Today, Explained - City Limits: Beware the Doom Loop

Episode Date: March 17, 2023

Pandemic restrictions are mostly over, but cities are still struggling to recover. Empty offices threaten to set off a downward spiral of falling tax revenue and declining services. Today, Explained��s Miles Bryan tries to stop the doom loop before it starts. This episode was reported and produced by Miles Bryan with help from Amanda Lewellyn. It was edited by Matt Collette with help from Jolie Myers, fact-checked by Laura Bullard, engineered by Paul Robert Mounsey, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts  Learn more about your ad choices. Visit podcastchoices.com/adchoices

It's been three years since the world shut down, and things are back to normal. Ish. According to Bloomberg News, Manhattan workers are spending at least $12.4 billion less on meals, on shopping, on entertainment, and more per year, and that's because they're spending about 30% less of their time in the office. The shift to remote work is the biggest change to urban life since cities went from being organized around factories to being organized around offices. Today Explained, we've been trying to figure out the ramifications of remote work and the

best conclusion we can come to is that to thrive in this new era, America's cities need to embrace new ideas about who and what is at the center of urban life. Over the next few weeks, we're going to bring you a few episodes on the problems American cities are facing, and some solutions, too. And today, we're kicking things off with a dose of Doom. The all-new FanDuel Sportsbook and Casino

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Visit connectsontario.ca. I guess the Lord must be in New York City. All right, today Explained, Sean Ramos from here with Miles Bryan, who is our Philadelphia Bureau Chief. But today, Miles, you don't find yourself in Philadelphia, do you? I am not in Philadelphia, Sean. I'm actually in New York City. And specifically, I'm at Vox's office in Lower Manhattan. It's in a building at 85 Broad Street. This big, beautiful skyscraper used to be the home of Goldman Sachs. It's Wednesday.

It's the middle of the week. And I just want to know, can you hear the sound of the office? Let me listen. I hear dead silence. Let me jack my mic way up. I hear nothing but my internal monologue. The point I'm trying to make here is that it's the middle of the week, it's Wednesday, and it's super quiet in here.

Yeah, it's the same way in the D.C. office, actually. The D.C. office is totally empty most days. And the reason I wanted to make this point, that the D.C. office is empty and that our New York office is empty, is that this is a series about cities and their future. And if you care about cities and you're thinking about that future, this is really worrisome to you. The fact that, you know, three years into this pandemic, people still aren't going back to their offices at anything near the rate they were before COVID broke out. And I've been talking to a lot of people who think about this stuff and think about what it means for the future of cities. And they have this term for kind of the worst case scenario. It's the doom loop.

Doom loop? Say it with me. Doom loop. Doom loop. Doom loop. Doom loop. Doom loop. Okay, this doom loop, it's sort of a death spiral for cities. The idea of the doom loop is that as remote work pushes down property values, eventually the taxes collected from those offices and urban retail will also fall.

That's Stan Van Nuerberg. He's a real estate professor at Columbia who has popularized this idea of the doom loop. He wrote a big paper recently called Work From Home and the Office Real Estate Apocalypse. Stan says that when those tax revenues decline, the city is still going to have to find that money somewhere, right? Yeah. So look, they'll probably have to raise taxes. Maybe on residential real estate, maybe on income, maybe on businesses, maybe either on households or on businesses, all of which would make the city a less attractive place to live, to work, to do business. Or Stan says maybe instead of raising taxes, the city would make cuts. It could cut transit service or the school budget or the police budget.

All of which would make the city a less attractive place to live. And so, you know, now that fewer taxes are collected, fewer people are living in the cities, property values will fall further, taxes will have to rise further, government spending will have to fall further, more people will leave, and so forth and so forth. And we get into this urban doom loop. So people like us who live in cities and like our cities also like working from home. And what we're getting here is that working from home is going to create this downward spiral that makes our cities worse. Yeah, it could create a downward spiral of declining tax revenue, which leads to declining

benefits, which leads to more people moving away. It's not necessarily going to happen, but it could. It's worth noting here that not all major American cities rely on a downtown office core in the same way. You know, different cities have different revenue streams. But it's a real concern for big cities like New York, Chicago, Seattle, San Francisco. And Sean, this has sort of become a personal obsession for me. Like you said, the people implicated here are people like you and me. I live in Philly, but my team, you, are mostly based in DC. My wife's office is in New York, but she works out of her home office here in Philly. And, you know, I love Philly.

