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Metaphorically, America’s cities are burning. These major urban centers, which were already losing population before the pandemic, have provided the ideal kindling for a “social conflagration” in the form of massive unemployment, closed businesses, and already rising crime rates.

The forms of disintegration recently unleashed, vary. In overwhelmingly white cities like Portland, Seattle, San Francisco, and Minneapolis, violence has featured white radicals endorsing the extreme agenda of the neo-Marxist Black Lives Matter movement. In more diverse cities, such as Chicago and New York, protests have devolved into basic “thuggery” as law enforcement was curtailed and large portions of the prison population were released.

But at a time when even The New York Times is suggesting that density and packed transit lines worsened the contagion, some so-called experts continue to embrace high-density orthodoxy despite the data. And certain “die-hards” even advocate greater density, more crowding in cities, and more mass transit. Fortunately, people tend to be less ideological when making their own locational choices. Therefore it’s not surprising that according to The New York Times 420,000 people left New York City between March 1 and May 1. According to demographer Wendell Cox, that nearly equals the city’s total 70-year net population increase from 1950 to 2019.

So, what’s going on?

The impact of dense conditions on the pandemic is clear. Overall, high-density locations have suffered three times the COVID-19 fatality rate of less dense, generally suburban areas and eight times those of more rural environments. Why? A city’s vulnerability depends not simply on people per square mile, but on so-called “exposure density.” That’s a measure of continued contact with other people, particularly in crowded, unventilated places like subways, small apartments, elevators, and offices. For that reason, the New York area, the epitome of dense, transit-oriented urbanization, still accounts for roughly one-third of all U.S. COVID-19 deaths as of late-August 2020.

And even though the pandemic has spread to certain types of venues in other parts of the country, such as meatpacking plants, border towns and Native American reservations, the risk factors associated with New York City are impossible to ignore. High rates of poverty and overcrowding, clearly factors in COVID-19 infections, can occur anywhere but seem most devastating in places where poverty meets density. The Brooklyn and Bronx boroughs, with higher rates of poverty than fashionable Manhattan, have endured a fatality rate of 7.5 times the national average.

Urban planners, real estate speculators, and their “PR flacks” may ignore these numbers, but people take their own health, and that of their families, more seriously. In fact, a recent Harris poll suggests that upwards of 40% of urban residents are considering a move to less crowded places. More people, notes the National Association of Realtors, are seeking out single-family houses with yards and workspaces. Even in New York, where suburban sales (particularly in nearby Connecticut) are rising rapidly, Governor Andrew Cuomo has been reduced to begging wealthy residents to not depart for less taxed states.

Some urban refugees are even looking beyond the suburbs to the countryside. In New York, the rural counties north of the city have experienced huge increases in demand even as demand for city apartments dropped. This pattern is also seen in other rural getaways such as Montana, rural Colorado, Oregon, and Maine.

As demographer Joel Kotkin found in a recent study for Heartland Forward, even before COVID-19, millennials, had been heading to second-tier or third-tier metropolitan areas like Fargo, Des Moines, Fayetteville, and Grand Rapids. These areas are gaining migrants even as some big cities like New York, Los Angeles, and Chicago have lost millennials over the past five years.

What other factors are in play?

Over the past decade, the mainstream media proclaimed that millennials would continue pouring into cities. In the process, they expended a great deal of effort promoting the economic future of big, dense cities. For instance, Neil Irwin of The New York Times claimed “superstar cities” like New York, San Francisco, and Seattle will prevail since they have “the best chance of recruiting superstar employees.” In contrast, rural and interior regions were forecast to become home to “the left behind.” And, some experts even predicted that suburbia would be “the next slums.”

