Work from home and the office real estate apocalypse(papers.ssrn.com) |
Work from home and the office real estate apocalypse(papers.ssrn.com) |
Dense residential area tend to have the full range of services, more interesting restaurants and bars, more fun, more interesting. If people are spending more of their day there, I would expect a flourishing of these kinds of business. At the end of the day, some storefront owners will need to move to other areas to take advantage of changes in demand.
Cities are very dynamic things. They are constantly changing and renewing themselves. Neighborhoods come up and go down. There is no stopping it.
The place I work had diverse companies in a 'tech park' - Amazon, Google, and many others inside a gated office space, the total population of which could easily surpass 10K.
We used to have a common and very vibrant food court, even though each company used to give free cafeteria food, employees used to walk to the common food court for variety - of both people and food.
Also, since there was so much traffic of well paid, propensity to spend people, office park operation office used to arrange for paid fun stuff during lunch hours, which used to lend lot of colors to dreary office days.
During Covid the food court vanished along with all fun activities (consequently all those people who used to run those). The company cafeteria obviously closed as well and even when it has started now, they are pale shadow of earlier operations (less staff, owners of food counters working as staff).
We need to rethink the concept of city. If we don't do that we'll end up with ghettos. But if we do and implement the transformation then we'll develop something more desirable than conglomerate of various businesses. A center of a town can very well be vibrant and inspiring without most businesses if the resulting free real estate is repurposed by galleries, theaters, restaurants, parks etc.
But we won't in the near term. This will just start to happen after all other options have crumbled and one option will still be to just hold empty housing and real estate for the purpose of mere speculation. I'm pessimistic.
Few moved out, few moved in, maybe rents adjusted a bit but I didnt check that. Same shops, bars restaurants opened, same entertainment going on.
The more European model where first floor is commercial and residential in top, it's a different story to have everyone working from home, no overnight ghost town in commercial districts.
I'd generally say that if they can fill it to a good density it can have a good local market compared to suburbs with poor density.
Im glad to live in America, but the way cities are laid out elsewhere makes more sense.
Most of the time, the types of bars and restaurants that rely on office workers as customers are not going to be the type of bars and restaurants you'd go in your free time when going out with friends.
“We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.”
Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.
Personally, I don't see a way for commercial prices to come back if WFH is here to stay, but a lot of people are incentivized to think of a solution and I've been surprised before. I think we should get another year or twos worth of data before we start calling it an apocalypse.
Commercial-wise, I can’t see it recovering to pre-pandemic levels. I’m not seeking an office out and I know many friends / former coworkers that are happy not in an office
That’s my take. Smart investors will acquire office properties during this time.
"A key parameter in the calibration is p, which governs the persistence of remote work. 13 We identify this parameter as follows. We assume that the economy transitioned from the no-WFH expansion state (the E state) in 2019 to the WFH state and a recession (the WFH-R state) in 2020. We compute the model-implied return on the NYC A+ office market in this transition (using the A+ calibration)."
Why this should be a valid predictor for post-pandemic / endemic periods is not clear at all.
These guys have a data set of office rental data, and seem to be trying to infer way too much from it.
The land didn't disappear. Only the need for a specific use has changed.
You mostly have two primary costs.
- Possible upgrades to living space so that you can "lend" your employer an office.
- Possible significant time/cost savings by not having to commute.
Mostly these aren't borne by the same people.
Then there'll be housing complex or apartments for workers 1.5 hours away from it with inefficient public transportation.
on edit: somehow put learn instead of lose.
It's not just urban office buildings. It starts there, then it leads to deurbanization, increased populations in less urban areas, a more flat population distribution. Why live in a city unless your job requires it? All the other perks of a city only really apply if you actually need to be there to sustain yourself.
It will lead to several big cities filing bankruptcy, most service businesses in dense cities going broke, city services unable to continue to function. Information workers are the core of a city's economy, all service oriented businesses cater to them. Once they're gone, the service workers go too, it's a cascading process of the collapse of big cities. When they said the internet was going to revolutionize humanity they weren't kidding around.
Overall it will be a good thing, but the process will be very painful.