I love dense urban places in general. And I want to see them succeed. But right now I feel like I'm kind of part of the sickness that could cause their downfall. So I wanted to see what was at the heart of all this and if there was a way out. Well, if this is an obsession of yours, I imagine you're the right person to ask

if this is something new. Is what we're seeing happen to cities as a result of the COVID-19 pandemic new, or has this happened before? You know, it's not new. Many cities were actually thrown into a doom loop roughly 50 years ago. Coming out of the Second World War, American cities were riding high. They were as populous and vibrant as they ever have been. Cleveland has the lake, Erie that is. And that's one of the main reasons it has the big industry it has. And industry is what makes Cleveland move.

They were organized around industry and manufacturing, you know, steel mills, ports, that kind of thing. In Cleveland, the men drive to the plant and drop their wives at the rapid transit station. The ladies work in the offices downtown. That was working until deindustrialization hit and the whole urban ecosystem blew up. In the short run, a lot of real estate was sort of not that useful anymore, wasn't generating enough tax revenue. That's a live shot again of that fire in the South Bronx that Keith called your attention just a few moments ago.

You know, as a result, the cities didn't have as many resources to invest in safety. People left. Detroit once was called the City Beautiful. It is now called the murder capital of the United States. It was sort of this urban flight and so sort of

the income tax base of the cities got eroded. And this was sort of a doom loop that fed upon itself. This era of deindustrialization was a total body blow to America's big cities. You know, they all saw huge population declines after 1950.

There are some cities that never really fully recovered from deindustrialization, like Detroit. But in the ones that did, the New Yorks and San Francisco's and even Pittsburgh's, it was by largely swapping out manufacturing for another kind of work, office jobs. Whether you're looking at Chicago, New York City, San Francisco, you just saw the rise of these office towers that are taking over neighborhoods, which previously would have been dedicated to manufacturing or logistics or transportation. And you also saw the rise of other industries that were catering to these workers. That's Arpit Gupta. He's a professor at NYU and co-authored that paper with Stan. So you may have the meatpacking district here in New York City, for instance, that's now full of clubs and nightlife and restaurants and bars. And so it's not just the workers themselves, but it's the entire service industry that's growing up

in order to meet and cater to their needs. And it becomes a self-fulfilling process because as we have more of these amenities and services, well, these cities also then become more attractive destinations for these kinds of skilled knowledge workers. Sort of the opposite of a doom loop. Absolutely.

This upswing started in the 90s and lasted up until COVID. So it was an upswing that was great if you worked at Google, but maybe not so great if you worked like retail at The Gap? Yeah, that's a fair point. And, you know, this is a story that focuses a lot on the middle and upper middle class people who now have the option to work remotely. And the reason we're focusing on those people is because they are the ones who are causing the shift. But it's the working class sector that

bears the brunt of it. The core issue is that in order for cities to provide opportunity for everyone who lives there, you need to have enough revenue in order to fund schools, in order to fund public service, in order to just kind of fund everything that's necessary in order to keep the city growing. And that just requires a sufficient tax base. So there was this whole delicate financial ecosystem built on office workers coming in to work these knowledge sector jobs in downtown office cores. And then COVID hits.

Exactly. So COVID has obviously been a short-term disaster for big cities. In addition to the most important thing, the fact that tons of people have gotten sick and died, office use fell off a cliff in March of 2020 and has never returned. Some people still live basically where they did and only go back to work sometimes. Others moved and are entirely remote now. And other people like me got hired remote and never go to the office. This company called Castle Systems, which does building security, has been tracking office key

card use since the beginning of the pandemic. And as of this month, offices in America's 10 biggest cities only had about a 50% occupancy rate. That means less money being spent on public transit and those hospitality businesses that have sprung up to service office workers, the bars and the restaurants and the gyms. And of course, it's bad for commercial real estate. And sort of gradually what we have seen is that as more and more leases are coming up for renewal, more and more companies are deciding to either not renew that lease at all, or maybe to renew it for a shorter amount of time and or for less space than they were renting before. And you know, that's just the direct impact. Lots of commercial real estate leases are five or 10 years long. At some point, those are going to be up. Something like more than half of all the leases that were outstanding on the eve of the COVID crisis have not come up for

renewal yet. And so, you know, the second shoe is yet to drop on the office market. And you know, Sean, that paper I mentioned at the top of the episode about the coming office real estate apocalypse, it estimates that remote work could reduce the value of commercial office space in America by close to half a trillion dollars. Here's one example. Meta, the parent company of Facebook, is spending billions of dollars just to get out of office leases it already has.

Wow. This is the loop we're talking about. That is tons of money that cities aren't going to see. And this has an impact on everything a city provides. What do cities do? Well, the way forward that basically everyone working on this problem I talk to agrees on is to rethink how big cities are designed and specifically who they are designed for. And it's going to be a big shift, one as big or maybe even bigger than the move from industrial to office work. So there's a solution. There's a way to break the doom loop. Maybe. How to maybe break the doom loop. In a minute on Today Explained.

