Rethinking home base | Financial Wellness TDRESL2021

By Jonathan Chevreau Working from home is now mainstream, whether temporarily for those still employed, or as a more enduring shift to home-based self-employment. Many technology companies now let employees work from home: some until 2021, some permanently. Canadian tech darling Shopify is vacating its former Ottawa headquarters, with employees […]

By Jonathan Chevreau

Working from home is now mainstream, whether temporarily for those still employed, or as a more enduring shift to home-based self-employment.

Many technology companies now let employees work from home: some until 2021, some permanently. Canadian tech darling Shopify is vacating its former Ottawa headquarters, with employees working “digital by default” in other locations. A recent cover story in The Economist reported that before Covid-19, only 3% of Americans worked from home regularly. By August, only 8% of employees in Manhattan had returned to their corporate offices; even so, few now commute five full days a week.

“Covid-19 shaped the real estate market during the second quarter in every possible way,” says Phil Soper, president and CEO of Royal LePage. Its latest housing survey showed home prices rising sharply, with supply struggling to keep up with a surge in demand: “As the reality of extended and potentially permanent work-from-home employment sunk in, people pondered both the location and size of their homes,” Soper said in a release. “Simply put, larger homes in smaller communities have become more fashionable.”

Many urban homeowners are selling their expensive city homes and swapping them for bigger places in the suburbs or cottage country. Matthew Ardrey, vice president of Toronto-based TriDelta Financial, thinks Covid-19 has changed the world permanently by letting workers use new technology from home. They now have the “freedom to work from anywhere they have a solid Wi-Fi connection,” he says.

Jason Heath, a fee-only certified financial planner with Toronto-based Objective Financial Partners Inc., says this trend has impacted real estate in most big North American cities, as downtown rents drop and prices in the suburbs rise. It’s sped up use of video conferencing and shifted workers to lower-cost jurisdictions. “It should be interesting to see if companies reconsider their office leases as they come up for renewal, potentially opting for smaller offices or potentially no office, and more employees who work remotely.”

Little wonder an early casualty of the Covid-19 bear market were Real Estate Investment Trusts (REITs) with heavy exposure to urban commercial real estate, including hard-hit shopping malls. As Reuters recently reported, there’s a severe glut of office space in New York City. While the broader stock market rose 55% from the market’s depths in March, office REITs have only flatlined.

Dale Roberts, a former financial advisor blogging at Cutthecrapinvesting.com, says those who want to maintain some investment real estate can look for ETFs exposed to the broader REIT market. “We are in a period of recovery, and perhaps there’s more value in the REITs that have been more beaten up.” Conservative investors could try more Covid-19-friendly REITs that avoid offices or retail malls, or focus on those targeting health care or residential apartments.

Covid-19 has changed consumer spending patterns, with less eating out and reduced need for new clothes for the office. Meanwhile, cooped-up homeowners are landscaping backyards and adding pools and decks and home offices. Or simply spending less. Heath says the Canadian household savings rate was under 5% in the last five years but jumped to 28% in July as spending fell. Couples may question the need to own two vehicles, as some rediscover bicycles, now in short supply. Vacations are changing as people try camping or explore their own countries in recreational vehicles.

Lethbridge-based fee-only planner Robb Engen, who runs the Boomer & Echo website, says clients are spending less on childcare and commuting, and cancelling or postponing travel. “As someone who spent many months working from home at the dining room table, I can definitely see the interest in creating a dedicated home office space.”

These home-based workers are upgrading computers and office equipment (or acquiring them for the first time, through employer subsidies.) They’re upgrading smartphones, adding peripherals from Logitech or HP Inc., trekking to Home Depot to retrofit workspaces and ordering furniture online from places like Restoration Hardware and Wayfair. The bonus is home-based businesses can deduct a reasonable portion of home square footage to cut taxes.

People stay in touch with customers through technologies like Zoom or Skype. They collaborate with remote co-workers through Slack or Microsoft Teams. They close deals with electronic signatures from firms like DocuSign, while medical professionals consult via telemedicine tools like Teladoc.

The Work-from-Home phenomenon may have compressed into six months the technological acceptance that might otherwise have taken five years, particularly in ecommerce, cybersecurity and communications-speeding technologies like 5G wireless. Most of these firms are publicly traded stock: unsurprisingly, most have soared in value since the pandemic hit.

Cottage country is experiencing a massive sales boom. Veteran Collingwood realtor Karen Willison is swamped with business from urban refugees. Far from creating bargains, Covid-19 has elevated home prices across the board, especially those with waterfront. It’s the same in Bruce County near Lake Huron, says TriDelta’s Ardrey. A realtor client of his reports the past six months were among her busiest, with most buyers from Toronto.

After Covid-19 began, Willison, with Royal LePage Locations North, thought prices would be flat or slightly higher. “Now we’re up 18% overall, pushing 20%.” Typical is a Toronto family not in a rush before Covid-19 but among the first to show up once it hit. They sold their city condo for $4.5 million and bought a bigger home in Collingwood for half that price.
The home office is a “huge factor in our exponential growth,” Willison says. Nor does she believe the trend will end once the crisis is past. “I believe 80% will continue. The other 20% won’t have a choice with companies wanting them in the office, or people will change jobs.”

While real estate prices remain high in places like Toronto, Ardrey questions the value of condos purchased as investments rather than places to live. “Real estate investors who rent out their properties for the short term may find themselves in a bind, he says: “With international travel at a standstill, how long will they be able to continue to hold these properties with virtually no income coming in?”

Adrian Mastracci, portfolio manager with Vancouver-based Lycos Asset Management Inc., warns retirees may need frequent trips into the city to use health services. “They may encounter financial difficulties when they wish to reverse the process and move back into the city. City prices can move to prohibitive levels for re-entry.” Mastracci suggests it may be simpler to just stay put in one’s current home.

What remains to be seen is how permanent all this is, Ardrey muses: “Will these new habits persist when the world returns to ‘normal,’ or will we go back to how we were living before?”

Jonathan Chevreau is founder of the Financial Independence Hub, author of Findependence Day and co-author of Victory Lap Retirement. He can be reached at [email protected]

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