Last week, I took advantage of the mitigation of the pandemic to take a bike tour of the Finger Lakes region, making a detour en route to visit the old industrial town of Utica, NY – where I have lived until the age of 8. I found the street we lived on, although to be honest I couldn’t remember which house we were in. But perhaps that’s not all that surprising: the neighborhood has changed since 1961, having become home to many Bosnian refugees in the 1990s.
And as my mom took me to lunch at the local White Tower, a once popular burger chain, this time I stopped by our old home for cevapi.
The point is, for a town that has lost most of its original raison d’être – the glory days of the Erie Canal are history, and the industries that drove the northern economy State at its peak are pretty much gone – Utica is doing relatively well. . These refugees and other immigrants, drawn in part by low housing costs, helped set up new businesses – Chobani yogurt has a factory nearby – which in turn partially made up for the loss of the old industrial base.
All of this is surprisingly relevant to discussions about the economic future of New York City – which those of us who have lived in or around it tend to simply call “the city” – whose trajectory probably has been permanently altered by Covid-19 and its side effects. Even though the US economy as a whole appears to be heading for a rapid recovery, the post-pandemic economy will likely be different in some ways from what we had before. And New York may seem, at first glance, to be one of those places that will lose those differences.
From an economic standpoint, New York is first and foremost a city of office buildings, with the most efficient transit system ever – the elevator. The pandemic, however, has given remote working a huge boost, and while many workers will eventually return to the office, many others will not – likely leaving Lower Manhattan with a large glut of office space. office.
Politico recently published an interesting article asking a number of experts what, if anything, would need to be done to get workers back to these buildings. The most common (and most convincing) answer? Nothing.
As Jason Furman, who chaired Barack Obama’s Council of Economic Advisers, said, while there is a persistent decline in demand for office space in Manhattan, the result will not be empty buildings; it will be lower rents. Journalist Matthew Yglesias made the same point. Ultimately, lower rents will bring back workers – maybe not the same workers, maybe not the same companies, but somebody will use these buildings.
When I read this discussion, I immediately thought of a relatively old article by Edward Glaeser and Joseph Gyourko, with the admittedly uninspiring title “Urban decline and sustainable housing”. They pointed out that if the housing supply of a growing city is very elastic – if prices are high, many houses will be built, unless NIMBYs get in the way – the housing supply of a growing city. decline is inelastic: houses are not demolished when their prices fall.
A key consequence of this asymmetry, according to Glaeser and Gyourko and documented with data, is that while cities can experience explosive growth, they rarely experience rapid decline. Why? Because housing in a city is, as the title suggests, sustainable: it does not disappear when a city is going through difficult times; it just gets cheap.
And cheap housing itself helps attract workers and families – often immigrants, who seem particularly willing to seek affordable housing and then find a way to earn a living wherever they are. The availability of these workers in turn becomes an attraction for new businesses, in some cases allowing struggling urban economies to reinvent themselves in entirely new ways.
Something similar will happen if, as seems likely but not certain, New York City undergoes a long-term transformation caused by the rise of remote working. In this case, the durable assets in question will be office buildings and not houses, and the “immigrants” attracted by falling property costs will be businesses rather than families. But the basic logic of urban persistence will be the same.
In fact, the fact that real estate developers are taking a big hit could potentially be good for all of New York City. While the city is incredibly culturally and ethnically diverse – you can even find Republicans if you look closely enough – its economy has, as Glaeser said more recently, grown into a monoculture, dominated by finance.
So what? If the financial industry is ready to pay higher rents, why not accept the market verdict?
Well, cities are all “externalities” – the spinoffs that businesses generate by being close to each other. And there’s a good argument that being a one-industry city reduces positive externalities because it limits cross-pollination of ideas that can drive innovation.
So, New York will likely be slower to recover economically than much of the rest of the country, and once it does, it will likely emerge with a cheaper and more diverse economy than it was in 2019. But it can be a good thing in the long run.