How will American cities be changed by the pandemic? My long-read Q&A with Nicole Gelinas

Will future historians mark the
COVID-19 pandemic as the end of the American city? What will be the long-term
impact of coronavirus on cities like New York? What does the government need to
be doing at the federal, state, and local levels to help cities through this
crisis? Nicole Gelinas joins this episode of Political Economy to shed some
light on these questions and more.

Nicole is a senior fellow at the Manhattan Institute and a contributing editor of City Journal, where she writes on urban economics and finance. She is also a columnist for the New York Post and the author of “After the Fall: Saving Capitalism from Wall Street — and Washington.”

What follows is a lightly edited transcript of our conversation, including brief portions that were cut from the original podcast. You can download the episode here, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

Pethokoukis: Let’s say we get a
vaccine for the coronavirus tomorrow and all the doses are distributed in a
very quick and efficient manner. What is the long-term impact on New York City
from this pandemic?

Gelinas:Well, I think the
long-term impact would extend far beyond getting a virus. I think that the last
three months have changed people’s behavior, maybe not permanently because I
guess nothing in this world is permanent, but certainly indefinitely. We’re
seeing more structural change than we’re seeing temporary change. And what does
that mean? For example, are we going to come back to a world where white collar
workers come to an office five days a week from 8:00 AM to 6:00 PM? That seems
highly unlikely right now.

The north view of the Manhattan skyline is seen from the 86th floor observation deck of the Empire State Building in midtown Manhattan, as the iconic tower prepares to open to more tenants and visitors following the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., June 24, 2020. Picture taken June 24, 2020. REUTERS/Mike Segar

Even if the vaccine came into
being tomorrow and New York City said, “Okay, everyone come back to work,”
I think it’s fair to say that a lot of people have found that they are pretty
productive working at home. It’s not that they have to work at home five days a
week, but we may end up going to a model where people come in two days a week:
one day to have external meetings and one day to have internal meetings, doing
the rest of their work at home. Or even three days a week, which would be a
tremendous change for the foot traffic of Manhattan.

The
entire economic model of Manhattan is built on moving four million people to
the island of Manhattan every morning — most of them on public transit — and
moving those four million people out at the end of the day. That is really
something that is at long-term risk. So this pandemic is more like the
invention of the car than it is like a snowstorm, in terms of its impact on the
city.

So
that, I think, presents a problem. If you have fewer people coming in, how are
they going to get in? Are they all driving in their cars?

About
76 percent of the people who come to Manhattan every day take some form of
public transportation — most of them on the subways, buses, ferries, or bicycles.
Bicycles are not really public transportation, but they depend on people being
densely packed in together, which in turn depends on transit. If we went back
to last fall and only 10 percent of the people who took transit decided to take
cars into the city instead, that would mean a 30 percent increase in Manhattan
traffic. And if we look to just the impact of tens of thousands of new Uber and
Lyft cars that arrived a decade ago, that alone basically meant that Manhattan
traffic came to a standstill over the past half-decade. To think about another
300,000 cars versus a few tens of thousands of cars — it just doesn’t work in a
dense environment.

So
there are a lot of very difficult-to-answer questions: Do you want to
discourage people from driving? Well, normally you do, but what if you’re
discouraging them from coming back to the city altogether, and maybe you don’t
want to discourage that? But even if they drive, they’re not going to be able
to drive because there’s not enough room for them. So there are a lot of
questions whose answers create new questions.

Among
the people who were thinking about how cities are going to weather this crisis
and what they look like on the other side, I think there was this instinctual
idea that cities are over: “We’re all going to move out to the suburbs. People
in the suburbs are going to move out into the exurbs, and it is just going to
be catastrophic for major cities, not just New York, but major cities around
the world.” And my flippant answer was, “Well, people have been coming to
cities and dense urban areas for a long time.” That cities or densely
populated regions are all going to clear out, I think, seems unlikely.

I
think people are still going to want to live in dense areas. I think people are
still going to want lots of restaurants. People are still going to end up going
to concerts. We’ve had pandemics before. There are these big trends over
hundreds or thousands of years, and they’re not going to be reversed. That’s my
flippant answer. But what you’ve just described is a city, and arguably the
most important city in the United States, that isn’t going to work the way it
used to. And we don’t know how it’s going to work, and we assume it needs to
work. But like you said, there are a lot of questions. Where are we on the
answers? Or do we even know the right questions?

Yeah.
I think you raised a lot of interesting stuff packed in there. And when we
think about the world versus America, well-planned cities can survive this. But
are any American cities well-planned? Particularly a city that fits the
definition of a city where most people rely on public transportation, not cars.
And then under that definition, a lot of American cities aren’t really even
cities. They’re very car-dependent.

