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    Winning Streak of Big Cities Fades With 2020 Crises

    JESSICA PONS FOR THE WALL STREET JOURNAL

    During the past quarter-century, many American cities flourished as crime tumbled and educated young workers moved to revitalized downtowns, changing the economic and political landscape of the nation.

    Three major shocks now threaten to upend that urban renaissance: The coronavirus is preying on densely packed places; anger over policing is producing social unrest reminiscent of earlier eras; and strained city and state budgets could prolong their economic pain.

    Extended lockdowns have drained cities of the energy, charm and financial promise that drew so many in the first place, and underlined the weaknesses, inconveniences and risks. With remote technology facilitating work from home for many, some New Yorkers have already decamped to suburbs.

    Cities aren’t likely to come out of the tumult the same. The road to recovery stands to be difficult and long, and will need to address, among other things, housing affordability and homelessness—problems that had been threatening the urban resurgence even before current crises. The end result could be that growth shifts from big cities toward smaller ones and suburbs.

    Still, many researchers say don’t count cities out, and that the economic forces that spurred the urban revivals will eventually reassert themselves.

    “The dystopian take is just wrong,” said Richard Florida, an urban economist at the University of Toronto, whose 2002 book, “The Rise of the Creative Class,” examined the dynamics of the urban revival.

    He remembers the National Guard rolling in tanks through the streets of his native Newark, N.J., during riots when he was a boy in 1967. He thinks cities will recover from the chaos this time and become more affordable for young people as affluent families flee. However, he said, “The short-run is going to be incredibly tough.”

    Places like Seattle, San Jose, Boston and Austin thrived over the past couple of decades as tech hubs. They drew skilled young workers not only with jobs, but with urban amenities such as restaurants, bars, parks and other attractions. They also became known for snarled traffic and soaring home prices that eventually made them harder to live in, particularly for middle-income workers.

    Behind the conflicting forces was a phenomenon economists call agglomeration, a reference to the gravitational pull of densely populated places, which intensified over the past two decades.

    Over the past 20 years, economic output and home prices grew far faster than the national average in those U.S. cities transformed into tech hubs. Some midsize cities followed a similar track, including Bend, Ore.; Boise, Idaho; and Raleigh and Durham, N.C.

    The boom wasn’t uniform. Economic output and jobs declined in other cities, including Youngstown, Ohio, and Allentown, Pa., while population dropped in Detroit, associated with industrial decline.

    “Some U.S. cities became clear winners of technological change and globalization, while others struggled and lost ground,” said Enrico Moretti, professor at the University of California at Berkeley, whose 2012 book, “The New Geography of Jobs,” documented the power of agglomeration.

    The common denominator for star cities, he said, was that they drew clusters of educated workers who shared ideas and hopped from job to job. “There are inherent advantages in terms of productivity and innovation for firms that locate in those cities,” he said.

    He found that 10 U.S. cities were home to 70% of the inventors of all U.S. patents for computers, 79% of inventors in semiconductors and 59% of the inventors in biology and chemistry between 1971 and 2007. Tracking movements of inventors, he found they became more productive when they moved to one of those top cities. “Being near the cutting edge is crucial,” he said.

    In recent years, though, the booms in some cities brought new problems. Success drew skilled workers, but home building lagged far behind. Housing became less affordable, squeezing the middle class in many communities. Homelessness added to the stress.

    Venice neighborhood, LA
    A homeless encampment lines the Venice Beach boardwalk this month.

    JESSICA PONS FOR THE WALL STREET JOURNAL

    For example, over the past decade, the Venice section of Los Angeles was transformed from laid-back beach community known for its skateboarders and body builders into a thriving tech hub, home to Snap Inc. and trendy restaurants. The median home price shot up to about $1.5 million in 2018, from $372,300 in 2000. The share of households earning more than $200,000 rose to 22%, from 4%, while the share earning $50,000 to $100,000 contracted, according to Census statistics. Homeless encampments proliferated.

    Nelson Gomez runs an auto-repair shop in Venice but can’t afford to live there. He commutes 2½ hours each way to a home he bought to the north for $206,000 in 2008. “I live in the desert,” he said. Fortunately, he said, he enjoys driving.

    Venice neighborhood, LA
    Nelson Gomez runs an auto-repair shop in Venice but can’t afford to live there.

    JESSICA PONS FOR THE WALL STREET JOURNAL

    Los Angeles Mayor Eric Garcetti said last month the city needs more residential construction. “We should be building out for affordability and for ending homelessness,” he said, adding that the current crises reinforce that point.

    Research by Brookings Institution analyst William Frey found that 55 of the nation’s 89 largest cities added more people between 2010 and 2019 than between 2000 and 2010, partly because of immigration. But growth waned in big cities near the end of the decade, while it stayed strong in smaller cities and suburbs.

    Now, the pandemic, which has produced high death counts in some large cities, has made high-density living a potentially life-threatening risk, and amenities such as restaurants and bars a liability.

    If science conquers Covid-19 with treatments or a vaccine, the forces of agglomeration might quickly re-emerge. If it doesn’t, the most densely populated places could be facing a long-term shock that threatens mass-transit systems, office life and social and cultural activity—all of which helped make agglomeration a powerful economic force.