So real estate simply refocus from large and expensive buildings to smaller single houses, not much less expensive for their buyer while in raw materials terms they cost FAR less, who really loose are those who actually live in large cities, can't buy a new home in a good place, all who have jobs around offices (like restaurants, bar, ... and all shops in the shopping center areas nearby large offices areas).
Of course, those who came first might fall because it's an uncharted territory, those who came second normally prosper benefiting from those who came first, who came third and beyond... Sorry, you are too late...
And this is why loans charge interest, for the "I have no idea what's going to happen but I don't believe you that this enterprise is entirely risk free" sort of reasons. Though I think we've generally managed to decouple the concept of "risk/reward" in loans/investment/etc, in favor of "I'm guaranteed returns, come hell or high water!"
However... on the topic of office space, I can only say, "Well, those chickens sure went home to roost." I can't fault office workers for not wanting to go back to the circle of Hell that a modern "open office" floorplan is. And I don't blame them in the slightest for seeing through the "spraying fountain of crap" that are management's supposed justifications for it. "Serendipitous encounters" happen with offices. But they happen in the places where people go to hang out when they want those encounters, when they want a break from the peace and quiet needed to actually do work. I expect a lot of workers just want to hear management say, once, "You know, it's cheaper to squeeze you in tighter and buy a few more desks than to buy more office space." Though it doesn't explain why the new office space has 500 foot sightlines...
Over the years, I've had almost every office configuration one can have, with the notable exception of a proper cubicle. Frequently, I would have nearly killed someone for a cubicle.
Offices with doors are great, and even if you have to share them with someone, as long as there's good space to work and spread things out, they're wonderful. Door closed, I'm working. Door open, come and chat.
"Team work areas" are fine, if all the people in the room are on the same team. They tend to develop work patterns and cycles, so you know that some hours are light work time with some social interaction, some are heads down hours. Of course, it's amazing just how fast the couches, coffee tables, bookshelves, whiteboards, etc can disappear to cram more people in when the team expands.
And then there's the open office hell that is just horrible for the exact sort of work that tech types are paid good money to be good at - what Cal Newport calls "Deep Work." The sort of stuff where, done right, you can disappear into a problem for 6 hours, and come up with something good. The open office reality is more, "If you can get half an hour of actual concentration, with something loud screaming in your headphones, you're having a good day."
And I've been able to compare the two states, because my current office (full time remote) is the "Solar Shed" - an 8x12 Tuff-Shed that's entirely off grid, and entirely my own workspace. I now can, and do, manage the "My wife has to ping me for dinner because I've lost all track of time with some problem" days. I came to it from open office, and the contrast couldn't be more extreme.
So, yeah. If office spaces were good places to get work done, I expect a lot more people would be interested in going back. But they're not. And even a poor quality WFH space is often better than "always loud, always people talking, can't get an hour of good concentration in" open office hell. A good WFH space? Nobody has offices like that anymore.
Imagine the amount of plumbing you would have to redo for the toilets. There all sorts of codes for apartments, there must be so many windows, you need natural light in bedrooms etc
If you think about it, it makes a certain amount of sense, workers have more hours in the day due to no wasted transport time, and can do work ad-hoc when ideas strike even outside regular buisness hours. Also meetings are less disruptive, you don't have to get up to go to a specific room and wait for everyone to show up, you open the link and can keep doing minor tasks while you wait or evwn during the meeting if it's not that critical for you.
Really working in an office has a lot of wasted time you can imagine lessening or outright disapearing when done remote.
We may just have to do without so many Hale n Hearty Soup shops.
It’s true that Aramark suffers when we enjoy entertainment at home but should we have to attend a concert daily just to support Aramark?
The money spent on that commercial real estate is gone. Those big fancy buildings will have been wasted resources and effort.
It's fundamentally different, practically the opposite.
Paper losses are like a farmer realizing that the grain in his silo is bad. Knowing this when you were oblivious before is a good thing, whereas the grain going bad is obviously not.
Once you start regarding bad news as a loss, very bad stuff happens. In some contexts, we'd all agree. "Shooting the messenger" is an age-old cliche for counterproductive use of power, right?
Just saying that $X billion dollars were "lost" by market price fluctuation is dangerous, because it suggests it can be weighed numerically against real things and real peoples' lives lost.