But
if we think about what it means to be a well-planned city — what places like
Tokyo and Seoul have done, not perfectly, but continuous testing of
asymptomatic people, spot shutdowns, for lack of a better term, when outbreaks
reappear, competence contact tracing — that is not what US cities are doing.
What we’re doing is basically calling people up and hoping they might remember
who they’ve been in contact with, not really requiring them to divulge their
contacts. It’s not really contact tracing, like what Seoul and other cities are
doing.

And
also having a public that is willing to comply with these measures, which is
problem as we see both in dense cities in the US and in more suburban and
exurban places in the South and southwestern US. So on any of these measures,
are we fitting the definition of well-planned cities? Probably not.

And
I think that goes to longer term issues, too. How are we going to fund a
transit system that has lost 90 percent of its ridership now and probably will
lose more than half of its ridership over the next couple of years. Other
cities have national governments that are willing to provide this funding. So
far, we really don’t. And so I think these are important issues when we talk
about whether urbanism works or not.

Commuters ride the subway on the first day of New York City’s phase one reopening during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., June 8, 2020. REUTERS/Mike Segar

Well-planned,
well-governed urbanism works. The other kind doesn’t. And I would also say that
there’s always this impulse to claim New York will always bounce back. Actually,
that’s not true. We went through 15 years between the late 1960s and the early
1980s — which was the last time we had to make an adjustment to a big
structural change in the economy, which arguably this is — and we didn’t do it
very well. We got very, very lucky in the early 1980s when Wall Street took off
and yuppies started moving to the city. There were a lot of tax dollars
requiring few tax services, which helped to rebuild the tax base to deal with
other issues like crime and education a decade later. Will we see the return of
both good economic luck and demographic trends that work in our favor where
people want to live in these cities? These are open questions.

I
suppose people have short memories, but I have a feeling people are going to
remember this pandemic, and it will sit inside their heads when they think
about where to live. I don’t think they’re just going to quickly put it behind
them. And to feel confident living in a dense area, especially if you have some
flexibility about where you live, requires your confidence in the event of
another outbreak — and there have been several of these so far in the first two
decades of the century. That’s going to require us to be very good about
getting tests up and running, being able to trace people, and all of these
kinds of things that we’ve seen in places which have gotten this virus under
control.

Why
would I be confident at all that our reaction next time will be better? We
already have some 120,000 dead, so I would want our reaction not just to be
modestly better, but better by orders of magnitude if I’m going to think about
living in that kind of area, if I have a family. I guess I’m becoming more and
more pessimistic about American cities as we chat.

Yeah,
I think in the long-term — and again, long-term can be a long time, like more
than a decade — cities can adjust. But one of the keys to that adjustment is
price adjustments. I think we’re going to need, and we’re already starting to
see the inklings of, a discontinuity in prices in terms of a reset of what it
costs to rent commercial office space. Or what does it cost to rent or buy a
market-rate apartment in New York City? What does the retail space go for? And
it’s very difficult to view this price adjustment on a large scale because of
the amount of debt that is in the economy.

If
I look at the office building across the street from me right now, they’ve got
a billion-dollar mortgage. The mortgage doesn’t amortize, so basically they’re
paying interest for 10 years. At the end of the 10 years, they have to come up
with a billion dollars or convince somebody else to lend them a billion
dollars. Their major tenant was actually moving before this pandemic to a new,
heavily-subsidized office development called Hudson Yards. (It’s probably a bad
decision for the city government to subsidize office development when the
vacancy rate was already 10 percent.) And since the pandemic, their second
biggest tenant, which is a global bank, has decided all of their overseas
employees, including their US employees, are going to be working at home. So
you’re looking at a building that can’t physically disappear but is really
going to need to adjust the rents down to attract tenants that might want to
take a different kind of risk than a global bank wants to take. But that
probably requires defaulting on the mortgage.

We
have hundreds of buildings in this position. You’re probably looking at
hundreds of billions of dollars of commercial real estate debt adjustments and defaults.
Same thing on the retail side. Same thing, frankly, on the market-rate housing
side. So the faster we can do these price adjustments, the more you entice a
new group of people to say, “It’s 30 percent cheaper to live and work in
Manhattan, so why not give it a shot?” And, of course some of that
contributed to the resurgence of the 1980s: people buying cheap houses and
fixing them up. But to the extent that we want to extend and pretend our way
through this crisis, that is going to be bad for cities. There will be a lot of
empty real estate at nominally expensive prices.

How
was New York doing before this crisis?