    Many companies have already learned that they can manage large numbers of workers remotely for extended periods. If they allow more remote work in the future, that could reduce their need for urban office space.

    Some business leaders say they aren’t yet ready to give up on cities and the benefits of face-to-face collaboration.

    Moody’s Corp., the bond-rating firm, is planning to give up two floors of space in lower Manhattan, a move long in the making, according to a spokesman. Still, it has no intention of abandoning New York because it is such a draw for financial talent.

    “For financial analysts, New York is the place to be,” Raymond McDaniel, Moody’s chief executive, said in May.

    The resilience of cities has been widely documented by economists. London, New York and other places built sewage systems after cholera outbreaks in the 1800s, and their populations soared. Japanese and German cities recovered from World War II bombardment. New York bounced back quickly after Sept. 11 terrorist attacks.

    Still, recovery isn’t a certainty, said Joel Kotkin, whose 2006 book, “The City,” traced the evolution of urban areas. He noted that disease, including the Plague of Cyprian in the third century, helped to end Rome’s dominance as a global city.

    “Safety is a prerequisite for urban growth,” he said. “I can’t see how cities can thrive if they’re unsafe.”

    Crime, once a defining issue for major U.S. cities, has trended down for almost 30 years. Though murder rates have ticked up this year in some cities, including New York, Chicago, Phoenix and Miami, other forms of crime, including robbery, are down in many places. In Los Angeles, for example, robberies were down 16% through mid-May, from the year-earlier period.

    Researchers, struggling to understand why crime fell so much, have offered many theories, including mass incarcerations, having more police on the streets, and communities themselves reclaiming their public spaces. In New York, crime continued to fall after the police abandoned stop-and-frisk policies. That, along with other studies, has led some researchers to conclude tough policing might not be the most effective tactic at reducing crime.

    Many Americans believe the burdens of tough policing fell disproportionately on Black people. A Pew Research poll in 2019 found that more than 80% of Black people believed they were treated less fairly than whites by police and the U.S. criminal justice system, and more than 60% of whites agreed. In June, a Wall Street Journal survey found 59% of Americans were more concerned about police tactics and the killing of George Floyd than they were about the protests that followed his death.

    The Los Angeles City Council this month agreed to cut the city’s police budget by $150 million. Mr. Garcetti wants more investment in schools and community programs, such as one aimed at reducing gang membership. “We put so much on the shoulders of our police,” he said, adding that the evidence is “crystal clear” that community programs help reduce crime, too.

    Mr. Kotkin, the urban-economics author, left Los Angeles for Orange County five years ago. There is a risk, he said, that the backlash against policing will go too far and leave cities less safe. “The constant pressure to reform, to increasingly extreme positions on law enforcement, is going to have a really bad effect,” he said.

    The pandemic-related economic downturn has forced some mayors to look for budget cuts, which could affect funding for police. Moody’s Analytics estimates state and local governments across the nation face revenue shortfalls of $500 billion between now and June 30, 2022. State and local governments already cut payrolls by 1.5 million in April, May and June. Moody’s said another 1.5 million jobs might be cut from state and local governments without federal relief.

    Leonard Jones, who runs Moody’s debt ratings for cities, noted that some cities, because of a long economic boom, came into the crisis with deep reserves. Boston, Seattle and San Francisco all have triple-A credit ratings recently affirmed by Moody’s. The bigger challenge, he said, is for state governments, which tend to depend on sales taxes that have gotten hammered by retail and restaurant shutdowns.

    “Local governments have really focused on having more reserves and being prepared for the next economic downturn,” he said.

    The politics of federal relief for cities or states promises to be fraught. Washington is deeply divided over providing federal aid to largely liberal city governments, some of them with big pension obligations.

    “Why should the people and taxpayers of America be bailing out poorly run states and cities, in all cases Democrat run and managed when most of the other states aren’t looking for bailout help?” President Trump tweeted in April.

    New York Gov. Andrew Cuomo shot back that New York sends more in tax revenues to the federal government than it typically gets back in federal spending. “Nobody puts more money into the pot,” he said.

    A Wall Street Journal analysis of election and demographic data finds that American cities, as they have become more densely populated over the past 20 years, have become more educated and liberal, even in red states. Sparsely populated suburbs and rural counties went in the opposite direction, deepening the nation’s political divides.

    “Political behavior tracks very much with density now,” said Mark Muro, a Brookings Institution economist. “You have urban liberal populations and small-town conservative populations that are experiencing what is happening from very different perspectives.”

    Mr. Kotkin noted that H.G. Wells, the British writer, predicted in 1901 that cities around the world, once manufacturing centers, would one day become “a bazaar, a great gallery of shops and places of concourse and rendezvous.”

    That had become the case for many places by 2020.

    Mr. Kotkin now sees the center of gravity shifting away from the cities that became overcrowded and overburdened in the process, toward smaller cities and the dense outer rings of the modern megalopolis.

    —Christine Mai-Duc contributed to this article.

    The post Winning Streak of Big Cities Fades With 2020 Crises appeared first on Real Estate News & Insights | realtor.com®.

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