The Shape and Timing of New York City’s Recovery
There can be little doubt that New York City will recover from the effects of the Covid pandemic. It certainly has bounced back from worse calamities in the past. What is in doubt is how long it will take to complete this recovery and what shape it will take.
The city’s immediate future looks bright enough. According to Mayor Bill DeBlasio, New York will commence its full re-opening starting on July 4. As is already evident from responses to the past partial re-openings, a surge in activity will follow as previously frustrated New Yorkers and visitors respond with what can only be described as a sense of liberation. There is even a touch of magic in DeBlasio’s choice of this date, since in the past the mayor has only ever expressed disdain for the landmarks of America’s history.
Looking further out, however, matters become more doubtful. New York is highly vulnerable to the remote work arrangements that gained such a foothold during the pandemic. Those arrangements threaten to starve the city of a flow of people and the dollars that previously did so much to support the New York’s businesses. Precise forecasting on the future of remote work may be problematic, but it is nonetheless reasonable to expect that some aspects of it will last. To recover, then, New York will need to find other sources of people — new residents, other commuters, and visitors — to substitute for those lost to remote work. Only in this way can the city hope to support the restaurants, bars, entertainments of every stripe, museums, concert halls, theaters, galleries, and more that create the enviably vibrant service economy for which the city was known and that directly or indirectly employ most of those residing in the outer boroughs. Nor is it just a matter of people and dollars. Replacing the commuters lost to remote-work is essential if the city hopes to recapture the energy and excitement that made New York a popular destination for businesses, visitors, and residents alike.
The city can help re-establish this human presence and this environment by concentrating on three critical areas: public safety, public health, and public transit. It is not apparent that the city’s initial responses will offer immediately effective solutions. Given the state of city leadership and the distractions to which the New York’s voters always seem prone, any forecast of effective responses must look over an extended period. But the city ultimately should succeed. With apologies to Winston Churchill’s claim for the United States on a different subject, New York does eventually do the right thing, but only after it has tried everything else.
A Little Background
Confidence in the city’s ability to meet this challenge rests on its history. It has recovered from any number of setbacks, many worse than Covid. True, at any moment in time it was probably unwise to count on New York’s political class or the wisdom of its voters to make the best choices, but the record nonetheless is one of admirable success. During the whole period of New York’s great growth, in the late eighteen and nineteenth centuries, for instance, cities were widely known as hotbeds of disease and infection, and yet people continued to migrate from the comparative safety of the countryside. More particularly, New York rebounded with remarkable speed from the 1918-19 Spanish flu, much deadlier than Covid. It is worth noting that the devastation of that pandemic gave way quickly to what we now refer to as the “roaring ‘20s.” That exciting rebound even managed to occur despite the untimely imposition of prohibition (though maybe prohibition enhanced the excitement.)
Nor was disease the only challenge. For years after the Second World War, the city suffered an out migration of residents to the suburbs. The ill effects of that movement were compounded by the departure from Manhattan and the outer boroughs of what had been an impressive manufacturing base. The garment trade was prominent but not alone. The loss of these blue-collar jobs impoverished some residents and starved the transit system of ridership, as did the preference suburbanites had for commuting by car. Ultimately, New York replaced the manufacturing jobs with higher-paying white-collar and service jobs and through public transit upgrades got residents and commuters back on public transit, though the congestion imposed by suburban car preferences might have helped that shift as much as any upgrades. Not too long after coping with these post-war pressures, the city in the 1970s faced a huge fiscal crisis, in part because of the spending it did to cope with the previous crisis. New York responded by re-organizing its finances and defied the “death sentence” passed on it by many only to face the great crime wave of the 1970s, 1980s and into the 1990s. That reign of violence and fear drove out residents and all but killed tourism. After many failed efforts over that 25-30-year period, New York finally coped with its crime problem through reformed and enhanced policing.
More recently – and perhaps more appropriate to the current challenge of remote work – is how the city defied predictions that technologies would prompt its decline, particularly the Internet. The 1997 best seller by Frances Cairncross, The Death of Distance, was typical of such death sentences. It made a powerful case of how the Internet and advanced electronic communications would destroy people’s need to live and work in close physical proximity. It effectively repeated forecasts made 90 years earlier about what telephonic communication would do to work practices and cities, but Cairncross’s case looked stronger. Some 20 years later (110 years if one is still concerned about the telephone) pre-pandemic New York saw more in-person meetings than ever. Indeed, what had become clear in the 20 years after the book’s publication is how business travel for in-person interactions actually increased in tandem with the growth of e-communication. The e-meetings became preliminaries or follow-ups to in-person interactions. The square feet of office space per employee declined but only to make way for more meeting space.
