"The past 30 years “were a golden era
for large cities,” Stijn Van Nieuwerburgh,
a professor of real estate and finance at Columbia Business School, wrote in November
2022: “A virtuous cycle of improving amenities (educational and cultural
institutions, entertainment, low crime) and job opportunities attracted
employers, employees, young and old, to cities.”
New York, Los Angeles, Boston and
San Francisco, Van Nieuwerburgh continued, “became magnets for the
highest-skilled employees and the top employers, with particular concentrations
in finance and technology.”
In late February and early March 2020, the Covid-19 pandemic
hit New York and other population hubs. In Van Nieuwerburgh’s telling, the
Covid-19 crisis “triggered a massive migration response. Many households fled
urban centers. Most of these Covid migrants moved to the suburbs.”
As the pandemic endured and subsequent coronavirus variants
prompted employers to postpone return-to-office plans, Van Nieuwerburgh noted,
“Covid-induced migration patterns began to take on a more persistent character.
Many households transitioned from temporarily renting a suburban home to
purchasing a suburban home.”
In Van Nieuwerburgh’s view — and that of many of his
colleagues — what seemed like a transitory step to avoid infection has become a
major force driving the future direction of urban America.
Scholars are increasingly voicing concern that the shift to
working from home, spurred by the Covid pandemic, will bring the three-decade
renaissance of major cities to a halt, setting off an era of urban decline.
They cite an exodus of the affluent,
a surge in vacant offices and
storefronts, and
the prospect of declining property taxes and
public transit revenues.
Insofar as fear of urban crime grows, as the number of
homeless people increases, and as the fiscal ability of government to address
these problems shrinks, the amenities of city life are very likely to diminish.
Jacob Brown, a postdoctoral fellow at Princeton’s
Center for the Study of Democratic Politics, elaborated in an email on the
consequences for cities of the more than 20 percent of urban employees now
working full- or part-time from home:
With respect to crime, poverty and
homelessness, Brown argued:
One thing that may occur is that disinvestment in city
downtowns will alter the spatial distribution of these elements in cities —
i.e. in which neighborhoods or areas of a city is crime more likely, and
homelessness more visible. Urban downtowns are often policed such that these
visible elements of poverty are pushed to other parts of the city where they
will not interfere with commercial activities. But absent these activities,
there may be less political pressure to maintain these areas. This is not to
say that the overall crime rate or homelessness levels will necessarily
increase, but their spatial redistribution may further alter the trajectory of
commercial downtowns — and the perception of city crime in the broader public.
“The more dramatic effects on urban
geography,” Brown continued,
may be how this changes cities in
terms of economic and racial segregation. One urban trend from the last couple
of decades is young white middle- and upper-class people living in cities at
higher rates than previous generations. But if these groups become less likely
to live in cities, leaving a poorer, more disproportionately minority
population, this will make metropolitan regions more polarized by race/class.
My Times colleague Nicholas Fandos
documented the damage that even the perception of rising crime can inflict on
Democrats in a Nov. 27 article, “Meet the Voters Who Fueled New York’s Seismic
Tilt Toward the G.O.P.”: “From Long Island to the Lower Hudson
Valley, Republicans running predominantly on crime swept five of six suburban
congressional seats, including three that President Biden won handily that
encompass some of the nation’s most affluent, well-educated commuter towns.”
And on Tuesday, Mayor Eric Adams of
New York announced a plan to subject severely mentally ill people who are found
on subways or city streets to involuntarily hospitalization.
Nicholas Bloom, an economist at Stanford,
described some of the economic forces at work in an email:
In big cities like New York and San Francisco we estimate
large drops in retail spending because office workers are now coming into city
centers typically 2.5 rather than 5 days a week. This is reducing business
activity by billions of dollars — less lunches, drinks, dinners and shopping by
office workers. This will reduce city hall tax revenues.
Compounding the problem, Bloom
continued:
Public transit systems are facing massive permanent
shortfalls as the surge in working from home cuts their revenues but has little
impact on costs (as subway systems are mostly a fixed cost). This is leading to
a permanent 30 percent drop in transit revenues on the New York subway, San
Francisco BART, etc.
