“When there is a general change in conditions, it is as if the entire creation had changed, and the whole world altered.” —Ibn Khaldun, 14th century Arab historian
The Covid-19 pandemic, it’s clear, will help reshape America’s economic and demographic future. Yet, many of the trends that we may associate with this reshaping—the rise of online work, a growing interest in suburbia and smaller cities—were already in place before the pandemic. The pandemic did not originate these trends, but it will likely accelerate them.
For years, the conventional wisdom from economic observers like Neil Irwin of The New York Times and echoed by public relations aces and property speculators has been that “superstar cities” like New York, San Francisco and Seattle have “the best chance of recruiting superstar employees. In contrast, rural and interior regions would become home to “behind.” And experts like urbanist Christopher Leinberger predict suburban tracts would become “the next slums.”
Yet, in reality, jobs and young people have been increasingly heading toward both the suburban periphery and smaller cities. In fact, a snapshot of America before the appearance of Covid-19 was of a country migrating more to suburbs, exurbs and smaller cities, with the U.S. Census Bureau reporting the fastest growth in domestic migration between 2010 and 2019 taking place in cities with less than a million people—a dramatic change from just a decade earlier.
In contrast, our largest metropolitan areas—New York, Chicago and Los Angeles—lost nearly as many net domestic migrants as the population of Arkansas from 2010 to 2019 (2.8 million compared to 3.0 million). New York’s population growth peaked at 130,000 in 2011 but fell to a 60,000 loss by 2019, according to Census Bureau estimates.
The Geography of Pandemics
The pandemic has been toughest on areas suffering from what we call “exposure density.” Nationwide, the highest fatality rates are in the two highest urban density categories, which are comprised of three New York City counties. Manhattan’s fatality rate, with 2.4 percent of the nation’s deaths, is 4.8 times its proportional share of deaths; Brooklyn and Bronx counties, which have the higher poverty rates associated with higher death rates, do even worse, with a fatality rate 7.5 times the national average.
In contrast, less dense counties—those with urban densities between 2,500 and 5,000—have less than their proportional share of deaths (0.8 percent), with 22.4 percent of deaths and 28.1 percent of the population. Lower density areas have even lower fatality rates, despite the occasional spikes in food-processing plants, Native American reservations and extremely poor areas like those close to the Mexican border. Even with the recent surge, fatality rates in states like Texas, Arkansas, Kansas and the Dakotas remain between one-third to one-eighth of those in New York and New Jersey.
Pandemics, like changes in climate, often alter how and where people live. In the 14th century, plagues wiped out as much as one-third of Europe’s population, but the wreckage also brought opportunities for those left standing. Large tracts of land, left abandoned, could be consolidated by rich nobles or, in some cases, enterprising peasants, who looked to lower rents and higher pay. “In an age where social conditions were considered fixed,” suggested historian Barbara Tuchman, the new adjustments seemed “revolutionary.”
We already see signs of a huge shift in the increasingly empty New York towers and failed new projects in San Francisco and downtown Los Angeles. In the first two months of the pandemic, REIT office values dropped by as much as 25 percent.
A recent Harris poll suggested that upwards of two in five urban residents are considering moves to less-crowded places, a finding shared by real estate experts. “New home demand is improving in lower-density markets, including small metro areas, rural markets and large metro exurbs,” notes National Association of Home Builders Chief Economist Robert Dietz, “as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.”
Technology Accelerates the Trends
Living in dispersion far from the coasts may not save you from contagion, but being away from people, driving in your own car and having neighbors you know considerably reduces the risk. We may debate the true causes of infection and mortality from the pandemic for decades to come, but it seems likely, judging from real estate trends and emerging demographics, that the table is well-set for attractive peripheral areas and smaller, less densely packed cities.
Remote working, notes Stanford economist Nicholas Bloom, increased from 5 percent before the pandemic to above 40 percent and may hold firm or even continue. A University of Chicago study suggests it could settle at as much as one-third of the workforce, a finding also confirmed by a recent Chief Executive CEO survey. Sixty percent of people working from home express a preference, according to Gallup, for continuing to do so.
Corporate executives have been surprised by how seamless the shift to online work has been, reaping surprising productivity gains. Many companies, including leading tech firms like Facebook, Salesforce and Twitter, now expect a large proportion of their workforce to continue working remotely after the pandemic. Rising disorder in our major cities—exemplified by a shocking rise in homicides in places like Los Angeles, Chicago and New York—is likely to increase insurance costs for downtown shopping and scare middle-class residents of all races out of the big cities.
The impact may be most intense in the tech industry, which already has high rates of telecommuting and jobs that are intrinsically easy to do remotely. Two out of three tech workers are now willing to leave San Francisco, according to Redfin, with many seeking suburban locations or even a shift to the countryside.