If you were a CEO or a politician or someone powerful, would you justify destroying one warehouse or home or hurting one person, in order to avoid, say, a trillion dollar "loss" of paper value in some assets?
I mean, don't you think people do this, directly or indirectly, and it's wrong?
Stock market declines are called "corrections" for a reason.
>The money spent on that commercial real estate is gone. Those big fancy buildings will have been wasted resources and effort.
Maybe, but nobody can say for certain what the world will look like in 5, 10, 20, 50 years anyhow.
Also the money didn’t disappear, it went to people smarter or luckier than them who used to own the place before. Money doesn’t disappear.
As an analogy, the grains could be fermented and turned into spirits.
And as an addendum, the value lost in the commercial real estate could be potentially considered as transferred - let's say a business either gets a cheaper rent, or stops renting offices (after this is why these commercial real estate valuation is lowered), then those businesses saved money and thus that money saved is what got "transferred".
A net negative to the economy to be sure, but (literal) rent-seekers aren't the only ones in the equation.
That view on "value" is inherently fickly. In case they never sold their buildings, you could also argue that no value had been lost. They still have the building after all. Their speculation has a different calculation behind it now, but that's normal - speculation RoI is not guaranteed.
But in the office space scenario, less office space is being used overall. This means that yes, landlords are losing the value of their investment, but (former) tenants are gaining access to cash flow that would have been tied up in rent and maintenance. So value has not been destroyed in the same way it was in the silo example.
I don't know if this is a good or bad thing, just pointing out a material difference in the two things you're trying to analogize.
Isn't it more like wheat produced at a cost of $100 was selling at $500. But it can only sell at $150.
Some utility was lost, more value was lost. But in reality economy only lost some paper valuation, something entirely imaginary...
The workers think they're getting a good deal but they really traded gas money for snack money. /s
If my stock portfolio was worth $1000 yesterday and is only $800 we don’t say the $200 was destroyed. I have the same number of stock. It may go down further, but it can also go up to say $1100 tomorrow. Is this a new being value created, or only capricious market pricing things differently?
Until I sell, there is no real gain or loss. And for the farmer, if the grain goes bad it’s not temporarily, it will never recover. This might have been a better analogy if the underlying real estate was destroyed (uninsured and fire, etc).
I think this is due to the perceived value of proximity not keeping up with technology. The "real" value of proximity fell as technology improved, and that was exposed during the pandemic. It's more of a correction than outright destruction, but it's not wrong that the overall asset class lost value.
1 - http://www.cesaremarchetti.org/archive/scan/MARCHETTI-052.pd...
In many cases, the uplift in residential value is directly attributable to WFH (e.g. where a home office or more rural property becomes more desirable.)
And especially in big cities the "high-quality" real estate is usually break-even and all profit is made on appreciation, so any drop in income might mean some of them can't hold the property.
If they have to sell their properties and take a huge loss, it doesn't really affect you or me - it just means a different group of rich people will become the new landlords. But the old landlords won't like it, and it probably qualifies as news.
The market value of this building (not its construction cost) is the Net Present Value of future rent payments to be made by a tenant to the owner. There is a scheduled, anticipated transfer of value from tenant to owner based upon the agreed market rental value of the building.
When the agreed market rental rate declines, the amount of value to be transferred from tenant to owner declines and consequently, the present value of those future payments is lower. This is the basis for journalists or commentators to say that value has been destroyed. But, the value hasn't been "destroyed"; it has been transferred to the tenant in the form of the net present value of his rent reduction.
I’m not sure if it makes up for the loss in commercial real estate though, but I’d say some destruction of value and some transfer of value.
If you have an asset which used to be desirable but is no more, its market value is indeed just destroyed and not transferred. It doesn’t necessarily impact the price of other goods.
*Whatever optimal point.
But a society as a whole, is the $500B "destroyed"? Or is there a transfer from the property owners to the businesses that no longer rent the space? The NPV of those decreased rent costs may just happen to be about $500 billion, right?
Not to mention the value gained by all the no-longer-commuting workers.
Not necessarily. It's entirely possible that working from home has always been better but that there was enough friction preventing a move in that direction that it didn't happen until covid forced it to. If that's the case, then we don't expect a reversion because the friction preventing the initial adoption is gone.