Well,
the sort of traditional, superficial way of looking at the city is that things
had never been better. We had a near-record population, near-record transit
ridership, and a record four million private sector jobs. But I think there
were a lot of problems under the surface.

First
of all, you see all of these very poorly managed racial tensions. The city and
state have had basically Democratic government for 40 years but still didn’t
make the most obvious reforms on things like releasing police disciplinary
records. So when this killing of George Floyd happened on Memorial Day, it was
maybe surprising, but maybe not so surprising, to see how little goodwill there
was between minority communities and the political power structure in New York
City.

But
I think beyond that, which is obviously a critical issue right now, things like
the record amount of city spending that has gone on under the de Blasio
administration and, frankly, under the Bloomberg administration before it. The
city now wants to be like the employer of last resort, and not furloughing
people and not laying people off. And that’s admirable, but they set aside
almost no reserves to do this. I mean, if we had set aside one percent of city
tax revenues over the past 10 years, we would have a $10 billion budget cushion
right now and it would be much, much easier for us to make decisions during
this crisis. But we went into this with virtually no reserves.

New York City Mayor Bill De Blasio speaks to the media during a press conference in temporary hospital located at the USTA Billie Jean King National Tennis Center as the outbreak of the coronavirus disease (COVID-19) continues in the Queens borough of New York City, New York, U.S., April 10, 2020. REUTERS/Eduardo Munoz

We
had progressive government during the biggest economic boom that we’ve ever
seen really, and a boom that benefited New York City in terms of the Wall
Street bailouts flowing into New York City during the early 2010s. New York
City is left today with very little to show for that in terms of budgetary
cushion or investments in infrastructure that would have made us stronger.

Of
course, you have people in Washington who, listening to what you’ve just said,
would say, “It’s time for some tough love for New York City and a lot of
other cities around the country. We’re not going to keep the pretend game
going. Don’t ask for help. You need to make tough decisions. Well now, this
pandemic should be a catalyst for making hard financial decisions. You’ll get
nothing from us.” There’s certainly a lot of people with that attitude.
Why are they wrong?

Yeah,
I think it’s quite reasonable to say we cannot bail out these cities and states
100 percent. You look at a place like Illinois where one of the state
legislative leaders is saying, “Well, we need our pensions bailed
out.” Well, you haven’t funded the pensions for 30 years so that’s a
preexisting problem. I think there’s no question cities and states will need
more aid from Washington, and also, frankly, not just cities like New York. I
mean, Florida, Nevada, Arizona, and Texas are starting to see record
hospitalizations and also economies that are heavily dependent on domestic
tourism. The top markets for Florida tourism and South Carolina tourism are New
York and California. So the economic impacts of this are not going to stay
in-state just like the actual pandemic is moving from state to state in its
acute phase now. But what should a federal rescue look like?

And
what expectations should the rescuers have of the rescuee?

Yeah,
I think cities and states should start to draw up menus of essential services
that they need to maintain their tax basis, and Washington should pay some
share of today’s cost of those essential services. Not pensions, not long-term
costs, proportionate to how heavily they’ve been impacted by the pandemic, so
your basic police, fire, sanitation, things like keeping public parks open so
that kids have a place to play. What is the specific cost on a day-to-day basis
of those services? Adjust that for some kind of regional cost of living, but
not for things like, “Well, you can retire after 22 years and get a 50 percent
pension, but we haven’t put the money away to save for that pension.”

And
I also think that Washington should be funding a sales tax holiday. I mean, a
full year sales tax holiday for 45 states would be about $500 billion. If we were
going to say, “Let’s have a sales tax holiday for the month leading up to
Christmas, where Washington just underwrites the cost of the state and local
sales tax,” maybe that would be a big help to some of these retailers who
really can’t afford to lose the Christmas season or they’ll be out of business
forever.

Let
me just move beyond that sales issue and sales tax and bailouts. I’ve written a
lot about cities, and  I view them as these
high-productivity engines of the economy. And we’ve had many guests on the
podcast who have talked about how to make cities more productive, how to make
them denser, some of which looks silly now since we’re so worried about
density. But if you think cities are really important, not just intrinsically
important to the people who live there, but as growth engines for the economy, then
from the federal level, what else should we be doing to help cities? Or is it
fundamentally a state issue and a local issue and there’s not a lot the federal
government can do?

I
think another thing the federal government will have to start doing is
indefinite operating aid for transit systems. We kind of stopped doing this in
the Clinton administration. It’s kind of a myth that we stopped during the
Reagan administration, but Clinton was not that friendly to maintaining
existing legacy mass transit. He wanted to do new infrastructure projects, when
a lot of what we need is just maintaining what we have.