These difficulties for cities will
not go away any time soon. Bloom provided data showing strong economic
incentives for both corporations and their employees to continue the
work-from-home revolution if their jobs allow it:
First, “Saved commute time working from home averages about
70 minutes a day, of which about 40 percent (30 minutes) goes into extra work.”
Second, “Research finds hybrid working from home increases average productivity
around 5 percent and this is growing.” And third, “Employees also really value
hybrid working from home, at about the same as an 8 percent pay increase on
average.”
In the case of New York, Bloom wrote
that he is “reasonably optimistic in the long run,” and “current office leasing
markets are soft but not in collapse.”
That view is not shared by three
other experts in real estate economics, Arpit Gupta, of
N.Y.U.’s Stern School of Business, Vrinda Mittal, of
the Columbia Business School, and Van Nieuwerburgh. They anticipate disaster in
their September 2022 paper, “Work From Home and the Office
Real Estate Apocalypse.”
“Our research,” Gupta wrote by email,
emphasizes the possibility of an “urban doom loop” by which
decline of work in the center business district results in less foot traffic
and consumption, which adversely affects the urban core in a variety of ways
(less eyes on the street, so more crime; less consumption; less commuting)
thereby lowering municipal revenues, and also making it more challenging to
provide public goods and services absent tax increases.
These challenges will predominantly
hit blue cities in the coming years.
In their paper, the three authors
“revalue the stock of New York City commercial office buildings taking into
account pandemic-induced cash flow and discount rate effects. We find a 45
percent decline in office values in 2020 and 39 percent in the longer run, the
latter representing a $453 billion value destruction.”
Extrapolating to all properties in
the United States, Gupta, Mittal and Van Nieuwerburgh write, the “total decline
in commercial office valuation might be around $518.71 billion in the short run
and $453.64 billion in the long run.”
Their conclusions are not
necessarily cast in concrete but they are bleak:
We estimate that remote work is likely to persist and result
in long-run office valuations that are 39.18 percent below prepandemic levels.
The decline in office values and the surrounding central business district
retail properties, whose lease revenues have been hit at least as hard as office,
has important implications for local public finances.
For example, the share of real estate taxes in N.Y.C.’s
budget was 53 percent in 2020, 24 percent of which comes from office and retail
property taxes. Given budget balance requirements, the fiscal hole left by
declining central business district office and retail tax revenues would need
to be plugged by raising tax rates or cutting government spending.
Both would affect the attractiveness of the city as a place
of residence and work. These dynamics risk activating a fiscal doom loop. With
more people being able to separate the location of work and home, the migration
elasticity to local tax rates and amenities may be larger than in the past.
In a separate email, Van
Nieuwerburgh warned:
As property values of urban office
and urban retail fall, with the increased importance of work from home, so do
the tax revenues generated from those buildings and the associated economic
activity. Since local governments must balance their budget, this means that they
need to raise tax revenues elsewhere or cut public spending. The former is bad
for the business climate. The latter is bad for the quality of life in the
city: cuts to public transit, schools, police departments, sanitation
departments, etc. As the quality of public services deteriorates, crime could
increase, making public transit potentially even less attractive.
More generally, an urban doom loop could ensue, whereby
lower property tax revenues beget lower spending and higher taxes, triggering
more out-migration, lower property values, lower tax revenues, less public
spending, more crime and worse schools/transit, more out-migration.
In his November 2022 paper, “The Remote Work Revolution:
Impact on Real Estate Values and the Urban Environment,” Van
Nieuwerburgh writes:
Since March 2020, Manhattan has lost 200,000 households, the
most of any county in the U.S. Brooklyn (-88,000) and Queens (-51,000) also appear
in the bottom 10.
The cities of Chicago (-75,000), San Francisco
(-67,000), Los Angeles (-64,000 for the city and -136,000 for the county),
Washington, D.C. (-33,000), Seattle (-31,500), Houston (-31,000) and Boston
(-25,000) make up the rest of the bottom 10.