The Challenge of Remote Work
For all this remarkable past success, it would be foolish to dismiss the challenge presented by the trend toward remote work. The pandemic has entrenched practices with Zoom and other means for many to fulfill their work responsibilities. What is more, the pandemic experiences have created an appetite for remote among both employers and staff, though for different reasons, to carry on at least in part with these new ways of doing things. These practices and attitudes are bound to have a lasting effect. The Labor Department estimates that a least one-third of the working population, more than 50 million, can do their jobs remotely. Some private research puts that number higher. According to a brace of surveys, some official some private, approximately 73 percent of those doing remote work during the pandemic are happy with the arrangement. As many as 66 percent claim that they are more productive in such arrangements. Some 60 percent of those responding indicated that work from home appeals because it is less stressful. Perhaps more significant for future work arrangements, some 33 of employers have said that their firms will continue the new practices to one extent or another. Some 36 percent of managers have plans to reduce the number and size of their offices, and many managers, a proportion approaching 10 percent of respondents, plan to give up entirely on centralized work arrangements.
Though none of this approaches the intensity of the pandemic lockdowns and quarantines, the effects will extend into the future. And the experience of 2020 and early 2021 reveal the city’s vulnerability to such arrangements. Residential rents in New York City fell 5 percent last year and have declined an additional 2.6 percent in the first three months of this year. Condominium and cooperative prices have suffered even more. Data is scattered to be sure, but the most reliable private sources show enough of a price drop after March last year to bring the average price in 2020 down 5 percent from the average in 2019. And though buyer traffic has increased this year, prices have continued to fall, by some estimates an additional 13 percent from year-end 2020. Traffic from those planning to buy or lease commercial space is up about 10 percent so far this year, but that traffic remains 36 percent below early 2020 levels. Outright sales of commercial property by some estimates are off 90 percent from early 2020 levels.
This intense pressure will surely ease as the economy re-opens and some people return to offices and other places of work. But not all the pressure will dissipate. Considered most likely is what is called “hybrid work,” in which people work remotely but appear at a central location as needed or on a schedule. This arrangement might not have as devastating effect on needed space as some expect. Unless the arrangement also allows for shared office space, employers would need to provide facilities even for those workers who do not appear every day. Still, any failure to return to the old ways will weigh on future needs for commercial space and critically also limit flows of people into town.
City Hall expects that some 60 percent of workers will report to their offices when the re-opening is complete. That will make a big difference from pandemic levels and fill some of the commercial office space presently empty, but 60 percent is not even two thirds of the number that reported to work every day before the pandemic started. Besides, the city’s need to project the most positive outlook might have led the authorities to exaggerate this figure. However one cuts it, and especially given the results of the employer and employee surveys, much office space will remain unused for some time to come. New York City will miss the critical flow of people and dollars brought by the workers who once filled that space and also filled restaurants and bars and stayed in the evening for the theatre and other entertainments.
A Partial Remedy in Pricing
Ultimately, though certainly not immediately, soft pricing in rental, residential, and commercial areas will offer at least a partial solution to the city’s problem. It may chagrin landlords and those who bought in before the pandemic, but cheaper rents and prices will make the city a more affordable place in which to live and do business. That change should draw back residents as well as companies, large and small. Given the uptick in traffic already mentioned, this effect seems to have begun already.
It would lean too far in the direction of optimism to count on this effect alone to bring a full return of commercial and residential demand or flows of people for that matter. The city does, however, have the power to leverage the favorable effect of reduced pricing. New York might, for instance, encourage small business by allowing more multiuse of structures. A change in zoning might also enable novel and productive uses of otherwise vacant high-rise space. Talk has emerged about converting some office space to residential use. That seems unlikely, since such space would tend to serve the higher end of the real estate market and New York’s need lies more with affordable housing. But a change in zoning might allow lower stories in these buildings to become what might be described as multi-story malls that offer, at relatively low cost, small retail spaces, almost booths, that, because they are well secured and cost a fraction of storefront rent, could attract retail operations that were impossible in pre-pandemic New York. Other cities have successfully encouraged such development, as have parts of New York on a very limited scale, the diamond district, for instance, and the antiques mall. The change could attract specialty shops that have already shown an ability to counter the competition of the Internet by offering shopping as entertainment.
