Superstar Cities Are in Trouble

Feb 09, 2021

The past year has offered a glimpse of the nowhere-everywhere future of work, and it isn’t optimistic for big cities.

Some evenings, when pandemic cabin fever reaches critical levels, I relieve my claustrophobia by escaping into the dreamworld of Zillow, the real-estate website. From the familiar confines of my Washington, D.C., apartment, I teleport to a ranch on the outskirts of Boise, Idaho; to a patio nestled in the hillsides of Phoenix, Arizona; or to a regal living room in one of the baroque palaces of Plano, Texas.

Apparently, many of you are doing the same thing. Zillow searches have soared during the health crisis, according to Jeff Tucker, the company’s chief economist. “We’ve seen online searches for Boise, Phoenix, and Atlanta rising fastest among people who live in coastal cities, like Los Angeles and New York,” Tucker told me. Higher search volumes on Zillow have coincided with a booming housing market in the South and the West, as rents fall in expensive coastal cities.

Zillow tourism and a few affluent workers decamping for Atlanta might strike you as a fad—kind of like this whole remote-work moment. Indeed, if you’re lugging your computer to the living room every day to sit on the couch for eight hours, you might not be thinking to yourself, I’m practically starting the next industrial revolution.

But maybe you are. As a general rule of human civilization, we’ve lived where we work. More than 90 percent of Americans drive to work, and their average commute is about 27 minutes. This tether between home and office is the basis of urban economics. But remote work weakens it; in many cases, it severs the link entirely, replacing spatial proximity with cloud-based connectivity. What knock-on changes will this new industrial revolution bring?

The best argument against the remote-work experiment having a durable impact on our lives beyond the pandemic is an appeal to human inertia: For decades, the internet was a thing and remote work wasn’t, and after the pandemic, it’ll just feel like 2019 again.

But the impediment to widespread remote work in 2019 and before wasn’t technological. It was social. According to the economist David Autor, remote work suffered from a “telephone problem.” Seven decades after the first telephone was patented in the 1860s, fewer than half of Americans owned one. Behavior dragged behind technology, because most families had no use for a telecom machine as long as none of their friends also owned one. In network theory, this is known as Metcalfe’s Law: The value of a communications network rises exponentially with the number of its users.

The same has been true of remote work. In 2018, it was weird and rude to ask a boss to move a meeting to Skype, or to tell a business partner to fire up a Zoom link because you can’t make lunch. The teleconference tech existed, but it was considered an ersatz substitute for the normal course of business.

“The most important outcome of the pandemic wasn’t that it taught you how to use Zoom, but rather that it forced everybody else to use Zoom,” Autor told me. "We all leapfrogged over the coordination problem at the exact same time.” Meetings, business lunches, work trips—all these things will still happen in the after world. But nobody will forget the lesson we were all just forced to learn: Telecommunications doesn’t have to be the perfect substitute for in-person meetings, as long as it’s mostly good enough. For the most part, remote work just works.

Last year, I wrote about how even a modest remote-work revolution—no more than 10 percent of Americans working remotely full time after the pandemic is over—could affect the U.S. labor force (e.g.: fewer hotel workers) and party politics (e.g.: more southern Democrats). But the more I researched remote work and spoke with experts, the more I realized I had only scratched the surface of its implications for the future of the economy, the geography of opportunity, and the fate of innovation. Here are four more predictions.

1. THE RISE OF THE SUPERCOMMUTER

Remote work sometimes severs the connection between work and home, and sometimes just elongates it. According to Chris Salviati, an economist at the online rental marketplace Apartment List, prices are falling sharply in the downtown areas of the biggest metros, but they’re rising overall in the suburbs and in nearby cities. Some of the hottest rental markets in the country include Central California cities within a few hours’ drive of San Francisco.

Referring to the internet as an “information superhighway” is retro in the most cringeworthy way. But here, the metaphor seems apt. Decades after the construction of the U.S. highway system allowed high-income families to move from downtowns to the distant suburbs, Zoom might do the same. Remote work could do to America’s residential geography in the 2020s what the highway did in the 1950s and ’60s: spread it out.

Today, the term supercommuting is often used to describe the punishment inflicted on lower-income workers who have to live far from their job because of the scarcity of affordable housing. But the remote-work revolution could spawn the rise of something a little different: the affluent supercommuter who chooses to move to a big exurban house with the expectation that she’ll make fewer, longer commutes to the office.

“Historically, people who work from home don’t commute less overall, because they just drive longer distances,” Autor told me, referring to a Federal Reserve study from 2019. One shouldn’t put too much stock in a survey of pre-pandemic behavior. But the logic of fewer-but-longer commutes should lead to small towns and suburbs experiencing the fastest price growth. And, lo and behold, that’s exactly the story the online rental data are already telling us.

2. THE DECLINE OF THE COASTAL SUPERSTAR CITIES

Beyond anecdotal accounts of bankers fleeing Manhattan and tech workers saying sayonara to the Bay Area, we have loads of private data to back up the story that superstar cities are in trouble.

According to U-Haul’s annual review, California lost more people to out-migration than any other state in 2020, and the five largest states in the Northeast—New York, Pennsylvania, New Jersey, Massachusetts, and Maryland—joined California in the top 10 losers. Rents have fallen fastest in “pricey coastal cities,” including San Francisco, Seattle, Los Angeles, Boston, and New York City, according to Apartment List. Zillow data also show that home values in New York, San Francisco, and Washington, D.C., are growing below the national average.

These migration trends could spell long-term trouble for cities such as San Francisco and New York, where municipal services rely on property taxes, sales taxes, and urban-transit revenue.