For me, my employer only had about 3 mo's collectively from 2019 to 2022 where full time work from home was even an option, and zero months where it was required and the offices where shut down.
I think there is a perception that all employers, everywhere were required to go full time work from home, that simply is not the reality
The other part of the equation is the more common hybrid arrangement. If you still have to come into the office twice a week you get a similar dynamic to traditional in-office work.
I think we are currently underestimating the desire to get back to the status quo and overestimating our leverage long term. Right now is a very unique time, sure to have lasting impacts, but I don't think it will stay like this.
I just can't see that the hybrid model is the long term equilibrium. The office either has a competitive advantage or it is a liability that can be trimmed in cost cutting measures. Long term, firms will either push the edge of the competitive advantage of the office back to everyone going to the office full time or cut the cost completely. Maybe it even depends on the department within the firm or across firms but the hybrid model is just nonsense to me. A cascade of punting a decision down the road so leadership doesn't have to really decide right now while we are all stuck in these pre-2020 commercial leases anyway.
The future will be much more mixed and more sensible. Some people will work from home and some people will work in offices, but those offices will be much closer to where people live and people who need to work together will tend to live close by, or at least have the opportunity to. Essentially we'll see a lot more smaller offices in the suburbs.
You couldn't design a worse system of everyone having to commute to a central location, with infrastructure that is always overloaded at rush hour and underused the rest of the time.
The key to that arrangement surviving has been that the impact is all on workers and the convenience payoff has been for employers. The pandemic opened people's eyes and they're not going back.
The less number of days workers go into the office, the less companies can justify renting the space and paying for the supplies. I think companies will begin to either go 100% remote except for on location workers that have to be there such as data center people, and others will try to go 100% back to office, and the latter will lose because the economic incentives are stacked against them. Increased cost, including a premium on talent willing to commute, make companies that do this less competitive. Unless you believe the water cooler has some property that boosts productivity significantly, in which case you're right. But I doubt it.
(Only half joking...)
It is specifically a concept tied to repeated observations from a -random- process. That is, a process in which the values fluctuation over time (due to inherent randomness), but the -fundamentals- of the process (and its probability distribution) remain fixed -- along with its mean value.
What they're saying here is that WFH has caused a seismic shift -- and hence, a drastic change in the fundamentals of the process. Their whole point is that we're seeing different valuations in 2022 than in early 2020, it's not due random fluctuation -- its because the fundamentals of the process have changed -- along with its mean.
By definition, "reversion to the mean" only applies if ... the mean is fixed.
just like food delivery, employers, just like workers now have the knowledge that wfh works. thus workers will always have the leverage of having competitive companies that know it does offering it.
The internet was always going to enable people to perform information work remotely. It was all a matter of the process and how long it was going to take. Covid accelerated it, but it was already happening. There was no equilibrium before, just a lot of resistance and legacy social structure keeping the inertia going. With covid, that resistance was shown to be mostly substanceless, and now the inertia is preventing going back. In the end, there will be a premium paid on any work that requires someone to be at a specific location, and jobs that don't require it to be able to do the job itself won't pay that premium.
That's my take. It's basically the opposite of yours. I would not invest in office properties.
Remote is also naturally self-reinforcing because partial-remote degrades the value of offices.
Nothing fundamental changed between 2019 and today.
Because hopeless middle managers (toxin or cancer? [1]) like their empire to be outside their office doors in cubicles. Hopefully the past few years has started to root out these sociopaths and make their incapability clearer both up and down the management chain.
[1]: https://www.slideshare.net/bcantrill/surge2013/2-Software_En...
Huge variety of shops in walkable proximity, great public transport network, vibrant cultural life, plenty of opportunities to socialise.
Why would you want to live outside of a city?
But you missed my point. All those perks of living in a city are great, if you need to be there to earn what you earn. without that, the high cost of living simply isn't justified. Even if people want to be there, they'll make financial and economic decisions. And once those people start leaving, all those shops and bars and bodegas and what not that cater to them will go belly up. Then their owners and employees will leave. There goes your vibrant cultural life and opportunities to socialize.
The flip side is that you'll find more of those things in less densely populated areas as this shakes out, and cost of living will rise as well outside of cities, but not by nearly as much, because the diaspora will be spread out.
