Working From Home – More Money, Fewer Cars and Different Living Choices?

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Working From Home – More Money, Fewer Cars and Different Living Choices?

After the historic ‘stay at home’ message, issued for the first time ever last year, many individuals in traditional office jobs saw their careers transfer to their own homes.

Ten years ago, this would not have been possible, but thanks to technological advancements it is not only achievable but happening relatively seamlessly for many. The debate now is what is the best and most efficient arrangement moving forward.

Below we consider various aspects associated with working from home. We look at personal savings, the car industry and the property market. We conclude with a summary of the key points.


Personal Savings

Over the last 18 months, or more, many employees who commuted daily have witnessed significant reduction in travel expenses which previously consumed a large chunk of their monthly income. Expenditure on travel extends beyond paying for ‘peak’ train fare tickets, to items such as overpriced pumpkin spiced lattes or drinks with colleagues on a Friday.

Despite some higher costs associated with home working, estimates suggest net savings for office-based employees in the UK could be around £500 per month! The number quoted here isn’t made up, it comes from the Office of National Statics (ONS). At an aggregate level expenditure foregone equates to an estimated £100bn of pent-up savings garnered the course of 2020, and into early 2021, from the imposition of restrictions on travel.

Of course this ‘windfall’ is not equally distributed, and not without consequences. The greatest benefit has accrued to employees working in urban areas, where costs of living are inflated, compared workers operating in rural areas. This begs the question; will employers be willing to keep wages as they are for urban dwellers working from home and for those moving to rural areas. If their living expenses are now permanently reduced, should company compensation run at the same level?

For large US companies such as Google the answer seems to be, possibly not. They have indicated they want to cut wages by as much as 25% for some employees. They say compensation packages have always been determined by location and the cost of living in certain cities or states. This calls into question the notion that the savings individuals have enjoyed over the past year will be sustained. It seems increasingly likely that some, possibly many, employers will claw back savings through differentiated and lower salaries if working from home is maintained.


The Motor Industry

Only a few weeks ago we were discussing the impact of semiconductor shortages restricting the supply of new motor vehicles. The result is in inflated prices for used cars and many potential buyers waiting over a year to even order a brand-new car never mind take delivery of a previously ordered one on time.

While the consensus is that the supply chain issues for the car industry will be solved in 12 to 18 months, some analysts suggest that the working from home dynamics signal a deeper trend. One that could significantly dent demand for cars over the longer term here in the UK and possibly globally.

The idea is advanced by consultancy firm Lease Fetcher. Based on their projections, individuals working from home on a permanent basis may be about to reduce the number of cars in their household. They envisage varying percentages of households owning 2 deciding that 1 car is sufficient, and the impact is massive. Chart 1 visualises their predictions against the current historic trend rate of growth for the number of cars on the road indicated by the blue line.


Chart 1: Number of cars on UK Roads – Projection

Source: Car Lease Fetcher, October 2021


The mid-case projection, the grey line, is what happens if 46% of households owning 2 cars decide to own just one. The net result is 3 million fewer cars on the road. This is 25 billion less commuter miles per year! If you want another perspective, it is 1 million laps around the equator! For the eco-conscious this is highly meaningful. Moreover, it could open another trend. If those now owning 1 car rather than 2 decide that they want to go electric, even faster switching to higher priced electric cars will follow. Basically, it will be financially advantageous to own a single, dearer, electric car than 2 cheaper fossil fuelled cars.


Property Market

The housing market has been running hot underpinned by historically low mortgage rates, a stamp duty holiday (now ended) and pent-up savings. These helpful factors put more firepower into buying a property, and because many people envisage working from home long term they are now willing to invest even more into property ownership.

There is of course another factor at play. Those living in a city with the option to work remotely have a different perspective now and many have chosen a more rural setting to live and work. One of the consequences is increased demand for property in rural areas. This has upset pricing affordability for incumbents, with many ‘shut out’ of their home area.

The other side of this same coin is that easing residential property prices, and easing demand, in some cities opens ownership opportunities for many city renters and opportunities for those who may not have previously considered city living.

The commercial property is also caught up in the shifting working from home dynamics. It is not surprising that given the high costs of leasing some employers are keen to get their employees back in the office. Millions of pounds of capital have been invested in building and renovating modern workspaces, and employers don’t want that investment to go to waste.

Property developers are also anxious. They do not want to see their buildings sitting empty and ponder this new polarising phase where employees are firmly settling into their “new normal” working pattern at home or are filtering back to the office to work full time or part time.


Concluding Thoughts

Working from home has saved many workers up to £500 per month but there is a risk that some employers will adjust compensation for those working from home in rural settings.

 The car industry is currently enjoying high prices and high demand. This could shift dramatically if households decide that owning 1 rather than 2 cars is now sufficient. Moreover, if they choose to make the 1 car they do own electric, going green will accelerate.

The property market is trending unpredictably. Commercial property and property developers must contend with employers taking contrasting approaches to employee working arrangements. The convenience for many home-workers of a more rural backdrop is attractive. As they move out renters in cities are looking to capitalise on lower demand and lower prices.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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