Absent federal intervention, “the financial situation that nearly every transit agency in America is in will certainly lead to significant service cuts, which inevitably lead to terrible spirals,” Sarah Feinberg, the interim president of the New York City Transit Authority, told me. “Service reductions are bad for commuters, devastating for essential workers, and detrimental to the economy.” If people leave New York—and newcomers don’t immediately take their place—that will reduce the city’s subway and bus revenue, which will lead to service cuts; that will make New York a harder place to live, so more people will leave the city; transit revenue will be reduced further, and on we go.

More optimistically, the federal government could bail out cities, speeding up what I’ve called the urban forest-fire effect. In that scenario, the pandemic pushes thousands of people out of expensive coastal cities, reducing the cities’ rent and housing costs, but those lower costs attract a new generation of immigrants and middle-class families to move back into the city, which leads to regrowth. Note, however, that both the optimistic and pessimistic cases involve a difficult period of transition.

3. THE RISE OF THE REST

Superstar pain could be America’s gain—not only because lower housing costs in expensive cities will make room for middle-class movers, but also because the coastal diaspora will fertilize growth in other places.

As home values decline in the superstar cities, they’re rising in major Sun Belt metros such as Phoenix, Nashville, and Austin. They’re rising in midwestern cities, such as Cincinnati, Cleveland, and Indianapolis. And they’re going gangbusters in the Southeast, which accounts for 13 of the top 25 cities with the fastest growth in U-Haul migration in 2020. The top three cities for inbound moves were all in one state: Florida.

Why might this be a positive trend? By failing to build sufficient housing, certain superstar cities have become mere playgrounds for the wealthy—especially the childless wealthy. “The walls we’ve put up around our most productive cities have made it hard to accommodate more people,” the economist Enrico Moretti told me.

Anti-growth housing policies in rich cities reduce national productivityincome growth, and intergenerational mobility. Thanks to zoning and land-use restrictions, the American dream has fractured: The rich cities with the greatest upward mobility are the least affordable, while the most affordable places to live have a poor record of mobility. As a result, America has grown more divided in the past few decades, not only by politics and by class, but also by geography.

“Remote work is the first change in a while that can help lean against this trend,” Adam Ozimek, the chief economist at Upwork, told me. White-collar workers moving away from NIMBY areas could help solve this problem in two important ways: by reducing housing prices in superstar cities, and sprinkling high-income workers throughout the country.

Coastal cities’ depopulation will not be a perfect substitute for more housing construction in those cities, but it might be better than the before world. Remote work is not a perfect substitute for higher welfare spending, either, but thousands of high-income workers moving to lower-income metros in the Midwest and the South could stimulate local job creation and raise local incomes. And remote work is not a perfect solution to regional inequality, but it will almost certainly expand the roster of hyperproductive cities in ways that could help wages grow nationwide, according to Moretti’s analysis.

4. THE NEXT SILICON VALLEY IS NOWHERE

It sometimes takes only one little decision to create a new industrial hub. “If you look at Seattle in the 1970s, there was not much high tech, and Boeing was shedding jobs by the thousands,” Moretti said. “But then this random guy named Bill Gates, who started this small company called Microsoft in Albuquerque, New Mexico, decided to move his headquarters to Seattle to be closer to his family and the family of his co-founder, Paul Allen.” As Microsoft grew to become the largest company on the planet, it made the Seattle region one of the world’s leaders in information technology.

If Moretti is right, the coastal diaspora is akin to a national seed-planting experiment that has the potential to grow new industrial clusters. Today, the innovation economy is unevenly distributed. Three states—New York, Massachusetts, and California—account for three-quarters of all venture-capital investment in the United States. But one of the companies on the move could take off after relocating to Miami or Austin, and trigger the complex domino effect that creates a new hub: a Quantum Valley in Austin, or Wall Street South in Miami.

The other, weirder possibility is that the remote-work revolution will eliminate the concept of a metro hub entirely, as companies embrace the reality of a permanently distributed workforce. What if the next Silicon Valley is nowhere—or, just as precisely, everywhere?

After the pandemic, it might be better to think of Silicon Valley as an idea dispersed across many places rather than a specific piece of geography, writes Kim-Mai Cutler, a partner at the venture fund Initialized. According to the company’s recent survey, 42 percent of its firms said that starting a remote company was better than being headquartered anywhere, including California. (Last year, that figure was just 6 percent.)

What exactly would that look like? Say a tech-company founder based in Nashville hires a designer in Missoula, engineers in San Jose and Miami, and a product lead in Albuquerque. They Slack every morning, and Zoom in the afternoon. Although building a distributed-work culture takes lots of work, they might discover that the internet re-creates many of the benefits of a city. Cities attract similarly productive and talented people to the same area, where they can redouble one another’s talent; so might the internet. Cities pool large groups of workers into the same area to increase the odds that every worker finds the job with the best fit for her skills; so might the internet.

As an urban resident of Washington, D.C., writing from my dining-room table, my claim is not that I believe the internet could or should replace the riotous physical-world collision of urban work, culture, art, and life. My humbler assertion is that 2020 has punctured my confidence that the internet cannot encroach on the benefits of urban density and proximity. Going forward, many fledgling companies may agree, as they find that the city in the cloud essentially acts as a more accessible version of the city on the Earth, eerily reproducing its forces of agglomeration, specialization, and convenience. The past 12 months have offered a glimpse of the nowhere-everywhere future of work. We’re only beginning to understand just how strange that future might be.

Source: The Atlantic


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