The Urban Doom Loop

Here is a new concept-- the urban doom loop. As explained by Thomas Edsall it means that America’s great blue cities are losing population and are losing small businesses. In addition, they are losing restaurants and shops. It’s easy to blame it on the virus, but more and more people are exiting these cities, to find a safer, more tax friendly environment down South. Obviously, this impacts office buildings.

Edsall writes:

As the pandemic endured and subsequent coronavirus variants prompted employers to postpone return-to-office plans, Van Nieuwerburgh noted, “Covid-induced migration patterns began to take on a more persistent character. Many households transitioned from temporarily renting a suburban home to purchasing a suburban home.”

In Van Nieuwerburgh’s view — and that of many of his colleagues — what seemed like a transitory step to avoid infection has become a major force driving the future direction of urban America.

And let us not forget the crime wave, brought upon us by leftist prosecutors:

Scholars are increasingly voicing concern that the shift to working from home, spurred by the Covid pandemic, will bring the three-decade renaissance of major cities to a halt, setting off an era of urban decay. They cite an exodus of the affluent, a surge in vacant offices and storefronts, and the prospect of declining property taxes and public transit revenues.

Insofar as fear of urban crime grows, as the number of homeless people increases and as the fiscal ability of government to address these problems shrinks, the amenities of city life are very likely to diminish.

Here is another take on the problem, emphasizing the impact of crime and homelessness:

Jacob Brown, a postdoctoral fellow at Princeton’s Center for the Study of Democratic Politics, elaborated in an email on the consequences for cities of the more than 20 percent of urban employees now working full or part time from home:

With respect to crime, poverty and homelessness, Brown argued:

One thing that may occur is that disinvestment in city downtowns will alter the spatial distribution of these elements in cities — i.e. in which neighborhoods or areas of a city is crime more likely and homelessness more visible. Urban downtowns are often policed such that these visible elements of poverty are pushed to other parts of the city where they will not interfere with commercial activities. But absent these activities, there may be less political pressure to maintain these areas. This is not to say that the overall crime rate or homelessness levels will necessarily increase, but their spatial redistribution may further alter the trajectory of commercial downtowns — and the perception of city crime in the broader public.

Arpit Gupta of N.Y.U.’s Stern School of Business, Vrinda Mittal of the Columbia Business School and Van Nieuwerburgh…. anticipate disaster in their September 2022 paper, “Work From Home and the Office Real Estate Apocalypse.”

“Our research,” Gupta wrote by email, emphasizes the possibility of an “urban doom loop” by which decline of work in the center business district results in less foot traffic and consumption, which adversely affects the urban core in a variety of ways (less eyes on the street, so more crime; less consumption; less commuting) thereby lowering municipal revenues and also making it more challenging to provide public goods and services absent tax increases. These challenges will predominantly hit blue cities in the coming years.

Shall we say, it is not an especially optimistic forecast. Stay tuned.