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Today Explained, back with Philadelphia Bureau Chief Miles Bryan, who went to New York City to figure out how America's urban centers can avoid this doom loop we've been talking about. And it sounds like, Miles, you maybe got a solution. You know, I definitely have something worth trying. The folks I talked to said, for cities to thrive in this era, they're going to have to focus less on being great places for jobs and more on being great places to live. And I know that sounds like a cliche, but stay with me. The idea here is that whether it was industrial jobs or white-collar jobs, cities have been attractive because they have the best employment opportunities. You know, if you want to work in publishing or whatever, you had to live in New York,

even if you can't really afford it and don't like living in a shoebox apartment. But now you can do that job on your computer, probably. So what keeps you in New York? It's not the housing. You could have a bigger house back home in Toledo or St. Louis. What keeps you in New York, if you stay, is all those cultural amenities that we talked about earlier. You know, great restaurants and bars and punk shows and plays. Arpit Gupta said that a city that prioritized being a great place to live would look a lot different.

We have trash just lining the streets. We've had this for decades. Arpit's talking about the particularly New York thing where there aren't alleys or dumpsters. And so businesses just stack huge piles of garbage outside their business. And in some neighborhoods, that's every night. It just kind of speaks to a level of complacency,

I think, with our governing class, right? People just look at all this trash lining the streets and they're like, ah, well, people have no other option. They have to love New York, best city in the world. And I think we should take a different perspective and say, look, actually, the trash on the street is disincentive for people to live here. It makes it less likely that someone will continue to stick around. And so we can instead put the trash in the bins and maybe that takes up a parking spot on the street. But guess what?

Those parking spots are being taken by commuters coming in from out of state. And so we don't need to prioritize them as much as the people that actually live here. I mean, I think the bridge and tunnel crowd, as well as residents of New York City, would all agree less trash on the streets in New York would be great. But how does this fix this bigger problem of office revenue, for example? Yeah, well, picking up trash on the street would make quality of life marginally better for cities' residents, right? But what's a much bigger problem for people living in cities is high rents and high costs to buy a place to live. There's now a whole

lot of empty buildings that could use new tenants. What the city of the future might look like is a place where people love to live because there's just a lot of fun things to do. And so that requires sufficient housing. It requires sufficiently affordable housing, which requires more housing than what we currently have. And so there's a real opportunity here to convert some of these offices into apartments and, you know, have retail on the ground floor, have bars and restaurants on the rooftops, have that mixed use. This isn't a hypothetical pie-in-the-sky dream, you know, converting offices into residence.

It's happened before. And in fact, a lot of people pointed me to what's been happening over the last couple of decades in the neighborhood our New York office is in, Manhattan's financial district. Back in the 1990s, Lower Manhattan, you know, the area around Wall Street, was basically entirely commercial. There were 400,000 jobs, but less than 40,000 residents. But at that time, those jobs were starting to leave. Lower Manhattan, when you were reading the newspapers in those days,

was a problematic place with lots of controversies. Carol Willis is a historian and founder of the Skyscraper Museum, which is in the neighborhood. Its particular problem was that the financial service industry was beginning to migrate to Midtown or was merging and moving to other cities or even offshore. So the center of downtown was being hollowed out in terms of the value of the commercial real estate. Sort of similar to what's going on right now. Yeah, sort of. Lots of offices in that area are vacant once more. But this time there are way more people around

after 5 p.m. and on the weekends. I actually met Carol because her museum was hosting an exhibition a few months back about the residentializing of Lower Manhattan. Since the year 2000, the population of that area has more than doubled. And you're talking about an era of historic upheaval in this part of town because you're talking about post 9-11, when New York still manages to convince people to move and live and thrive in the financial core of downtown Manhattan.