These and other imaginative arrangements could help lift the demand for space and encourage the return of both residents and commerce. It could prevent the need for a greater erosion in property values should the city count on price adjustments alone to create the solution. And such easing could add an appeal to New York that did not exist in pre-pandemic times. Most critically, such answers and others like them would recapture former levels of people traffic and spending that remote work would otherwise deprive the city. But real estate use is not the only area the city can and should respond to the needs of the situation. As already mentioned, New York’s recovery will also demand attention to public security, public health, and public transit. With great efforts to avoid the political passions that surround these matters, the next three sections will take up each in turn, beginning with the least inflammatory.
New York’s Metropolitan Transit Authority (MTA) runs all the subways and buses within the city and the Metro North commuter rail system. Because the continuation of remote work and the introduction of hybrid work will cut down on Metro North use, its needs are less urgent than those of the subways and buses. These are essential to any revival as they carry the tens of thousands of service workers from the outer boroughs to the businesses that are an essential part of this recovery. Attractive and reliable public transit will also help with the return of tourists and increase the use of entertainment facilities — theaters, concerts, museums, and the like.
During the pandemic, the subways and buses ran on abbreviated schedules, which actually increased crowding. Now with service expanding, that problem is disappearing. The added expense of enlarging service will, however, intensify the need to recover former levels of ridership and the fares ridership brings, what the airline industry refers to as the “load factor.” For the period immediately ahead, the flood of money from Washington can cover most of the MTA’s operating expenses. The CARES Act from spring of 2020 injected $3.8 billion into the MTA. It was only 14 percent of all the money the act allocated to public transit even though New York City accounts for some 40 percent of the nation’s public transit ridership, but it helped cover the MTA’s shortfall. The more recent Covid relief bill gave the MTA an additional $4.0 billion.
But these monies and the time they buy cannot answer the MTA’s and the city’s needs. The budget shortfalls that have already occurred and are projected into the future will eat up these funds and more and do so quickly. Just before the pandemic, the MTA had an annual budget of $17.2 billion, serviced by $8.6 billion from fares, tolls, and fees and $6.5 billion from dedicated downstate sales and gasoline tax subsidies. The balance came from advertising and retail rents. Of course, the pandemic destroyed this arrangement. Counting the extra $700 million the MTA spent on cleaning, a McKinsey study calculated that in 2020, the MTA, excluding federal funds, ran a $7-8.5 billion deficit and because ridership this year is expected to fall far short of pre-pandemic levels, that same study estimated a 2021 deficit of $5.1-7.8 billion. Without more federal money, the MTA has an urgent need to increase fare-paying ridership.
To do that, the MTA must present a more attractive and reliable system than it has. Part of that solution involves safety of which more in the next section. But upgrading is also essential. This capital need existed before the pandemic, most prominently to replace the ancient signaling system still used by the subways. It compounded the MTA’s budget problems and will do so still more as the authority seeks to attract riders back with an improved system. The state has already given the MTA authority to borrow an additional $10 billion for capital improvements. Though inadequate to the task, borrowing more is not in the cards. Since the MTA already has $44 billion in debt outstanding, the additional $10 billion already authorized will bring the debt burden to more than three times, the system’s annual pre-pandemic revenues.
Of late, New York State, City, and the MTA have proposed that Washington simply take over the project. Given the budget woes and the urgent needs of the system, it is easy to see why they would propose this. (I always think it entirely reasonable that the table next to my party in a restaurant pick up my bill along with their own.) But such a solution is not likely to get through this or any Congress. There may be a chance of greater federal monies if the state, the city, and the MTA were to enter an agreement that ties flows from Washington to cost savings. Such an arrangement would impose on the MTA and the city’s political authorities the Herculean task of taking on public sector unions to change employment levels and work rules. Perhaps, the urgency of the situation is sufficient to move the authorities to take these difficult steps and for Washington to respond favorably, but even if such a happy arrangement could be agreed, the city would face another, still more difficult chore required for its recovery.