It's so funny that you say this. From my perspective the vibrant cultural life happens outside of the city. In the city everything is permitted and controlled. If you want interesting stuff, you have to get out of the city for it!
- access to a large airport to go on regular holidays easily
- better health care coverage, more doctors, more specialists
- cultural access
- more diversity and more colorful services and products
- better public transportation
Health care is a special exception for me since I live under an hour from a couple of big hospitals and I live in a state with a lot of hospitals all over the place. But all that really shows is that such a system can be made without heavily concentrated population centers. That perk is a result of how things are now, not how they have to be.
Cultural access... I see this mentioned alongside diversity and what not, do you mean brown people? If I were right and there were a large deurbanization trend, wouldn't it follow that the diversity would go with the diaspora, since the diversity is just people?
Public transportation is largely a solution to problems created by cities. You don't really need a public transportation system in a less densely populated area.
The services I was referring to though were private services. Bodegas, burrito shops, dry cleaning services, taxi cabs, all of these go out of business if office workers don't walk or drive by them en masse daily.
I think it's part of the general swing back to a healthier work-life balance, and really ... that would be fantastic!
I live in a suburban desert, and if I had to work at a sattelite near here, I wouldn't be unable to do a lot of things I currently do during the week because it just isn't here.
People see the extremely high valuations of some things like housing and business locations as a good thing. Instead I mostly see them as asset inflation, and the decrease in their values as a good thing for the actual products produced by an economy.
But why would people want to live where they don't want to work?
Also, there are plenty of people who work in the city who cannot work from home because their jobs require them to physically be present.
Agree that cities offer more than just a place for business to happen.
I co-own a small city office and we've always assumed redeveloping as three-storeys with residential above commercial would be our long-term plan. It's a short walk to dozens of restaurants/cafes/pubs, short walk to a chemist, small supermarket, florist, and so on. Two blocks from large parks and running/cycle tracks, etc.
If these unused offices could be better as apartments, i don't see a decline in how cities being a great place to be.
Rather than collapsing I think cities will thrive. There’s a huge economic pressure on residential property and a downswing on office property and the office property is in some of the best real estate in the city. Developers aren’t stupid, they’ll convert to mixed use and reduce office densities to keep their per unit margins up, and rent/sell condos and retail space for the residential community. This will actually draw more people to the cities because there are a lot of city dwellers that have been pushed out to suburbs due to lack of residential supply.
Public transit helps not having a car. That helps the environment and those that can't or don't want to drive.
Most US cities have pathetic public transit to the point it is impractical (eg: buses running once every 2 hours and stopping at 6pm is not useful)
Bottom line, I think this gets to the debate of car centric society. How do you do less densely populated areas in the american model without cars? I don't think you can. The problem with less dense and car centric is the 100 year upkeep cost is unsustainable
And yes, also "brown" people. But also Japanese, Korean, Russian, Indian and Brazilian people.
Apart from nostalgia, it’s where Debbi Fields started “Mrs Fields cookies”. Yes, another Palo Alto startup from the 70s.
- Residential districts in China and many former Soviet countries. Big concrete blocks, with the bottom floor lined with small stores. They're absolutely delightful places to live.
- Urban residential districts in the US aren't quite in this style, but a city like Cambridge will have small shops within walking distances of virtually all housing.
The critical thing is that the shops are a lot more pleasant and human than US business districts. A massive lunch hour line at some overpriced (probably due to high-rent and long lines everywhere) sandwich place isn't very human. A small business run by the owner is. One of the differences is that in residential settings, business owners and residents are part of a community -- they get to know each other, sometimes for decades. Business districts have people moving in and out too frequently for that.
"Peak density" is also a lot worse than "mean density." Both a customer and a business owner is better served with traffic spread out throughout the day, rather than nearly 100% of business crammed in during breakfast and lunch hour.
I lived in Cambridgeport near Central Square in Cambridge, MA. There was indeed a small convenience store/variety shop almost within sight of my apartment. In six years, I bought something from them only once that I can recall. I used to walk quite literally past them to Whole Foods to save money. (When Whole Foods is killing you on price, you’re going to have a tough go of it.) Looking on Street View now, there’s paper over the windows and a notation of “permanently closed”.