Little noted was the fact that, throughout the past decade, suburbs accounted for roughly 80% of metropolitan job growth. And this share seems to have gotten bigger, most recently. Since the pandemic began, the fastest drops in job postings, outside Hawaii, have been in “elite regions” such as San Francisco, New York, Chicago, Boston, and San Jose. Similarly, these same cities have all experienced strong declines in rents, even as more affordable, less “politically correct” cities like Cleveland, St. Petersburg, Indianapolis, Columbus, Reno, and Chattanooga have seen healthy increases.

Perhaps nothing will amplify these trends more than the rise of telecommuting. According to Gallup, some 60% of current U.S. telecommuters, wish to continue telecommuting for the foreseeable future. Stanford economist Nicholas Bloom predicts that, once the pandemic ends, the online workforce will have increased from six percent before the pandemic to something close to 20%. Meanwhile, a University of Chicago study suggests this could grow to as much as one-third of the workforce, a finding confirmed by a recent Federal Reserve Bank of Atlanta report.

Economics and personal preferences will ultimately determine the shape of cities. For example, when offices began to reopen in New York, early in the summer of 2020, real estate brokers report that most workers refused to return. And this was not simply an expression of fear; Gallup reported that even before the pandemic, three times as many Americans expressed a preference for rural or small-town life as for the big city. And critically, this includes knowledge workers. Specifically, a recent survey of professionals found that 70% sought to move to a less dense area.

As we explained over a decade ago in Trends, telework has been poised to become a dominant paradigm in many industries; it was simply waiting for cost-effective tools to interact with a widespread trial to make adoption inevitable. Now COVID19 has finally provided the long-awaited “spark” required to ignite the trial and bring “mass telework” to reality.

Notably, corporate executives have been surprised by how seamless the shift to online work has been and the success they’ve achieved in reaping productivity gains. As a result, most now believe this trend will persist and even intensify after the pandemic. Financial giant Nationwide and other major financial institutions, including Barclay’s, Morgan Stanley, Citigroup, and JP Morgan Chase, have already decided to reduce their large office footprint.
The infotech industry often celebrated as “the savior of cities,” is particularly susceptible to teleworking. A June survey of venture-backed startups showed that three-quarters expect to remain fully or mostly remote, while barely five percent anticipate a total return to the office.

Concentrated in areas that already have the highest rates of telecommuting, many software jobs are intrinsically easy to do remotely. Many tech companies, including Google, Twitter, Facebook and Salesforce.com, predict that a large proportion of their workforce will work remotely after the pandemic. And not surprisingly, two-out-of-three San Francisco tech workers are now willing to leave the city, according to Redfin, with many seeking suburban locations, or even a shift to the countryside.

These shifts could produce severe financial fallout, including a potential haircut of $3.3 trillion in commercial mortgages. Particularly vulnerable will be retail rents in places like New York, which are now plummeting, as well as financially dodgy mega-dense developments like Hudson Yards, the proposed new massive development in Sunnyside, Queens, and similar efforts in Chicago. In early August, a Los Angeles high rise office tower ominously sold for one-third below its 2019 asking price.

Other projects may end up never being fully completed. Consider two largely Chinese-financed projects, one in already-troubled downtown Los Angeles and another in San Francisco,

And, what about the political fallout of this urban crisis?

America’s dysfunctional cities impact more than real estate prices and housing patterns. The rising disorder in our major cities, reflected in a shocking rise in homicides in Los Angeles, Chicago and New York, represents an arguably greater long-term threat. Security is a new hot topic among corporate location executives, notes Jay Garner, head of the Site Selectors Guild. Garner reports that barely 10% of companies want to locate in big cities, while most prefer suburbs, smaller cities, or rural areas. The top places cited by companies include cities such as Boise, Colorado Springs, Columbus, Kansas City, and Indianapolis.

Garner now wonders how attractive “woke” cities like Seattle or Portland or Minneapolis, with their debilitated law enforcement, maybe for investors. Certainly, they would be concerned about Chicago, where even a rumor concerning the police can create protests accompanied by looting on the city’s fabled Magnificent Mile.