How do they do that? Well, as Carol tells it, it was a whole bunch of little policy nudges and infrastructure changes that added up. First and probably most importantly, New York started in the 1990s providing tax credits to developers willing to convert office space to residential. But it was also making streets friendlier for pedestrians, creating more green space, opening a new public school, even getting rid of some unsavory scents. fish market to the Bronx into a modern facility and closing down the operating working class market, the frankly smelly market for which many New Yorkers have a lot of nostalgia, but maybe an odorless nostalgia. You know, the other huge factor here is the 9-11 terrorist attack on the World Trade Center

that devastated lower Manhattan for years, but it also eventually brought a ton of city, state, and federal funding for redevelopment. So it sounds like there's a bunch of policies that can help make this happen, but how do you actually convert an office building into apartments? It is really hard. First off, the easiest office buildings to convert to apartments are old ones because they tend to be skinnier. Newer office buildings are often deeper, which means there's a lot of space without access to a window. And even when a building is a good candidate to convert, it's still really expensive. But in the financial district, it's been pretty successful. That mix

of quality of life developments and tax credits, about 13% of office space there was turned into apartments between 1995 and 2006. Okay, so even if they figure out the building, you still live in an area that was designed for offices. And even if you go to downtown Manhattan today, you don't see a ton of green. Did you talk to people who actually live there? I did. I did. Check one, two, three, four, five. Standing in the lobby of the downtown athletic building. Hi, Miles. How's it going?

I met this guy named Paul Lewis at his condo in lower Manhattan. It's in a building called the Downtown Club, formerly known as the Downtown Athletic Club. One of the nice things about the lobby is you get to see what it used to be like. Oh, cool. So this gives you a sense of the plan of the thing,

that it did have bowling alleys and swimming pools and all kinds of other amenities. Each program took up an entire floor. So this guy lives in a gym? Yeah, it was a gym for people who worked on Wall Street. So not an office conversion exactly, but the principle is the same. Taking a space that's designed for nine to five use and making it fit to live in. How did it smell? It smelled great.

Paul and his wife are both architects and they had a lovely home. When we stood in the living room where they live with their two kids, it just looked like a gorgeous, tasteful New York apartment with big, beautiful windows. But then, you know, they showed us where they sleep, which is a room with no windows at all. Oh, we live out here and we really only sleep in those rooms back there. So the bedrooms don't have the bedrooms don't have windows. They're technically home offices. Yeah, they're studio spaces.

Yeah. Which is like hard for it. Typically, an apartment has to have a window in the bedroom. So legally they are, they are studio spaces, their home offices, and that's not untypical in conversions with the floor plates. Are you going to get in trouble if I put this on the radio? Legally, this is our bedroom. It's just that we don't sleep here very often. Just to be clear, we're looking at a very nice living room where I do not see a bed. Yeah. It's cleverly disguised as a bookcase at the

moment. I don't know, Miles, if this whole thing is about quality of life, you're not selling it with this guy who sleeps in a dark closet. You know, this is a total diversion, but he and his wife said they sleep incredibly well. It's this like cave of darkness. Stop trying to make sleeping in a windowless room happen, Miles. Paul and his wife, Kim, you know, they first moved to this area in the 90s, living near that smelly fish market. They left for years but came back in the mid-2000s. Paul says they were drawn back by a new school opening up and also because they missed the diversity of the architecture. But over time, it's actually become a much more vibrant neighborhood to live in because you don't have the same thing on every corner. You don't

have the self-similarity of a residential neighborhood, but it still works really well. This is an example, plus or minus how you feel about windows, of this working out in New York City pre-pandemic. Are there any cities doing this stuff right now? Slowly, but yes. Politicians in cities like Chicago and Los Angeles are pursuing plans to subsidize office-to-residential conversion. D.C. is offering tax incentives to do the same. And in New York, the city is actually leading a big push to convert offices. In fact, some outlets are reporting that developers are nearing a deal to acquire a stake in the former Goldman Sachs HQ. Reportedly, the plan is to redevelop at least some of it into housing.

This building is at 85 Broad Street. You and I know it as the home of the Vox Media office. Our very office is going to be apartments. They got nice views over at that office. The views are beautiful. And maybe the deal hasn't closed yet. But look, that anecdote probably puts too need of a bow on this idea. Converting empty office buildings to residences is really hard. It won't

happen in a lot of places. And in the cities where it does happen, it'll be a fairly small portion of the office stock. Lower Manhattan is still very much a commercial area, right? But you know, residentializing even a little portion of a city's downtown can have a big effect. Every couple like Paul and Kim are shoppers, transit riders, eyes on the street. They make downtown more vibrant in all sorts of ways. And in doing so, they're bulwarks against the doom loop that cities are trying to avoid. Miles Bryan, Philadelphia Bureau Chief at Today, explained New York curious, though, for sure. Our series

on cities is being edited by Matthew Collette with help from Laura Bullard and Jolie Myers. We're being mixed and mastered by Paul Robert Mounsey. Next time on the series, we're going to take a look at transit. In the District of Columbia, we're going to take a look at transit. In the District of Columbia, people got to stop paying for buses during the pandemic.

Now, D.C. City Council is trying to make buses free for-ev-er. Can free transit happen? We're going to ask in a week on Today Explained. Thank you.