Apparently, NYC is going to die. Or at least that’s been the hotly debated story on twitter for the last week. The basic idea is that COVID has broken the back of New York by seriously challenging the key aspects of the city that make it great: business, culture, food, real estate, and college.
It’s an interesting article that is definitely worth reading, and, to be honest, I’m convinced by most of it. COVID will completely change the face of the city. It’s challenged an already useless city government and has shown the fragility of many of the City’s key bureaucratic institutions. On top of that, it has temporarily destroyed the cultural and culinary base of the city. Thousands of restaurants are closing and tens of thousands of performers in art, music, film, and theater are left without any income.
It’s very easy to see how this could lead to a massive deflationary spiral that may cause enough financial damage that the city never really comes back… Restaurants and tenants can’t afford rent. Land owners start defaulting on mortgages as lessee’s stop paying. Thousands of people start leaving the city, which will force rent down past where real estate investments can still be profitable. Investment dries up, and the city starts to rot more and more each year even after COVID has past…
But, I’m not entirely convinced for two big reasons: 1. Remote work probably isn’t going to work, and 2. Lower rents could build the conditions for a cultural resurgence post-COVID.
Remote Work Won’t Work
Arguably the most interesting part of our origin article is the section on Business:
Midtown Manhattan, the center of business in NYC, is empty. Even though people can go back to work, famous office buildings like the Time Life skyscraper are still 90% empty. Businesses realized that they don’t need their employees at the office.
In fact, they realize they are even more productive without everyone back to the office. The Time Life building can handle 8,000 workers. Now it maybe has 500 workers back.
The city is already $9 billion in the hole from the missing tax revenues from 900,000 lost jobs. Whether New Yorkers like it or not, New York’s financial industry funds the city and the State. It’s existence in New York provides massive amounts of tax revenue while also propping up large portions of both commercial and residential real estate.
The possibility of NYC emptying as companies move to both remote work and more tax friendly states is a terrifying prospect for the future of the city. And to be sure, it seems very possible that COVID will lead to permanent damage to New York’s tax base and it’s status as a top city. But there are remedies to both problems.
On one hand, New York’s status has allowed it to attract new business and investment despite not having especially business friendly tax laws. COVID has finally shaken things enough to push businesses to consider moving to states like Tennessee that don’t have income tax and provide other tax incentives to large businesses.
The remedy is an easy one on paper. New York needs to loosen taxes enough to keep business in the city. Even if that may means a loss of tax revenue now, it may prevent further downturn later…but, given that the city just recently ran the Amazon headquarters out of New York (along with it’s thousands of jobs and billions in investments), the city might just keep shooting itself in the foot.
The loss of business is tough, but the move to remote work is tougher since it provides a massive, novel threat to the tax bases of all big cities. However, I don’t think the transition to remote work will last.
The most recent research on the productivity of remote work confirms a lot of what most of us have anecdotally experienced: in the short term we see productivity gains — it’s nice to work at home and sometimes it’s easier to get a lot done when it’s novel — but in the long term we end up seeing major productivity declines that will almost certainly push business owners to meet somewhere in the middle. As the Economist Nicholas Bloom puts it:
You can get away with three to six, maybe even nine months, probably, of not radically creating new things. But in the long run, I fear there’d be a drop in, say, patenting in 2021, 2022 because of this. The question is how firms just run. My guess, from talking to a lot of US companies, is they will return partly to the office…I think in the long run, working from home will be fine because we’ll be in the office three days a week and two days a week at home.
We will be back in the office at some point. Midtown Manhattan will never be the same, but it will eventually be filled again as businesses chase after productivity gains once the quarantine lifts.
The Post COVID-Renaissance
New York will lose investment and jobs and population. It will be a smaller and less wealthy city. But it’s still New York. It is still full of history and life and as rent decreases and culture opens back up after COVID, I think it’s a safe bet that people will move in en masse.
What’s most exciting, though, is who will be able to move in.
New York rents have made the city feel out of reach for everyone who isn’t making at least six-figures in tech and finance. The massive decreases in rent may finally make the city affordable for the artists, writers, actors, and entertainers that gave the city its status as a cultural center.
Now obviously it might end up being a grittier and more dangerous city because of all of this — the breakdown of the police department in the wake of George Floyd’s murder along with the recent spikes in murder and looting almost guarantee this. But that might just be an acceptable cost for many people who will flock to the city to make up for the loss of entertainment and culture during the quarantine. In the end, it might just end being a much more exciting, diverse, and inclusive city than it ever was post 9/11.