As city officials, business leaders, and even front-line employees are being reminded: rioting is not a good economic strategy. As we saw in the 1960s and again after the Los Angeles riots in 1992, disorders first bring pledges from corporate elites and government. However, the “pleasures of violence and political posturing” do not improve conditions. And decades of racial protest have engendered little prosperity; in fact, high-poverty urban areas doubled in population between 1980 and 2018. Therefore, it’s safe to say that the return of “no justice, no peace” rhetoric is unlikely to improve conditions in the inner city or encourage businesses to move downtown. South Central Los Angeles, the site of two of the worst riots in American history, over the past 50 years has suffered a growing gap with the surrounding area in terms of homeownership, income, and educational attainment.

What’s the bottom line?

The era of dense American mega-cites served primarily by public transit and congested highways, seems to be coming to an end. Trends in technology, demography, and human behavior are now favoring alternatives.

Given this trend, we offer the following forecasts for your consideration.

First, in the short run, at least, cities under “progressive” rule will continue to lose employers.

Amazon, for example, is gradually de-emphasizing Seattle, which seems determined to raise taxes on affluent employees and lessen police protection. Amazon is moving more jobs to suburban Redmond and Bellevue. Meanwhile, many long-time Bay Area and greater Los Angeles employers, such as Bechtel, McKesson, Parsons Engineering, Jacobs, Toyota, and Nissan, have relocated predominately to sunbelt suburbs. Besides concerns about taxes and policing, the looming threat of draconian climate policies, has had the effect of driving companies, particularly manufacturers, to other states.

Second, this urban crisis will play a surprisingly large role in U. S. politics, beginning in 2020. Republicans, including President Donald Trump, clearly see in the gross urban dysfunction a political opportunity.

This will be a very persuasive argument if it comes from a trustworthy source, not blatantly motivated by electoral gain. Similarly, moderate Democrats and independents will need to make the argument that far-left politics, constant disorders, and reduced police presence undermine urban prospects. The aim should be to reverse an urban pattern that, as noted in a new MIT study, has undermined cities’ historic role as places for upward mobility. What is needed is a greater focus on protecting both job creators and neighborhoods. The policies of old-time urban Democrats, which focused on jobs, schools, and infrastructure, will resonate well, particularly in working-class communities. Today’s conservatives will seek out partnerships with these forces and cultivating support in working-class neighborhoods, which are now threatened by urban decline, the pandemic, and a surge in lawlessness. Such a political alliance has the potential to salvage the heritage of our great cities.

Third, barring a dramatic political transformation, the populations of large American cities will decline along with rents and property values.

In the first two decades of the 21st century, the surge in young, single knowledge workers helped create a renaissance for dense urban centers. However, even as telework has become increasingly prevalent and millennials have formed families, the costs and dangers of living in big cities have been revealed by the recent crisis. Whether we’re talking about crime, taxes, high rents, or disease, the threats of urban life suddenly loom large. And any benefits of urbanization are diminished as talented people discover they can work from anywhere and still earn high pay. As a result, the Trends editors believe price premiums for apartments and offices in San Jose, San Francisco, Chicago, and New York City have peaked and may never return to recent levels. Meanwhile, places like Raleigh, Austin, and Houston are on the ascendancy. And,

Fourth, the current exodus of affluent residents will trigger an accelerating “doom loop” in some cities, from which recovery is virtually impossible.

As the most affluent residents leave Washington, New York, Chicago, and San Francisco, tax revenues and property values will inevitably fall. With lower tax revenues, services will be curtailed. And with fewer affluent customers, many service businesses will have to close. Without these public and private services, businesses will be unwilling to pay high rents and will either relocate or refocus on teleworking. The result will be empty office and apartment towers. — With so many cities already technically insolvent, expect to see widespread municipal bankruptcies. This not dystopian fantasy, it is the story of Detroit, which was one of America’s most affluent cities, just 60 years ago.

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