As major cities are caught in a
downward fiscal spiral, the forces driving the process will be felt in varying
stages. The loss of transit ridership fares and sales taxes is immediate;
declining residential, retail and office property taxes will take longer to
phase in as new appraisals are performed; drops in income tax revenues will
occur as families moving outside city limits change their legal residence.
One of the major consequences of
these patterns, Jessica Trounstine,
a political scientist at the University of California-Merced, wrote in an
email, “has been segregation in fiscal capacity within metro areas.”
In most cases, she suggested, “the people who will leave
cities will likely be higher income and whiter than the people who stay. This
means that prior patterns will only be amplified, not reversed.”
There are a number of ways to
describe the changing character of urban America and the ever-evolving nature
of post-pandemic life.
Tracey H. Loh, a
Brookings fellow, wrote in an email that one way to view an urban downtown is
like “a natural ecosystem” that has received a major shock:
Prior to the pandemic, these ecosystems were designed to
function based on huge surges in their daytime population from commuters and
tourists. The shock of the sudden loss of a big chunk of this population caused
a big disruption in the ecosystem.
Just as the pandemic has caused a
surge in telework, Loh wrote, “it also caused a huge surge in unsheltered homelessness because of
existing flaws in America’s housing system, the end of
federally funded relief measures, a mental health care crisis and the failure of policies of isolation and confinement
to solve the pre-existing homelessness crisis.”
The upshot, Loh continued,
is that both the visibility and ratio of people in
crisis relative to those engaged in commerce (whether working or shopping) has
changed in a lot of U.S. downtowns, which has a big impact on how being
downtown “feels” and thus perceptions of downtown. These negative
perceptions have become a real barrier to further recovery and are also shaping
local elections, especially out west, where homelessness is worse, such as last
year’s Seattle mayoral election or the recent L.A. mayoral election.
Some urban experts have a less
pessimistic outlook.
Edward Glaeser, an economist at Harvard and a
co-author, with David Cutler, of
the 2021 book “Survival of the City: The
Future of Urban Life in an Age of Isolation,” wrote by email: “Conventional
economic theory suggests that real estate markets will adjust to any reduction
in demand by reducing price. Some of this has already happened in commercial
real estate.” Glaeser also noted that “many businesses that thought that they
were priced out of N.Y.C., San Francisco and Boston markets will reconsider if
commercial prices are 30 percent lower.”
In fact, Glaeser argued, while
a 30 percent drop in rents in N.Y.C.
or S.F. would not lead to disaster, a similar drop in Buffalo or Cleveland might
be more problematic because many landlords might just decide to walk away from
their properties. In that case, a bleak spiral could begin where vacancies
beget vacancies as the urban service providers that cater to local businesses
shut down or relocate as well.
The nation, Glaeser continued, is
at an unusual confluence of trends
which poses dangers for cities similar to those experienced in the 1970s. Event
#1 is the rise of Zoom, which makes relocation easier even if it doesn’t mean
that face-to-face is going away. Event #2 is a hunger to deal with past
injustices, including police brutality, mass incarceration, high housing costs
and limited upward mobility for the children of the poor.
Progressive mayors, according to
Glaeser,
have a natural hunger to deal with
these problems at the local level, but if they try to right injustices by
imposing costs on businesses and the rich, then those taxpayers will just
leave. I certainly remember New York and Detroit in the 1960s and 1970s, where
the dreams of progressive mayors like John Lindsay and Jerome Patrick Cavanagh
ran into fiscal realities.
In the short run, Glaeser wrote,
both the reduction in tax revenues
and current political impulses are likely to lead to more crime and
homelessness, which will in turn create more of an urban exodus. I am
sufficiently optimistic about cities to think that they are likely to react
relatively quickly to that exodus and then pivot to being smarter about urban
management. In this more hopeful scenario, the likely medium-term effect is to
create a new generation of city manager-mayors, like Mike Bloomberg, who care
about inequity but fight it in a smart way.