I’m in a different neighborhood of Cambridge now. There are local shops here as well. Except for the food places, most are empty of shoppers almost all of the time. I don’t know what’s different to make these shops not particularly useful, but most purchasing seems to happen at the larger supermarkets and big box stores a few miles away (or online). Those have better selection, much better pricing, and are faster/more convenient in aggregate.
I don’t blame the local stores if they have to set uncompetitive prices due to rent or whatever other factors, but consumers also don’t have to buy products at uncompetitive prices.
That really isn’t true. At least in China, the most common living arrangement in big cities is the gated apartment complex, their might be some retail on floor one, but it is usually on the other side of the gate, and the gate you can enter or exit from is often not conveniently located to access that retail easily (given my experiences living in Beijing). If they did away with the fences/gates, things would be much more convenient.
Sure, if you think only of residential one family house areas (but which true city centers have those) or poorer skyscraper suburbs that is true, but another story?!
This is only true in American suburbs. You have horrible one family dwellings only, and you space them far out on empty sections with massive roads between them.
This is the problem, and its also what is actually unsustainable.
In Europe they are common and have been flourishing again even as cities flounder.
Pre pandemic my local town center in the London commuter belt was in a death spiral. Now its expanding.
I grew up in a district which has 150k inhabitants and an effective population density of 4.6k people per square kilometre (11.8k people per sq mile) and it was much like a city within a city, with all the shops, services etc. Everything within walking distance.
It even has somewhat of a regional identity and a political movement which capitalizes on that.
To this day I see it as the sweet spot of population density - it's dense enough for the things you mentioned, but at the same time doesn't feel crammed.
In some cases, building something that nobody will use is still a loss. It still cost money to build a building, and if the one paying for that building doesn't recoup the cost the it's a lost.
Beyond that, of course you're right. It's unrealized gains, not a loss.
I like this. It's insightful, and stated in a plain way.
And equally we can say, once we start regarding good news as a gain, very bad stuff happens.
The idea of "confidence" rather than measurable, tangible facts as an economic basis has been the road to many bad things. In some ways confidence and pessimism can be seen as the ability to ignore reality. We've been inventing ways to delude ourselves in western economies for decades. For example, film and record companies counting copyright infringement as if it were an actual loss, or Twitter over-counting its users as a kind of corporate egotism.
What might really help our societies on multiple levels is a return to fact-based economics, instead of what is essentially information warfare directed at pulling off ever more audacious confidence tricks.
Confidence is useful. It reduces volatility in the market.
As I am sure you know, a "confidence trick" is a way to defraud another by influencing their (psychological) confidence (or pessimism) against their better judgement and in spite of the objective facts.
There's also lots of interesting satellite data about how clean the air in cities world wide got when COVID lockdowns started. [1]
We don't need roads in cities. And definitely not multi-lane roads.
Do you think that cities of the future rely on cars or on more efficiently scaleable means of transportation - like trains, subways and trams?
> Ask yourself how many people are unable to work remotely.
Please elaborate.
Personally, I don't think there's any elected mayor on the planet that has "moving more factories inside the city" on their agenda.
Note that I was specifically arguing about office spaces. And everyone in an office space can work remotely.
I'm not arguing about politics, I'm arguing that technologically there's no need for office spaces inside the city. It's a societal expectation that doesn't make sense anymore and isn't necessary. What COVID showed us is that most if not all of the tasks that were done in offices before can be done remotely just fine. Additionally it showed us how quiet and livable cities can get when there's no traffic jam of commuters.
The solution isn't to remove roads. The solution is a London style congestion tax.
Which planning economists have cried out for, for ages.
Is public transportation better than most places I’ve been in the US? Without a doubt - it’s not even close. But roads are just as relevant.
I am not missing anything. I just deeply disagree.
City life is enjoyable in and of itself. I don’t live there because I have to for my work. I live there because I find it inherently better than living somewhere else.
If I was living in a normal city and not the capital of my country, it would not even be more expensive than living in the countryside. It would probably actually be cheaper. Gas is expensive here and our cities are built like proper cities.
I think you are projecting your value on the situation and conclude that cities are doomed. Personally I think we are just going to witness a shift away from cities where life is expensive towards cheaper cities.
