expensive land (and homes) and offering larger lots and living area.

This preference shift is now starting to show up in home price appreciation data. Since the start of the pandemic there has been a near-180 degree shift, with year-over-year home price appreciation in the least walkable quintile averaging 8.9%, but only 8.3% in the most walkable quintile and the gap has been widening. The shift is even more profound in some of the nation's largest metros, such as New York City, Boston, Washington, or San Francisco. This shift is also widespread across all price points. Pre-pandemic, high walkability provided an HPA lift around 88% of the time across four price quartiles in the top 50 metros. Since 2021:Q1, in 70% of the cases low walkability provided such lift.

This should not come as a surprise. Due to lockdowns and social distancing, the share of the workforce working from home has grown from 5% before the pandemic to perhaps up to 60% at the height of it. At the same time, the desire for more living space and an escape from crowded urban areas fueled an exodus from the most walkable areas. USPS change of address request data confirm a shift from predominantly higher priced, more walkable urban areas to lower priced, less walkable ones.

If this turns out to be a permanent shift, rather than just a temporary blip, it could fundamentally alter many notions regarding housing market demand and growth, the sustainability of higher levels of HPA, commute patterns, and with infrastructure and commercial development needs.

There are strong indicators that it might be a lasting and profound change, especially when considering the economics.

First, just like online shopping, work from home (WFH) is likely here to stay at a substantially increased level. Recent studies have estimated that perhaps 20-25% of the workforce will continue to WFH after the pandemic. This translates to an additional 20-25 million workers with the option to move.

Second, freed from having to live in locations close to their employers, people can arbitrage the truly astonishing price differentials between metros. In April 2021, the median home in the San Jose or San Francisco metros sold for $1.3 and $1.0 million, respectively. In the Phoenix, Boise, or Sacramento metros – all popular destinations for people fleeing Silicon Valley – the median home sold for $360,000 to $500,000. But that is not all. By tracing people that actually moved to these places, we found that such a move comes with a larger lot size and a newer home at only around 55-65% of the cost of the home sold. If one is used to Coastal market prices – and about a quarter of the population currently resides in such high priced markets – the rest of the entire country looks like a massive fire sale.

While not everyone able to move will do so, this new trend looks to play out over years, not quarters. Thus the sheer magnitude of the arbitrage opportunity and the deep pockets of demand from borrowers able to move could overwhelm supply in many of these smaller, and not so small markets like Phoenix, Tampa, Sacramento and Austin. As our research has shown, during a tight housing market it only takes a relatively small percentage of buyers awash in buying power to permanently bid up home prices in an area. National home price appreciation rates in 13-15% range show that this is already happening. Yet, migrants from areas where land use policies make land scarce and home prices artificially high, find they are able to move to Phoenix, Boise, or Sacramento, or a multitude of other less expensive metros and rural areas and purchase what seems to them to be quite affordable housing.

There is a downside. If home prices continue at the current clip for much longer time, the pockets of housing affordability for entry-level buyers that existed in parts of the country, mainly the Midwest and South, may soon evaporate. In 2019, a household in the lowest wage-earning third could purchase the median home in Pittsburgh – one of the most affordable larger metros – at 4.5 times income. By 2022, this could easily go to 5.5 times placing homeownership for lower-income households further out of reach.

Just to see how much prices can get out of whack, all one needs to do is take a look at California. There a significant amount of underbuilding for several decades combined with the growth of the Tech industry, with its high wages, has propelled price-to-income ratios to stunning heights – and the homeownership rate to one of the lowest levels in the nation.

A shift towards more WFH and less walkability could also have larger societal implications. Fertility rates may rebound when young higher-income families can combine their dream job with an affordable home near extended family because of WFH. Or might higher housing costs for the rest of the country further depress child-rearing rates?

Or consider infrastructure spending. Should the government choose to spend billions on new mass transit systems to shuttle people into the central business district or instead spend money on high-speed internet in more remote areas? Would bus lines provide more flexibility in adjusting commuting patterns over more static light rail? Should local officials focus on expensive infrastructure improvements aimed at attracting big redevelopment projects to highly walkable areas at or near transit stops or hedge their bets by encouraging smaller, more decentralized, and less expensive projects that enhance walkability and spread the benefits more equitably across more residents?

For the moment, it looks as if the pandemic and WFH have caused a shift in preference from walkability to nearby amenities to amenities provided within one's home. While it remains to be seen whether the shift becomes a more permanent feature, policy makers should at least be open to the real possibility of a "New Normal" and be prepared for it.