Connecting state and local government leaders
The economies of six big cities took a hit as workers went remote or moved to areas with lower costs of living. But by focusing on downtown housing and leaning into already strong local industries, municipal leaders may be able to reverse the trend.
Three years after the coronavirus hit the U.S., the pandemic’s impacts on regional economies are still unfolding. But if one thing is apparent, it’s that the rise of remote work has permanently changed urban economies, and cities are going to have to double down on their strengths to attract more residents.
A recent analysis by the Massachusetts Taxpayers Foundation pulled together data from six cities that are navigating high office vacancy rates: Boston, Chicago, New York, Philadelphia, San Francisco and Washington, D.C. The organization was looking to better understand how the state’s transit authority—which has been experiencing a slew of issues in recent years—is affecting the post-pandemic recovery, according to Doug Howgate, the foundation’s president. Researchers started to compare Boston’s recovery to other cities, and found that just looking at transit couldn’t paint a full picture of the decline in the city’s economic activity. Other factors, like housing and office occupancy also play a role.
These cities currently account for approximately $4 trillion or 18% of the U.S. gross state product, but their economies flagged as residents worked from home or moved to other parts of the country.
“Office worker-driven economies in major cities are taking permanent hits as hybrid/remote work reduce downtown time and money spent,” the report said. “As office leases expire, more empty buildings will stress owners, local businesses and city finances.”
Between 2020 and 2022, the six cities were among those that saw the greatest declines in population in the country, with New York losing more than 400,000 residents in those two years, according to the Census Bureau. Meanwhile, nine of the 15 fastest-growing cities in the U.S. are in Southern states and four are in the West, thanks to lower housing costs, shorter commutes, and remote work.
As households move away from traditional economic hubs, the six cities highlighted in the report are feeling the pinch, Howgate said.
“At a fundamental level, your economy and your society only succeed if you have the resource of people,” Howgate said.
And that resource appears to be moving south. Florida, Texas, Georgia, the Carolinas and Tennessee contributed nearly 24% of U.S. gross domestic product in 2022, more than the 22.4% generated by the 11 northeast states, Bloomberg reported in June, citing data from the Bureau of Economic Analysis.
“There really was an inflection point during the pandemic in which aggregate gross state product in the Southern states exceeded the Northern states for the first time probably ever,” Howgate said. “That gap has not only persisted but has, in fact, grown since then.”
Southern cities' thriving economies may not come as a surprise. Some might attribute those successes to swifter redactions of pandemic regulations, allowing businesses, schools and day care centers to reopen earlier, Howgate said. But over the last year, despite the full reopening of just about every community in the country, the economic engine in Southern cities continues to draw new residents.
Without the call of the office bringing people downtown, cities and states will need to get creative in finding new ways to keep metro economies afloat. Historically, bringing major companies to cities had been a reliable way to create new jobs and attract workers, but that’s no longer the case.
“We can't just say, ‘Hey, let's just give it another six months and then things are going to look like they did in 2019,’” Howgate said. “I don't think that's going to happen at this stage of the game.”
If employment isn’t going to bring people downtown to work, shop or have lunch at a local joint, what will?
One possibility, it seems, is housing.
Take, for instance, Salt Lake City. Before the pandemic, the city’s downtown had a relatively high share of residential spaces compared to other cities, meaning more economic activity was generated by residents than workers. That, in part, has likely contributed to the city’s remarkable recovery from the pandemic, with downtown visitor traffic up nearly 140% since 2019, according to a recent report from the Brookings Institution.
Boston can no longer rely on workers flooding downtown, Howgate said, but more residents moving into the city could offset some of the losses associated with the workforce population decline.
To attract new residents to live and work in the Boston metro area, the city should lean into its strengths, Howgate said. In 2008, Massachusetts launched a life sciences initiative that invested $1 billion over a decade to bolster the state’s biopharmaceutical industry. Already known for some of the most renowned facilities and medical schools in the country, Boston used the funding to help attract new life sciences businesses and workers. Reauthorizing the initiative would help the city recoup some of the losses incurred during the pandemic and find new opportunities to become “a global leader in talent and innovation,” the Massachusetts Taxpayers Foundation report said.
The report points to the South by Southwest conference and festival in Austin,Texas, as an exemplary strategy for attracting people to “live, work and invest” in a city. SXSW draws hundreds of thousands of people annually to celebrate the convergence of technology, media and music and illustrates “what a region does and can do in a way that builds momentum and some economic success going forward,” Howgate said.
The pandemic is unlikely to be the last major disruption to local economies. A recent report from Goldman Sachs found that artificial intelligence could automate 25% of work tasks across industries. Climate change is increasing the frequency and severity of disasters like floods and wildfires in communities nationwide.
“There's no one silver bullet for all this stuff,” Howgate said. Building a strong urban economy requires understanding the complex relationships around housing, life sciences, federal funding and taxes, he said. “All of these things are related in terms of making sure that we're making a serious attempt to maintain and grow some of our advantages.”