In May, ESI published a research paper called Doom Loop or Boom Loop: Work From Home and Challenges Facing America’s Big Cities, commissioned by The Volcker Alliance. The team conducted a comprehensive study on the trajectory for cities in the era of remote work and unveiled the potential for greater productivity and economic growth facilitated by well-crafted policies. This research sheds light on the promising future cities could have with the right strategies in place.
How has remote work changed the economic landscape of big cities in the United States?
Since the onset of the pandemic in 2020 that led to a rise in remote work across the United States, cities nationwide have observed a growing number of vacant offices, depleted central business districts, reduced economic competitiveness, and financial strain. In New York, for instance, the proportion of individuals working from home surged from 4.8 percent in 2019 to 16.2 percent in 2022 as the pandemic subsided. Similarly, major cities such as Chicago, Miami, Philadelphia, and San Francisco also saw notable increases in their work from home (WFH) percentages during the pandemic.
Initially, these responses were triggered by the lockdown “shocks” to the economy, which drastically reduced levels of commuter activity within cities. And as restrictions gradually lifted and public confidence recovered, workers gradually returned to office settings. Over time, nearly all workers in small cities returned to their offices, while in large cities, they did not. Due to this, large cities –often the financial and economic hubs, were increasingly perceived as vulnerable to prolonged economic downturns triggered by instability in critical markets like real estate, financial services, and transportation. Expensive housing further challenges city recovery. The underlying premise is that as activities in the urban core decrease, with reduced number of in-person interactions, the benefits from urban agglomeration—the geographical colocation of employees and companies that boosts productivity—might also diminish. This reduction in agglomeration can trigger a response where budget deficits result in reduced public services and increased taxes, which in turn can create cycles of decline like those experienced by many U.S. cities in the 1960s and 1970s. But is the outlook for cities as negative as people think?
How can cities enter a cycle of growth/enhanced productivity?
While the trends may appear foreboding, WFH also offers prospects for New York and other cities to embark on a cycle of greater productivity. With the rapid development of technology, cities could witness substantial benefits by reducing expenses for some tasks through remote work, enhancing the innovation of in-person work, and updating transportation networks to facilitate easier accessibility. And this opportunity is likely to grow even more with the development of generative artificial intelligence, which will not only make remote work more productive but also drive the need for creativity associated with in-person work.
The following set of recommendations are made in this research:
- Promote the city as the home of innovation-generating sectors that traditionally benefited from in-person interaction;
- Leverage the employment of remote workers for tasks that do not require physical presence or agglomeration, thus optimizing operational efficiency and lowering both commuting and real estate costs;
- Ensure that the municipal tax system encourages in-person work;
- Adapt public and private infrastructure, including mass transit, to thrive in an environment that increasingly requires flexibility;
- Build more amenities to attract residents; and
- Lower the price of housing by increasing allowable density under zoning regulations and reducing production costs (including construction and regulatory costs) and the time required for permits and land-use reviews.
In conclusion, although there may be economic and fiscal challenges for cities in the near term, it is important to interpret current conditions and recent trends cautiously, as they represent the early stages of adjustment rather than an equilibrium. Historical predictions of the decline of cities have often been proven wrong, with some cities defying expectations and thriving despite initial difficulties. New York City’s experience in the early 1980s exemplifies this: despite facing seemingly insurmountable challenges, the city adapted and entered a new era of prosperity.
This research focuses on the alternative view that the long-term implications of WFH will depend on how we choose to move forward. There is potential for cities to prosper more than before with increased long-term economic activity, provided the right set of policies and strategies are implemented. Read the full paper here to explore this research in detail.
Hyojin Lee, Analyst | [email protected]
Hyojin Lee is an analyst at ESI. She received her dual master’s in City and Regional Planning and Public Policy from Rutgers University in 2022, and a bachelor’s degree in Architectural Conservation from the University of Hong Kong in 2018. Prior to joining the firm full-time, Hyojin interned with ESI while completing her graduate studies at Rutgers. She was also a member of the New Jersey Climate Corp at the NJ Climate Change Resource Center, providing technical assistance to municipalities in understanding their vulnerabilities to climate change.