The shift to online, some observers fear, will take away the “serendipity” so critical to Silicon Valley’s emergence. But, in the age of tech oligarchies, much of the grassroots “garage” valley economy has been consigned to the past. States and localities from Oklahoma to Vermont, Maine to Iowa have adopted programs to promote this environmentally friendly policy. These include providing cash incentives for companies and workers, as well as housing subsidies.
Covid is likely to accelerate the shift to suburbia, which already accounts for 82 percent of all new jobs. In 34 of the 53 metropolitan areas with populations of more than 1,000,000, 90 percent or more of new jobs have been located in the suburbs since 2010, according to research by Indeed Hiring Lab. Meanwhile, the fastest drops in job postings have not been, as expected, in tourism-dominated economies (outside of Hawaii) but in the elite regions such as San Francisco, New York, Chicago, Boston and San Jose.
Over the next few years, growth will likely continue to shift to large Sunbelt metros such as Dallas-Ft. Worth, Nashville and Phoenix. Perhaps more surprising, dynamic growth will also spread to smaller areas such as Madison, Wisconsin; Des Moines, Iowa; Fayetteville/Northwest Arkansas; and Huntsville, Alabama. Over the past decade, these have generally outperformed the large metros—New York, Chicago and Los Angeles—in creating new jobs in fields such as business services and technology, according to the Bureau of Labor Statistics.
Even before Covid, the concentration of tech jobs was creating what the Brookings Institute described as “ruinous degree of territorial concentration” in cities like Seattle and San Francisco, resulting in hyper-inflated real estate, mass homelessness and monumental traffic congestion. A shift to more diverse locales could be better for the country, the tech industry and the people who work in it.
The process has already begun, as evidenced by Lyft’s move of many key operations to Nashville, Uber’s move to establish its second-largest office in Dallas-Ft. Worth and Apple’s establishment of its second-largest facility in the suburbs north of Austin. Elon Musk started shifting more Space X operations to Texas, including building his next electric vehicle factory in Austin, Texas.
Suburbs or small cities with the best infrastructure will benefit most. Good medical care will be a big determinant, suggests Dan Young, former president of the Irvine Company, in terms of where people and companies choose to locate.
We cannot suggest that these trends will turn around the decades-long decline in older Midwest industrial centers such as Cleveland, Detroit and even Chicago. But the South, the Great Plains, the mountain West and parts of the Midwest are attracting two key demographic groups—millennials and immigrants. More millennials, including those Richard Florida, a professor and head of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto, identifies as the creative class, are heading to the Cincinnati and Grand Rapids metropolitan areas than to New York, Los Angeles or Washington, D.C. Renewed interest in single-family homes after the pandemic may accelerate these trends.
Despite media accounts about young people not wanting to start families or buy homes, most surveys show this remains the preference of the vast majority. To many of these young families, affordable single-family housing is a top concern. Housing costs based on the price-to-income ratio (median prices divided by incomes) in places like Indianapolis, Des Moines, Cincinnati and Kansas City are one-half to one-third of those in Los Angeles or the Bay Area. Commute times are also 20 percent to one-third lower in the lower-density, affordable cities.
What About America’s Big Cities?
Core cities like New York and Chicago, of course, will not disappear. Instead, they will likely revive, albeit in a less grandiose way than generally imagined by urban pundits. And, for those who can afford rents—young, affluent, childless—the walkable parts of core cities, such as much of Manhattan, downtown San Francisco and the Chicago loop, may remain enormously attractive.
With the reduction in tourism—driven by cratered international air travel—city dwellers can rediscover the pleasures of urban life. They can thrive, as H.G. Wells predicted well over a century ago, as “places of concourse and rendezvous.” The city, he projected, would be a small percentage of the overall population and would be dominated by the affluent and childless, areas of “luxurious extinction,” as he waggishly predicted.
In an era of social distancing, places like Manhattan will need to become less crowded. This happened in the years after the Spanish flu, as well as other deadly outbreaks, most commonly in areas like the Lower East Side, then one of the most crowded places on earth. Manhattan, home to 2.3 million people in 1910, shrank over the next 70 years, became less congested as the population dropped to 1.6 million and people moved to the outer boroughs and surrounding suburbs that now make up more than 60 percent of the combined statistical area (CSA) population.
Yet, for the most part, the future belongs most to the suburbs and less expensive areas. This is reflected by the number of households with school-aged children (6-17), which average more than a third higher in suburbs and exurbs than in dense urban cores. The difference is even greater in places like Manhattan and San Francisco, where the share of households with school-aged children is less than one-half that of the rest of the metropolitan area. Societies with low birthrates—as we now see in much of Europe and East Asia—inevitably suffer a kind of cultural and economic stagnation. Young people, notes economist Gary Becker, are critical to an innovative economy, and more of them are likely to come from the Heartland.
In the end, America will adjust to the pandemic as it always has to crises—slowly and incompetently at first, but decisively meeting the challenge by allowing citizens to adjust their ways of life geographically. We may despise what providence has brought us with this miserable disease, but the blessings of our vast and varied country will see us through to a better day.