06 Sep The Future of America’s Cities

in “The Big Blue Cities,” TLR discussed how polarization in America resulted in a geographical Great Bifurcation, contrasting the social, political, economic and aspirational goals of city-dwellers – those living in Big Blue Democratic Cities (including New York, Boston, Philadelphia, Washington, D.C., Atlanta, Miami, Chicago, Houston, Phoenix, L.A., San Francisco, San Diego and Seattle)– with those of Americans living in the Great Republican Middle – in small cities, towns and rural communities.  In a follow-up, “The Covid-19 Bridge Connecting A Bifurcated America,” TLR focused on how Covid-19 had exacerbated that Great Bifurcation – the fracturing of societal cohesion that separated Americans into self-interested cadres, including into “haves” and “have-nots” – suggesting that a well-targeted response to Covid-19 could bridge the social, political and economic gap.  The opportunity to fashion such a response has passed with no plan for bridging gaps and, moreover, no strategy to restore those injured by the pandemic to their pre-Covid-19 economic status.  Their survival so far depended on government largesse … which has now ended.  Post-Covid-19, they will have less than they had before – less money, less health, and less opportunity.  The “haves,” on the other hand, have retained their jobs and benefited from rising stock and bond prices.  Their survival is not being threatened.  The Great Divide therefore has been growing … and, with it, a more clearly-defined “have”/“have-not” division within Big Blue Cities.

That division is being sharpened by the exodus of the “haves” from pandemically-challenged Big Blues for smaller urban, suburban and rural settings – an Urban Exodus that has left the “have-nots” behind.  Putting aside the political and social consequences for the “have-nots,” the economic impact of the Urban Exodus on the Big Blues themselves – as well as on the “have-nots” – is likely to be profoundly negative … and could last quite a long time.

Pre-Covid-19, cities were where large and small businesses, their managers, workers and technologists congregated and interacted.  They were places where disparate business, social, entertainment, and technological ideas mingled, where unexpected synergies suddenly appeared, took root and flourished.  They were where the most extraordinary goods and services could be found … and where both residents and visitors went to find them.  They were the places where corporations placed their headquarters and their senior officers, where law, accounting, financial and advisory firms positioned their experts, and where each worked with the others to create new efficiencies, motivated by their interactive proximity and driven forward by ambition and the mentoring of successive generations.  They were where culture blossomed and where spectators flocked to experience events and live performances.  The aggregations of disparate people with disparate skills in cities attracted ever-more human talent, creating value, increasing productivity and furthering innovation.  Cities were both magnets and petri dishes for everything and everyone, a driving force in the evolution of homo sapiens and their businesses, their culture, their creativity, and their societies … of incredible national value and wealth-creation, and among America’s greatest assets.

Throughout history, big cities also have been magnets and petri dishes for pandemics …, a rediscovered reality that, after Covid-19, will not easily be forgotten.

Covid-19 therefore is a serious threat to the Big Blues and presages major changes to Big Blue life.  With the potent addition of massive internet bandwidth that enables universal, intimate multilevel communication over distance – represented today by 5G and exemplified by Zoom –, cities no longer monopolize those same forces.  Proximity has lost at least some of its potency.  Competitive factors adverse to urban concentration have coalesced and become counterbalances to the Big Blues’ prior advantages.  Covid-19 consequently is having a disproportionately adverse impact on the Big Blues, providing a preview of the future of urban business concentration … and of urbanization itself.

The lifeblood of cities is their resident commercial businesses …, the offices they rent, the taxes they pay, and the workers they attract who themselves pay taxes, buy goods and services, and generate secondary and tertiary business and employment.

It’s only 6 months into Covid-19 and commercial office space in New York City – the paradigm of Big Blue-ism – already is being heavily under-utilized …, an under-utilization that is continuing even after lockdown followed by months of work-from-home (WFH) …, and that is likely to continue for years.  There’s an awful lot of emptying office and retail space and there is no foreseeable source of usage or demand.  The economic attributes of WFH have become self-evident to both large and small businesses.  Coupled with the realization that productivity often is enhanced with prudent use of inexpensive bandwidth and by reduced – or eliminated – commuting time, companies from Wall Street behemoths like JP Morgan Chase to tiny law, financial, banking and accounting firms have decided to reduce their City-based commercial office footprint.  Employees are welcoming the opportunity to WFH and, in return, have been treating their homes as 24/7 workspaces …, often with flexible working hours sculpted to complement child-rearing obligations and personal commitments.  WFH is here to stay.  Employers see the benefits and have adjusted to the new reality.  Being able to WFH means that employees no longer find it a necessary convenience to live close-to-work …, which reduces the need – and the demand – for urban residences.  Not surprisingly, rental prices for NYC apartments reportedly have dropped by more than 30% … and there is virtually no market today for NYC coops or condos.  Media are ablaze with stories of NYC’s moving companies backlogged for weeks.  An Urban Exodus is well underway … and not only from NYC.

The 78-day NYC lockdown combined with continuing WFH policies and practices have deprived NYC’s restaurants, bars, retail stores, theaters, museums, food carts, taxis/Ubers/Lyfts and myriad other small businesses of commuters’ and residents’ financial support.  Deprived of that support, a majority already are out of business.  Those that have managed to survive are on life support.  Without them, there is even less incentive for would-be commercial businesses and residents to return to City Life.  Food, culture and convenience are the principal attractions that bring people to urban environments …, and each depends on the city’s commerce to provide the requisite customers.

