One thing is clear: More than ever, people and firms are re-evaluating where they live and work. The choices they make will have a major impact on the future shape of our communities. The policies we choose will shape the location decisions that are made.
Even before the pandemic, digital technologies supporting online retail, virtual meetings, delivery logistics, ridesharing, and car-sharing were available, well-developed, and changing the economic landscape. With the notable exceptions of ridesharing and car-sharing, the pandemic dramatically accelerated the acceptance of these technologies and expanded the industries they supported. Health risks, uncertainty, and government restrictions resulted in a boom in online retail product delivery and development of telemedicine. Business survival and the need to earn a living led to widespread use of virtual meetings. These changes have had serious impacts on many sectors of the economy
Future of Cities
Although it is virtually impossible to forecast the future that flows from the unprecedented effects of the pandemic in the context of rapidly changing uses of digital technology, it is instructive to examine the characteristics, consequences ,and early evidence of three alternative plausible scenarios: declining urban density; return to a new normal; and smart and connected city expansion. All three of these scenarios have significant implications for the future of cities.
Scenario 1: Declining Urban Density
The scenario of declining density is one that many people seem to expect, primarily as a result of permanent adoption of practices and changes necessitated during the pandemic. The basic economic forces that drive this scenario are:
- Face-to-face interaction is perceived as less valuable than it was pre-pandemic
- Cities are perceived as more risky from a health perspective
- Agglomeration benefits of cities are eroded by better communication technology
- Lower-cost and more decentralized locations are better able to successfully compete for people and firms
Declining urban density would have negative aggregate economic impacts for cities if the lower agglomeration economies are not fully offset by virtual meeting technologies. Because agglomeration benefits will be further reduced as density declines, there is a potential of a negative vicious cycle. Several adverse outcomes would be associated with this scenario:
- Diminished value of existing public infrastructure in less dense cities
- Substantial need for new infrastructure investment in expanding locations
- Diminished urban land value and built asset-value including stranded assets
- Increased congestion for a given level of economic activity as transit is underutilized
- Competition for remote work becomes global for many, and US residents may find themselves in direct competition with low-wage labor across the globe
Scenario 2: Return to “Normal”
The expression of the “new normal” is common in discussions of post-pandemic America. First note that cities are constantly evolving —there is no “normal” per se, but for the purposes
of this scenario, the “new normal” is one with substantial adjustments enabled by new digital technologies. The virtual technologies increase flexibility of in-the-workplace and at-home arrangements, but these gains are offset by the declining agglomeration economies resulting from declining density and new infrastructure costs. Further this scenario does not envision the possibility of greater global competition in the labor market.
Based on limited and early evidence several patterns have emerged:
- Cities have lost population, but not dramatically
- Economic activity is recovering as vaccination reduces risk and fear
- Auto travel is increasingly dominant as Vehicle Miles Traveled are increasing and transit use remains depressed
- The competitiveness of dense cities is somewhat eroded by the decline of transit
The return to the “new normal” is a middle-of-the-road scenario that likely will have middle-of-the-road consequences. Market adjustments that will probably occur will increase the likelihood that this prediction will best represent the future outcome. Some challenges arise in this case that will require deft and insightful public policy to prevent potential downsides from occurring, specifically in preserving high quality-of-life in urban areas, investing in new infrastructure to support moderate changes in physical location, and supporting innovations in the transit industry to accommodate the needs of households with more flexible travel patterns. Overall this scenario implies:
- Less dense areas do a little better
- Declining values of existing public and private urban assets
- More congestion and greater infrastructure need
- More climate-related challenges
- Economic growth is a little worse or a little better, depending on the extent of agglomeration loss, infrastructure and congestion costs, and climate issues
Scenario 3: Smart and Connected City Expansion
In this scenario, Cities have evolved into knowledge and innovation hubs that benefit from face-to-face interaction. As long as those interactions generate significant positive economic and social benefits, technologies that allow remote work simply expand the reach of innovative businesses in accessing labor for non-innovative tasks. This could give rise to increasing dominance of smart and connecter cities that provide high quality of life for the innovative class. These successful cities will have businesses with a global reach in the talent market, as well as citizens with work options all over the world.
For all cities, technology advances provide flexibility that alleviates expensive infrastructure constraints. It lowers peak demand on roads, transit, and sidewalks for any given level of economic activity. This allows full utilization of existing built infrastructure, leading to higher levels of economic output with lower physical infrastructure costs. The ability to access lower labor costs while at the same time generating large agglomeration economies with lower
Infrastructure costs may result in winner-take-all growth of policy- and tech- savvy cities.
Not enough time has elapsed to see whether the new technologies will further feed the growth of large cities as they have in the past, or whether this time it really will be different. If it is not different, there are potential large gains that may be made but also significant challenges ahead in ensuring that those gains are equitably shared
- There is little threat of declining urban value or stranded assets, at least in large cities
- Increasing agglomeration economies generates the greatest productivity income and wealth
- Environmental and climate challenges are more easily managed since dense cities are less resource-intensive on a per capita basis
There will be three major challenges that need to be addressed:
- Housing affordability is a problem in virtually for every successful city as competition for space in dense areas drives up prices
- The potential for mega winners at the expense of others poses challenges in equitably distributing the income and wealth of macro economies
- Successful, dense, diverse communities may find themselves in conflict with virtual homogeneous communities
Implications for City Leaders
As we have seen for the past 18 months, making predictions about “post-Covid” life is fraught with uncertainty. Yet looking at the future through a scenario lens like posed here allows city leaders to understand the potential range of outcomes that could lie ahead, and prepare policies and strategies that position a community for success no matter which direction is realized. Modeling the potential impacts of each scenario can help a city understand what it may need to do to either seize an opportunity or avoid a potential problem.
If you are interested in exploring these ideas further or have your own thoughts on potential scenarios or implications of our new realities, connect with us to see how we can work together. The ESI Center for the Future of Cities is actively exploring all of these ideas, and is available to help you understand how your city or organization will be impacted by these transformational changes. Contact Steve Wray or Dick Voith for more information on how we can work together.
As Co-Chair of the Econsult Solutions (ESI) Board of Directors, Dr. Richard Voith provides expertise to clients in real estate economics, transportation, and applied microeconomics. Dr. Voith served as President since the firm’s inception and is now guiding strategic planning and development of the company. As a Principal of ESI he continues to provide insight and analysis in the firm’s transportation, real estate, litigation, and international business activities. In addition to his roles at ESI, Dr. Voith is Research Fellow at the University of Pennsylvania’s Institute for Urban Research.
Steve Wray is a Senior Vice President and Principal at Econsult Solutions, Inc. (ESI). In this role, Steve focuses on the development and implementation of programs and projects that support ESI’s vision and short- and long-term plans. He leads the work of the firm’s principals and senior staff in developing new partnerships, expanding and building on existing practice areas, and integrating the firm’s strengths in economic analysis and thought leadership. Mr. Wray joined ESI in 2017 as a Director and was promoted to Vice President, Strategic Initiatives in 2019.