Richard Florida, a
professor of economic analysis and policy at the University of Toronto, stands
out as one of the most resolutely optimistic urban scholars. In his August 2022
Bloomberg column, “Why Downtown Won’t Die,”
Florida asks, “Can America’s iconic downtowns survive?” His answer:
Great downtowns are not reducible to
offices. Even if the office were to go the way of the horse-drawn carriage, the
neighborhoods we refer to today as downtowns would endure. Downtowns and the
cities they anchor are the most adaptive and resilient of human creations; they
have survived far worse. Continual works in progress, they have been rebuilt
and remade in the aftermaths of all manner of crises and catastrophes —
epidemics and plagues; great fires, floods and natural disasters; wars and
terrorist attacks. They’ve also adapted to great economic transformations like
deindustrialization a half century ago.
What the Covid-19 pandemic has done,
Florida argues, “is to accelerate a set of changes in our downtowns that were
already underway. Vestiges of the industrial age, they were gradually evolving
from the one-dimensional, work-only central business districts of the 1950s,
’60s and ’70s.”
In an email, Florida wrote that many
urban central business districts are “relics of the past, the last gasp of the
industrial age organization of knowledge work, the veritable packing and
stacking of knowledge workers in giant office towers, made obsolete and
unnecessary by new technologies.”
Now, he argued, “Downtowns are
evolving away from centers for work to actual neighborhoods. Jane Jacobs titled
her seminal 1957 essay, which led in fact to ‘The Death and Life of Great
American Cities,’ ‘Downtown Is for People’
— sounds about right to me.”
Despite his optimism, Florida
acknowledged in his email that
American cities are uniquely vulnerable to social disorder —
a consequence of our policies toward guns and lack of a social safety net.
Compounding this is our longstanding educational dilemma, where urban schools
generally lack the quality of suburban schools. American cities are simply much
less family-friendly than cities in most other parts of the advanced world. So
when people have kids they are more or less forced to move out of America’s
cities.
Florida made the case in his email
that cities have become critically important incubators:
What worries me in all of this, in
addition to the impact on cities, is the impact on the American economy — on
innovation and competitiveness. Our great cities are home to the great clusters
of talent and innovation that power our economy. Remote work has many
advantages and even leads to improvements in some kinds of knowledge work
productivity. But America’s huge lead in innovation, finances, entertainment
and culture industries comes largely from its great cities. Innovation and
advance in these industries come from the clustering of talent, ideas and
knowledge. If that gives out, I worry about our longer-run economic future and
living standards.
While the future path of cities
remains uncertain, Patrick Sharkey, a sociologist at
Princeton, provided an overview of the problems they face:
Cities that have lost revenue from
commercial activity have received substantial support from the federal
government over the last few years, but that assistance won’t be sustained in
the future. What comes next is not clear, but big cities have to reinvent
themselves in an era when the downtown business district seems to be
permanently changing. The risk that comes with fiscal distress is clear: If
city governments face budget shortfalls and begin to cut back on funding for
public transit, policing, and street outreach, for the maintenance of parks,
playgrounds, community centers, and schools, and for services for homelessness,
addiction, and mental illness, then conditions in central cities will begin to
deteriorate.
The result?
When support for the people and the
basic institution of urban life is withdrawn, people suffer and public spaces
start to empty out. This, along with the rising prevalence of guns across the
country, creates the conditions for gun violence to worsen, reinforcing the
process of decline. None of this is inevitable, and we know that investments in
the people and institutions of cities are effective in creating safe, thriving
public spaces. But it’s not entirely clear to me where those investments will
come from if revenue falls in the years to come.
In a paper from September, “Working From Home Around the
World,” Nicholas Bloom, whom I cited earlier, and five colleagues
argue that “the implications for cities are more worrisome. The shift to
working from home reduces the tax base in dense urban areas and raises the
elasticity of the local tax base with respect to the quality of urban amenities
and local governance.”
There is reason for both
apprehension and hope. Cities across time have proved to be remarkably
resilient and have survived infectious diseases such as bubonic plague,
cholera, smallpox and polio. The world population, which stands
today at eight billion people, is 57 percent urban,
and because of the productivity, innovation and inventiveness that stems from
the creativity of human beings in groups, the urbanization process is quite
likely to continue into the foreseeable future. There appears to be no
alternative, so we will have to make it work."
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