I think you're grossly overestimating the number of people that live in cities for reasons other than economic opportunity. That is the entire value proposition of a city, that was the driver that led to urbanization in most countries as they developed. You might be willing to pay 3x as much in rent for the same pay because you like the local chicken place, but I doubt most of your neighbors would make the same choice as you when given the opportunity to reduce cost without reducing income. And when those people leave, all those perks of city life go with them.
We are going in circle. Economic opportunities are clearly not the entire value proposition of a city. It’s a very convenient way of living. It’s not about a chicken place. It’s about walking your children to school, being able to go to conferences, to see plays or attend a concert. It’s also just nice to not need a car. It’s very advantageous to just live close to others.
I don’t know where you get your 3x from by the way. An average city rent here is only 20% to 30% more expensive than living in the countryside. We are not talking about San Francisco.
Just mention this as it is not all economics.
But everything that is old is new again. Now we shop at three different supermarkets! To get the best prices or quality or specialty item or whatever.
Maybe they'll invent a super-duper-market or something like that next, and we'll go back to a one-stop experience.
Imagine you're a Jamaican halal chicken shop owner and your core business is professional office workers walking by on the way home from work and stopping in for a bite. When that office worker is no longer there because he can make the same salary and cut his expenses in half by moving 1000 miles away, you're going to go out of business. Maybe you move 1000 miles away also so that you can afford your rent. This is how the cascade happens.
Theaters and museums and all those aren't why cities have a lot of people, those exist in cities because that's where the people are. when people become more spread out, those things will follow suit.
And hell, worst case land prices and rents in the city center come down a bit, that's not really a problem.
At each stage the surrounding retail and gastronomy changed towards something that could support higher floor cost.
Maybe total value still decreased, because people no longer pay such a large premium for the limited city center space.
As such, total money paid on rent is less.
So, in short, yes. We also got new value, but tons is being unnecessarily destroyed.
https://www.urbanthree.com/case-study/minneapolis-mn/
https://www.youtube.com/watch?v=7Nw6qyyrTeI https://www.urbanthree.com/case-study/minneapolis-mn/
This is a very debatable statement. Looking at my coworkers in the past two years, opinions seem to have been pretty evenly 50/50 split between people who had enough space/comfortable home to be able to work from home, and people who had no real good option to work from home (family situation, loud kids, living in a single bedroom apartment with no desk, etc). I know A LOT of people who specifically rented apartments that were only serving the purpose of "a place to sleep, close to the office", because these people's lives revolved around doing 90% of their stuff outside of their house (eat at the office, go out during weekends, travel, etc). These people got gutted when the pandemic hit and we were forced to work from home. I always wanted a large apartment (far from the office, so less expensive) at the exchange of a longer commute. I always wanted my own work/office area. And now that we're started returning to the office I applied for (and was granted) fully remote work. However I know that if this is going to become the norm for a lot of other people, apartment layout and demand is going to change.
My wife is also working from home, and we're expecting a baby. We're likely going to buy a new house and one of our specific requirements is going to be two separate offices for both me and her, plus a room for our baby. This kind of stuff wouldn't have likely happened before.
https://www.theguardian.com/society/2021/jun/20/rural-house-...
If I buy something for $100, the market value increases to $150 and then drops to $50, I've still lost $100 from the peak on paper. It didn't go to someone else.
The way I see it this is not the case now. Real money was handed over to buy these properties (noted by how many homes were bought for all cash). Money that was redistributed, printed by the government during the pandemic but has now been in proper circulation (thus as real as it gets) and which was paid off to a bunch of property owners who now have this as actual cash (or SPY holdings).
Plenty of other roles that can't be performed remotely, e.g. plumbers, hairdressers/beauticians, dentists, shoe/clothing store workers, therapists, teachers (technically possible, just not desirable in the last two cases).
But that's not even the limiting factor for public transport: the landscape of extracurricular activities for children shifted.
Parents of children too young to cross the whole city on their own have a total of 3-4 locations to visit daily. Doing that via public transport quickly becomes tedious.
> have a total of 3-4 locations to visit daily
I'd argue that the problem is not roads themselves, the problem is that cities are built around roads and cars. If cities would be organized with being road-free in mind, the problem you're describing wouldn't exist.
