The Urban Doom Loop

You know the old line, perhaps too well: Will the last one to leave please turn out the lights.

Forgetting about the original reference, today’s context concerns America’s large cities. With an unholy mixture of empty office buildings, rampant homelessness and high crime rates, the great office towers that define places like New York and San Francisco are emptying out. This will place developers and mortgage holders in some considerable jeopardy. 

And, let’s not ignore the influence of the Amazon effect, the number of people who prefer shopping through Amazon, for the lower prices and for relieving us of the need to walk into stores. 

In truth, and in fairness, your prescient commenter has been noticing this for a couple of years now. Being a denizen of midtown Manhattan I am well placed to tell you how many storefronts are empty. The number is considerable, to the point where it represents a danger to the city and to the national economy. 

In truth, it is so dangerous that the mayor of New York is blaming it all on the governor of Texas. When they start shifting the blame, they are admitting that they do not know what to do to solve the problem. Democratic policies have produced the mess. So, let’s start working on how we can blame it on Republicans.

These reflections are elicited by news that Nordstrom, along with Whole Foods and even Target, is shutting down operations in San Francisco. It has become too dangerous to do business in the drug infested streets of the city by the Bay.

The Washington Post reported the story today, emphasizing the extent to which store closures were impacting America’s largest cities:

Other cities also have seen store closures, and industry experts say the trend remains the early stages. REI shuttered its store in Portland, Ore., and Nike closed its store in Seattle. Walmart last month announced it was closing four locations in Chicago — half of its stores there — saying it has lost tens of millions of dollars on them every year since its first store opened in the city 17 years ago. The company also closed stores in D.C. and Portland.

One emphasizes the observation that the trend is still in its early stages. This is not a good thing and it is certainly not a good sign.

Of course, you might think that this rolling panic attack is a mere exaggeration, a sign, by the laws of contrary opinion, that things are going to get better soon. 

And yet, the eminently sober Financial Times offered this commentary yesterday:

Any­one who has strolled through the busi­ness dis­tricts of San Fran­cisco, Chicago, New York or any num­ber of other large, old-line US cit­ies can sense the linger­ing effects of the pan­demic. Com­mer­cial office space avail­able for lease is at record highs in the US, as cit­ies — par­tic­u­larly large ones in the north — have struggled to bring work­ers back to the office full time. The trend, which may well get worse before it gets bet­ter, threatens to cre­ate an urban doom loop that puts the future of some large cit­ies them­selves into ques­tion.

Mobile phone data col­lec­ted from city centres tells a dis­mal story. Accord­ing to the private equity firm Apollo, phone activ­ity in San Fran­cisco is at 31 per cent of pre-pan­demic levels, New York is at 74 per cent and Chicago at 50 per cent of 2019 levels. Boston is at 54 per cent of pre-pan­demic levels. This has implic­a­tions not only for office vacancy rates, but for the shops, res­taur­ants and ser­vices around big com­mer­cial centres. Once bust­ling areas, such as San Fran­cisco’s Union Square, now seem down at heel. Petty crime is rising, as are home­less­ness and open drug use.

And of course, what it all means, according to the FT, is less tax revenue and fewer public services:

Given that com­mer­cial ten­ants are typ­ic­ally the largest tax­pay­ers in urban areas, pub­lic budgets are suf­fer­ing too.

This is where the doom loop comes into play. The qual­ity of city ser­vices, such as transit sys­tems and pub­lic schools, is decreas­ing. Yet, it is likely taxes will rise, par­tic­u­larly on res­id­en­tial real estate, as pub­lic offi­cials look for ways to plug budget gaps. This would exacer­bate a cost of liv­ing crisis in major urban areas. Cit­ies such as New York, for example, have been strug­gling for years with a lack of afford­able hous­ing.

Some have suggested turning massive office towers into apartment buildings. The FT explains that this is not a simple operation. It is very expensive and has become even more expensive with rising interest rates.

Sadly, the paper suggests that recovering from the current downturn will not be easy or obvious:

But Amer­ica’s largest urban areas are in for what may well be years of slow­mov­ing eco­nomic, polit­ical and social chal­lenge. While the pan­demic and interest rate rises are the cata­lysts, the prob­lems of large US cit­ies have built up over years. Sub­stance abuse, home­less­ness, a short­age of afford­able hous­ing, gaps in the men­tal health sys­tem, and budget­ary prob­lems have been dec­ades in the mak­ing.

Fix­ing them will require not just well­craf­ted pub­lic and private part­ner­ships, but cre­at­ive think­ing. If the down­town areas of large cit­ies aren’t places to work in full time, could they be reima­gined in a way bet­ter suited to the post­pan­demic world? The fate of Amer­ica’s largest urban areas hinges on the answer to that ques­tion.

When people start talking about creative thinking, that means that they do not have a clue about how to solve the problem. 

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