You’ve probably seen photos or videos of huge homeless encampments in America’s cities, like the ones in this Daily Mail article about Portland.
You’ve probably seen footage of brazen shoplifting in San Francisco, and heard about how retailers like Wal-Mart, REI, and Nordstrom are closing urban stores.
You’ve probably read about growing urban crime or seen disturbing videos such as when a group of teens and young adults were running amok in Chicago, for example.
You’ve probably heard about how remote work is threatening the future of downtowns, with half or more of workers not coming into the office anymore.
You’ve probably heard about the population exodus from urban centers during Covid, and about population drops in formerly booming places like San Francisco and Portland.
This drum beat of bad news seems to have created a sense among some that cities are doomed. There’s certainly a class of people who would welcome this, and so they are motivated to share all the bad news and emphasize the ways that big cities are in big trouble.
However, I’d like to encourage people to have a sense of perspective here. The very nature of the news cycle (e.g., “if it bleeds, it leads”) selects for bad news. It’s very easy for people without on the ground knowledge to draw conclusions that may not be warranted.
I have studied cities professionally. I also have visited a number of big cities recently. In the last two months I’ve been to NYC twice, Chicago, and Washington. In each case, the challenges are evident.
But if all you had to go on in judging these cities is what you saw when you visited them, you’d never think they were in danger of collapse. The north side neighborhoods of Chicago still sparkle. New York City is lively. Even downtown Washington has improved a lot since last summer.
This is not the early 1990s when even people in New York’s most upscale neighborhoods felt like they had to carry “mugger money.” Most people are not going to experience that kind of crime today.
Additionally, rents remain very high - they’ve even gone up a lot in NYC recently. For sale housing has held up well in most places. And the hotels are full (90% occupancy in New York). Here in Indianapolis, for example, downtown apartments are essentially completely leased up.
If you visit the central business districts of these cities, you will definitely notice the malaise. But get out into the neighborhoods, and things are different. While many lower income areas are experiencing serious problems, more middle class and affluent areas are doing very well.
This idea that the city’s are doomed is an example of the apocalyptic mindset to which we so easily fall prey. That’s one reason I always warn against it. Yes, we have a lot of serious problems in America. But I’m not betting on a collapse. It could happen. I’m not saying it’s impossible, but it doesn’t seem very likely.
To be sure, don’t listen to the urban boosters either. There has definitely been a shift to the suburbs, and even the exurban or rural regions beyond them. We see it in retail, for example.
Cities are facing a series of real challenges, which I group under three headings: remote work, high housing costs, and bad governance (resulting in part from a toxic cultural-political climate). These could put a cloud over them for years, and in some cases could lead to what some have been calling the “urban doom loop.”
But as Adam Smith said, there’s a lot of ruin in a nation. Similarly, there’s a lot of ruin in a city. Especially places like NYC and SF, which have incredibly powerful, unique assets and environments, big forces sustain them. Even at its low point in the 1970s, NYC had only lost 10% of its population from peak.
This is not to encourage people to stay in the city or invest in the city. I’m not taking a position one way or the other on that. But those who wouldn’t mind seeing a few big blue cities cut down to size, or who are drawing conclusions just based on some of the worst headlines, I’d encourage you to take a more comprehensive view of what’s going on.
I just wanted to put out this post in order to give you some market insight.
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Cover image credit: By Noah Friedlander - CC BY-SA 4.0
Re: NYC, as a lifelong resident I can concur with the assessment of the post-pandemic challenges as being relatively mild when compared to earlier decades. Remote work is a serious issue; conversion of empty commercial properties may help, as we have seen the transformation of the Financial District into a residential area.
Very good, reasonable and balanced analysis. It’s also important to distinguish between the approx 8 “global” cities in the US and everywhere else. Their fates and issues are very different. My sense is for the next decade many second and third tier cities will do quite well, while the famous ones will suffer. But in the end, I’d never go long against NYC, Chicago, San Francisco, Seattle. As you said, they just have way too many unique assets that will always exceed their liabilities.