A lot of cities in Europe have changed their way of thinking how to design a city these days, and try to evolve the downtown areas so that they're closer together and easier to reach via public transportation and/or by foot. Just some examples that come to mind: Venice, Granada, Amsterdam, Heidelberg, Nuremberg, Rostock (and soon probably Mainz and Stuttgart, as they're actively working on it).
What these cities have in common: They changed their prioritization from multi-lane roads inside the city to a sustainable park&ride model that embraces cheap and regularly available public transportation, and combines that in worst case (when they don't have trams, busses or subways) with something like rentable bikes provided by the city. In best case, you'll have something like Amsterdam or Venice, where everything is not built for cars but for all other modes of transportation, except cars.
And some might argue that those cities have working plumbers, hairdressers, dentists etc, too. They seemingly can still work without having a multi-lane highway blocking the skylight over their houses. Why do you think is that the case?
We may find that being able to work remotely becomes a commodity the employee can offer the employer. As it's certainly still true that working from home doesn't fit everyone and we still haven't solved that I don't think. Renters can't build on an office they don't have for one example, and I don't think it's reasonable to expect an employee to work from their living room. But maybe co-working spaces will become more popular for the edge cases.
When the "can you work from home" question gets a high enough incidence of "yes" answers, you'll see diminishing returns on renting office spaces. People that can't answer "yes" to that question will be priced out of the market.
If that's how you measure it, then covid will NEVER be over (People are still dying from flu every year)
Pandemic is over. COVID19 is never leaving us.
But the panic and response are over, the public has accepted it as a part of the world now, the world is just the world and life is just life again.
Keep in mind that both places, people and policies change state to state, country to country. You are talking like your experience is the only possible one. Where I live is seeing the most deaths it had the entire pandemic, we have still removed all restrictions but that doesn't stop people changing their behavior. Some places are still having lockdowns. Some borders remain shut. You get the idea.
Perhaps material-neutral "value" is not a particular good measure of anything.
If the big apartment were a fraction of the price of the house in suburbia, maybe. But it costs way too much to build tall buildings for that to ever be feasible.
Asian and European cities work because everyone expects a smaller amount of living space. And the large houses in suburbia are simply priced out of reach for 95%+ of the population.
And that’s before the expensive taxes, permits, etc., that cities charge on top for downtown or high rise construction, which as you say partially subsidizes suburbia. So in reality it’s more around triple the cost per square foot in a North American city.
The only reason apartments bigger than a shoebox are affordable at all is because land acquisition costs when divided by hundreds of units is obviously far lower than for even the narrowest cookie cutter tract.
And why would any land owner seek to zone for less than the maximal allowance?
If you mean forced downgrading of the zoning or replacing existing suburbia with mid density developments, or subsidizing mid density as opposed to suburbia, that’s an entirely political conversation since the roadblock is zoning laws and the legislature.
And yeah, if there are sandwich shops or whatever whose business is only viable at skyscraper-level density and not at 4-6 story density then those will go to the wall. But I doubt that's a big segment. Mid density means proportionately more floor space at street level, which should be friendlier to businesses.
We may see a more pronounced downturn in city centers, and we might see a drop in density below skyscraper level (though personally I'm skeptical of even that much). But we won't see a hollowing out of the cities; at the very least, Vienna-like density still makes sense.
EDIT: And in any case there is no real benefit for the city council to stop upzoning at mid-rises only. If they’re expending the political capital to upzone they have every reason to go all the way.
In which municipality has land value declined since 2009?
And even if so, why does that mean they are forced to build anything? They can just keep it vacant and pay a much lower property tax, some folks just don't want to go through hassles even if it's somewhat less efficient.
> If you mean forced downgrading of the zoning or replacing existing suburbia with mid density developments, or subsidizing mid density as opposed to suburbia, that’s an entirely political conversation since the roadblock is zoning laws and the legislature.
You appeared to be claiming that land will be left vacant in the absence of political changes (with the frankly bizarre suggestion that land needs to be downzoned to encouraged more building). If that wasn't what you were claiming then what were you claiming?
It's called land banking if you haven't heard of it before.
I'm not sure how any of your comment follows.