There are very few decisions in life that don’t have a financial impact, whether that impact is on your income, your expenses, your assets (what you own) or your liabilities (what you owe). Have you ever regretted a financial decision? Was that decision made based on your expectation of a short-term trend continuing into the future? Perhaps it was an investment of some sort such as during the .com era where anything with a .com was considered the next big thing only to soar to the moon before coming crashing back to earth. Or maybe the financial decision you regret is committing to a major expense (car or home for instance) on the expectation that your personal trend of rising income would continue only to find it stagnate. Perhaps you downsized your home as soon as your kids left for university only to find yourself in a smaller house with your adult son or daughter boomeranging back home. When you make a decision based on a short-term trend, or reaction to an event, you are at risk that that it doesn’t stick around, that it doesn’t become a long term “new normal”.
Recently there have been a number of articles in the press about how COVID-19 is leading to a boom in real estate for the suburbs and beyond. Real estate agents in suburban and country locations are reporting significant interest in their locations with rapidly increasing transactions. New Yorkers are fleeing to Connecticut. Torontonians heading for London, Peterborough, and other farther out than normal commuter communities. Why are they making this move? While larger homes and smaller communities hold great appeal, many are citing the anticipation that work from home is here stay as being a significant contributor to the decision to make the move they had been thinking about for a while. People are anticipating they will be able to enjoy life “in the country” while working from home. They are not anticipating having to commute. And yet, “work from home” has been here for just a few short months. It is still just a short-term trend. In fact, it may not even be considered a trend, but rather a reaction to an event. An event, COVID-19 shutdowns that will, one day, end. It remains to be seen whether work from home will actually be here to stay for the great numbers of people currently telecommuting.
Companies like Yahoo, IBM, Honeywell, Bank of America and Best Buy embraced work from home policies years ago and enjoyed significant cost savings in the form of reduced overhead. Employees moved great distances from the office for reasons like being close to family, a more desirable location, and lower cost housing. Yet these companies have something else in common. They all eventually recalled their employees back to the office. They found work from home meant they had no real company culture, communication, collaboration and teamwork had all suffered. Employees had no choice but to either come back to the office to work or quit.
COVID-19 has changed the world in many ways, but which of those changes will be transient versus which will be permanent are unknown. There is great debate about what it will mean for the future of how and where we work. Work is always financial, work directly impacts income, and having sufficient income is the root of financial security. If you are thinking about a major real estate change as a result of COVID-19, here are three important considerations:
- Ask yourself, will you be able to commute to the office for work from the location you are moving to in the event your company requires you to come back to the office in the future? How long will the commute take? Would you drive or take public transportation?
- Be prepared for the cost of the potential commute. In 2018 Canadian Mortgage and Housing Corporation (CMHC) issued a report that found moving out of the city and commuting in rarely results in cost savings. The cost of the commute often times offsets the lower cost of housing. If you are moving to the suburbs thinking you will save money, ensure your budget has room to cover the cost of a commute if you need end up needing to.
- Talk to your employer. If they haven’t already, ask them if they can provide any clarity around their plans for bringing employees back to the office or are they planning to embrace “work from home” long-term, at the company level, for your particular role, and any future positions you may be looking to be promoted into.
Risk will always be present. This is life after all. But just like learning to swim before you jump in the deep end, we can take steps to minimize our risks. When it comes to making successful financial decisions, the more certainties you have and contingencies you plan for, the higher the probability of that decision being successful one.