Restaurants, bars, retail stores, food carts, taxis/Ubers/Lyfts and other small businesses will return to NYC only after commercial workers do …, but those workers will return only after commercial businesses once again decide to occupy floor-after-floor of empty office space.  Unfortunately, that isn’t happening and isn’t likely to happen for quite some time.  On the contrary, vacancies in 60-story office and apartment buildings are rapidly increasing …, and this is happening even before evictions begin.  Which businesses will take their place?  Where will the demand for high-priced office space come from?  And if that demand is not forthcoming, where will commercial property-owners find the money to pay their mortgages?  Too many of their tenants have ceased paying rent …, a harsh reality for many residential apartment owners whose legal right of eviction has been suspended by government edict.  Even if the courts were able to handle the expected tsunami of evictions, defaults, lawsuits, foreclosures and bankruptcies, doing so would require years of sorting-through.  Owners who cannot meet their mortgage obligations will reduce services, making it progressively more difficult for all owners to find new renters.  Buildings that are not well-occupied will be abandoned.  It happened to NYC in the 1970s …, and that was only because of a recession.  Today there also is a pandemic … and fear.

The emerging death downward spiral in urban real estate is being exacerbated by the downward spiral in retail.  Prime retail tenants, including national chains and department stores, have abandoned their City locations.  Storefronts on once-busy shopping streets are boarded up …, increasing business-failure contagion …, and further reducing the value of commercial urban property and the attractiveness of City Life.  Amazon, Instacart, etc., have proven more than merely resilient during the pandemic.  Perhaps retail shopping is passé?  If so, then technology may be the modern mother of invention … and the harbinger of radical change.  Cities are experiencing the brunt of that radical change.  The cascading depreciation in office space, residential and retail real estate appears likely to be self-reinforcing.

A simple analysis of Big Blue economic realities leads to the conclusion that the multi-faceted City Life depreciation spiral will obliterate Big Blue Cities’ tax bases.  If so, urban services, including police, fire, sanitation, education and transportation, necessarily will degrade in their own self-reinforcing urban death downward spiral.

Big Blue Cities thrive on their unique ability to offer what less-populated regions cannot, culture and live performance being a prominent City Life attraction.  On- and off-Broadway performances, for example, have been suspended, perhaps for another year.  What are the performers and, importantly, their tens of thousands of staffers and support personnel, doing?  Are they hanging onto their Big Blue residences … or have they decamped for greener pastures?  Live performance undoubtedly will return, but can it survive in its pre-Covid-19 form?  Will it be able to support the same size industry and production costs?  What of off-Broadway?  And off-off Broadway?  And traveling theater?  What is the future of Big Blues’, and NYC’s, cultural attractions, the physical theaters, stadiums and employees?

New York’s museums have been empty with their employees on furlough.  When will crowds reappear to support their enormous budgets?

Big Blues have been centers of higher education.  NYC, for example, hosts over 590,000 university students who annually attend ~110 universities and colleges.  If only 20% decide to study-from-home, what happens to the apartments they would have rented, the restaurants and markets they would have patronized, and the bars, clubs, and coffee shops they would have frequented?

Tourism is a major source of Big Blue income, taxes and jobs.  What will replace the tourist dollars that over 65 million tourists have brought annually to NYC?  Can hotels, bars, restaurants, museums, Uber drivers and other service workers survive their indefinite temporary absence?

Although these questions focus on NYC, they are also applicable to every one of the Big Blues.

All cities go through boom-and-bust cycles.  NYC experienced busts in the 1970s and after 9/11 …, and yet took only a few years to recover from each.  Perhaps the Covid-19 recession will be the same?  Covid-19, however, is likely to bring about more permanent, and more significant, behavioral changes … in fear …, in tourism, education, city services, commercial, retail and residential leases and ownership, and worker concentration …, and consequently – and most important of all – in taxes and Big City budgets.  No Big Blue can pay even a significant fraction of the costs of Covid-19 …, and the Federal government has shown little inclination to provide the hundreds of billions of dollars that will be necessary.  Cities therefore will suffer.  Their businesses will return slowly … if at all.  Some workers will return part-time, adopting a technologically sound WFH lifestyle in more hospitable, lower tax locations.  But some workers will not return at all.  Their jobs no longer will exist.  Retail, for example, already under pressure from e-commerce, will be able to return only as a very pale substitute.  Together with the thinning out of restaurants and bars, these cornerstones of City Living no longer will attract dwellers.

And what if, as a consequence of the economic devastation wrought by Covid-19, the Big Blues once again become unsafe less safe?  What if social services and law enforcement are unable to control the homeless and the lawbreakers?  Prior to Covid-19, America’s cities were drawing further and further ahead of their rural cousins economically, politically, culturally and socially.  Unless there is a quick and successful end to the Covid-19 Urban Exodus, the dynamism, innovation, wealth-creation, and creativity that accrue from urban concentrations of business, financial, cultural, and social genius will disappear.  Although the hope is that bandwidth and WFH will be capable of replacing the enormous benefits that have accrued to America and Americans through its Big Blue Cities …, the fear is that they will not.

Finally (from a good friend)

New Simple and Quick Covid-19 Test:

Take a glass and pour a decent dram of your favorite whiskey into it, and then see if you can smell it.  If you can, you are halfway there.

Then drink it.  If you can taste it, it is reasonable to assume you are currently free of the virus because the loss of the sense of smell and taste ia a common symptom.

I tested myself 7 times last night and was virus-free every time …, thank goodness.

I will have to test myself again today beause I have developed a throbbing headache which also can be one of the symptoms.