The rising crime rate in New York City is no secret. The city’s recovery demands that New York reverse this ugly trend. Crime could destroy the city’s prosperity even were it not dealing with the remote work trend and the urgent need it imposes to increase flows of people. Certainly, the rise of violent crime on the subway stands as a major impediment to any MTA effort to increase ridership. Crime in a broader sense not only will impede and reflow of workers who could otherwise choose remote work arrangements, but it will dive out chances of finding new residents and tourists to substitute for those working from home. (The city’s tentative plan to make prostitution legal might draw a kind of tourism, but perhaps not of the sort most businesses and residents want.) Unless New York recaptures its former trend toward the relatively well-ordered, safe, and somewhat family-friendly place that it was until recently, it will fail to re-establish needed flows of people and so delay its recovery.
Right now, the trend is going decisively against New York. The daylight shooting in Times Square has understandably attracted the most media attention. When a few months ago Governor Cuomo expressed his concern that gun ownership would turn the city into the “OK Corral,” he knew not how close his glib prediction was. For those who can look deeper than the sensationalism of that incident, the figures are terrifying. According to New York Police Department (NYPD) statistics, between March 2020 and March 2021 murders in the five boroughs rose 36 percent, auto theft 35.1 percent, and rape 30.4 percent. Shooting incidents have risen during this time 76.8 percent.
Aside from the Times Square incident, this carnage has yet to have its worst impact on recovery efforts because it has remained mostly confined to neighborhoods distant from those frequented by commuters, tourists, and the mobile population that might bargain hunt for a place in New York. A lot of it is gang violence. Given the trend’s powerful momentum, however, and the permissive attitude so far taken by the authorities, it would be foolish to think that it would not spill over into neighborhoods that matter more to mobile buyers, tourists, and commuters. It did in the New York of the 1970s, 1980s and 1990s. Should that occur, it would, as it did then, end the kind of tourist flow New York enjoyed until not too long ago, discourage buyers, and keep away those commuters that can stay away, a higher proportion today than during the last crime wave in the late twentieth century.
Up until now the virus constituted the greatest threat to public health. With widespread vaccinations, that threat has abated if not disappeared altogether. Now the great threat is homelessness. To be sure, homelessness is not a product of the pandemic. But neither has the pandemic slowed what was already a worrisome trend, and that trend will impede the city’s effort at revival. In the last ten years, the numbers of homeless in the five boroughs has grown 39 percent. The number of children in the shelters has dropped slightly in the last few years, but the homeless adult population, both in the shelters and on the street, has continued to rise. It has risen 109 percent in the last ten years. The pandemic, if it did not add to the numbers of homeless, made them more evident by otherwise denuding the streets of others.
In some respects, the answer is a straightforward one of providing affordable housing. But since the great growth of homelessness is among single adults, the problem has become less one of housing than of mental health. These are people who prefer to live on the streets and do in one way or another even when provided with housing, as reports from the upper west side make clear as well as testimony by health and homelessness experts. Apart from the clear humanitarian need apparent in this situation, the widespread evidence of homelessness is yet another stumbling block to the revival of daily flows of people. Even when the homeless are harmless, they create an atmosphere that repels buyers and certainly discourages tourists. And many of the homeless are far from harmless.
So far, the authorities have spent a lot of money to little effect. From the research I have done, I can find little that offers the city a solution or even the beginnings of one, but a way to help these people off the streets and protect the public from the dangers and discomforts of having this problem remains critical to the city’s revival.
A Final Word
It should be clear that the effort to revive New York faces a web of interrelated problems. Many would have existed even if there had been no pandemic. The pandemic has added the huge threat of remote work. The lockdowns and quarantines have exacerbated other city problems, and certainly made solutions that much more urgent. Because any delay in advancing the recovery will deny the city government and the city’s businesses resources to improve matters, delays themselves will make the ultimate recovery that much more difficult and disproportionately distant. This review offers few solutions. It is not a policy piece. Rather it aims to describe in as cogent a way as possible the elements of the city’s challenge. Solutions will take imagination, enlightened leadership, and flexibility, most of which, sadly, seem to be in short supply in New York today.