A cleaner walks on the platform near rows of stationary trains as the MTA Subway closed overnight for cleaning and disinfecting during the outbreak of the coronavirus disease (COVID-19) in the Brooklyn borough of New York City, U.S., May 7, 2020. REUTERS/Andrew Kelly

Transit
systems from New York, Boston, San Francisco, and Washington have to basically
run full service with a fraction of their fare revenue. That gap is going to
have to come from Washington, probably for the next five years. But in turn,
Washington should create a commission and ask, “Why can Europe and
developed Asia provide transit at such a superior level for such a fraction of
the costs that American cities do it?” Because functional transit is the
key to future cities.

And
that’s been a handicap in American cities for a long time, but I would also
flip the question around and say, “Well, what if we don’t help
cities?” Where are all these people going to go? I mean, are we going to
create denser mega-regions in South Carolina, Florida, Arizona — places that on
many measures from the murder rate to traffic crash fatalities to public health
do much, much worse than Northeastern and Middle Atlantic cities? If we’re
going to have a poorly planned population inrush to these places, we are just
creating even worse longer term problems for places like Florida, Arizona, and Nevada.

We’ve
done a number of shows about productivity and innovation, and they have some
big ideas that the US should spend a lot more at the federal level on
innovation, a lot more on basic science, and they have to have all these
hundred-billion or trillion dollar plans. But they also want to take a lot of
that money and create these science cities and hubs all around America. Not so
much because they think they’ll be fabulously successful — because the history
of such efforts is not great — but to create a raw base of political support so
that people aren’t going to say, “Well, you want to spend all this money
on innovation, but it’s all going to go to the Bay Area. It’s going to go to
New York. It’s going to go to Austin.”

In
this environment, especially with one party that does not seem to care very
much about the Northeastern cities, don’t you need to pair any of these ideas
for increased aid with ideas to help Middle America and left behind areas? Do
you think you have to do that, too? Have you given any thought to what that
would look like?

Yeah.
I have no objection with more funding for basic research.

Or
anything else to kind of figure out like, “All right. We’re going to help
out all these cities with their transit systems and we’re going to give them
sales tax holidays.” What about the rest of the country? What are you
going to do for them? I mean, you may think those cities have been doing
fantastic, but what about all these other areas in Ohio that have been doing
poorly? How are we going to help them, too? So I’m saying that I think,
politically, you sort of need to do both to get the other.

Yeah.
And if you look at places like Detroit — it basically never recovered from the
cataclysm of the 1970s, and it started us off with a couple of years of
progress but in a very fragile situation compared to a place like New York. In
Detroit, 7 percent of people rely on transit to get to work. If they don’t have
that option, a lot of people are just going to drop out of the workforce.

A pedestrian walks across the street in front of Wayne County Jail amid an outbreak of the coronavirus disease (COVID-19) in Detroit, Michigan, U.S., May 1, 2020. REUTERS/Emily Elconin

So
it is true that New York, even in its sort of suspended animation state right
now, has far more resources than most American cities. Many cities, not just
Detroit, never really recovered from the 1970s — even places that seem
nominally successful. Philadelphia and Kansas City still have very serious
revenue and economic development problems. And I think one of the good
byproducts of this is that as more people in the tech industry and finance can
work indefinitely at home, they can think about other, cheaper places that
they’d rather live. And maybe we’ll move some of these higher paying jobs to
different areas, and maybe we’ll create smaller research nexuses in places that
we don’t normally think about.

But
yeah, I think that the impact of this on weaker cities and urban areas is
pretty significant. Back before the pandemic, you heard about crises of
affordable housing. Most cities have no affordable housing crisis. There are
tens of thousands of units of near empty housing.

So
what is the good news story with how this ends well? If we’re going to look
back in 10 years and figure New York and a lot of other big cities faced this
crisis, but now they are thriving — they’re flourishing, they’re America’s
crown jewels — what will have happened fundamentally to make that the case?

I
think the most constructive approach is to use federal borrowing power to facilitate
private sector price adjustments in these economies. Then the private sector could
do most of this adjustment by itself, and cities could renew because people are
attracted to taking a risk on a cheaper city where more people can afford to
live without having to make six-figure salaries or be left living on the
fringes of the city because they don’t make six-figure salaries. So federal
money to tide over transit systems, to provide some level of basic services,
and support competence testing, tracing, and so forth. But do not try to prop
up these real estate values as if none of this happened, because then you’re
going to get a shell of a city within a few years.

Nicole,
thanks for coming on the podcast.

Thank you, Jim!

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