The pandemic has cut a swath through our sense of normalcy, but as has been the case throughout history, a disastrous plague also brings opportunities to reshape and even improve society. COVID-19 provides the threat of greater economic concentration, but also a unique chance to recast our geography, expand the realm of the middle class, boost social equity, and develop better ways to create sustainable communities.
Driven partly by fear of infection, and by the liberating rise of remote work, Americans have been increasingly freed from locational constraints. Work continues apace in suburbs and particularly in sprawling exurbs that surround core cities, while the largest downtowns (central business districts, or CBDs) increasingly resemble ghost towns.
This shift has made it more practical for individuals and particularly families to migrate to locations where they can find more affordable rents, and perhaps even buy a house. But such a pattern may be countered by investors on Wall Street, who seem determined to turn the disruption to their own advantage by gearing up efforts to buy out increasingly expensive single-family homes, transforming potential homeowners into permanent rental serfs and much of the country into a latifundium dominated by large landlords.
We are in the midst of what the CEO of Zillow has called “the great reshuffling,” essentially an acceleration of an already entrenched trend of internal American migration toward suburbs, the sunbelt, and smaller cities. Between 2019 and 2021 alone, a preference for larger homes in less dense areas grew from 53% to 60%, according to Pew. As many as 14 million to 23 million workers may relocate as a consequence of the pandemic, according to a recent Upwork survey, half of whom say they are seeking more affordable places to live.
This suggests that the downtown cores of U.S. cities will continue to struggle. Since the pandemic began, tenants have given back around 200 million square feet of commercial real estate, according to Marcus & Millichap data, and the current office vacancy rate stands at 16.2%, matching the peak of the 2008 financial crisis. Between September 2019 and September 2020, the biggest job losses, according to the firm American Communities and based on federal data, have been in big cities (nearly a 10% drop in employment), followed by their close-in suburbs, while rural areas suffered only a 6% drop, and exurbs less than 5%. Today our biggest cities—Los Angeles, New York, and Chicago—account for three of the five highest unemployment rates among the 51 largest metropolitan areas.
The rise of remote work drives these trends. Today, perhaps 42% of the 165 million-strong U.S. labor force is working from home full time, up from 5.7% in 2019. When the pandemic ends, that number will probably drop, but one study, based on surveys of more than 30,000 employees, projects that 20% of the U.S. workforce will still work from home post-COVID.
Others predict a still more durable shift: A University of Chicago study suggests that a full one-third of the workforce could remain remote, and in Silicon Valley, the number could stabilize near 50%. Both executives and employees have been impressed by the surprising gains of remote work, and now many companies, banks, and leading tech firms—including Facebook, Salesforce, and Twitter—expect a large proportion of their workforces to continue to work remotely. Nine out of 10 organizations, according to a new McKinsey survey of 100 executives across industries and geographies, plan to keep at least a hybrid of remote and on-site work indefinitely.
The shift of work from the office to the home, or at least to less congested spaces, threatens the strict geographic hierarchy of many elite corporations. Some corporate executives, like JP Morgan’s Jamie Dimon, are determined to force employees back into Manhattan offices, like it or not. It’s now a common mantra among like-minded executives, especially those connected to downtown office development, that workers are “pining” to return to the office. Some have even threatened employees who do not come back in person with lower wages and decreased opportunities for promotion, while offering to reward those willing to take the personal hit of coming back on-site every day.
This frog march faces huge headwinds from employees, particularly those with children, the vast majority of whom want to work full time or part time from home. Apple’s Tim Cook has pronounced a hybrid model—returning to the office three days per week—but even this was deemed insufficient by Apple employees who wanted a more flexible approach.
In the past, companies would have been able to simply force employees to come back en masse, but this is a different workforce, whose biggest concerns include enhanced “life-work balance” and “job flexibility.” Today’s workers also clearly have more leverage, as evidenced by record-high “quit rates” at a time of a large labor shortage caused by lower birthrates (U.S. population growth for ages 16 to 64 has dropped from 20% in the 1980s to less than 5% in the past decade). As one CEO told The Wall Street Journal, many technical and engineering applicants now insist on being able to work from home at least part of the time: “It’s become really sort of a requirement if you’re looking for top talent.” Winning the right to work from home has become something of a signing bonus.
In the 50 largest U.S. metro areas, 44% of residents live in racially and ethnically diverse suburbs, in which nonwhites make up between 20% and 60% of the population.
The big winners in the changing geography of work are the suburbs, and particularly exurbs of major metropolitan areas. These areas have seen job growth expand at 2.5 times the national rate, and have thus attracted the foreign born, younger families, and minority voters faster than the national average.
The pandemic has only supercharged this pattern. According to U.S. Postal Service records, exurbs recorded a 37% rise in net migration last year. Bloomberg City Lab found that 84% of movers from the top 50 cities stayed within the same metropolitan areas; the big metros are not dying so much as dispersing. Mostly located in counties within two hours commute time of a major urban core, exurbs are ideal for employees who work only one day per week or a few days per month in the office.
This marks a major turnaround from the period after the financial crisis, when exurbs were consigned to a future as “the next slums” and the “ruins of the American dream.” Today they are becoming the dream’s most important redoubt.
This shift has been so large, and the demand for property so great, that the viability of the exodus itself is under threat. Driven by new migration, prices have surged in once affordable metro areas throughout the South like Nashville and Austin, in Boise and Salt Lake City, and even in places like Billings, Montana. Increasingly these price rises are outpacing the financial capacity of many prospective homeowners, forcing them to remain apartment tenants paying ever higher rents.
Some enthusiasts see this development through the rose-tinted glasses of a new “rentership society,” which would see the concentration of ownership by the landlord class extend to the entire country. To further their profits, Wall Street firms like Blackstone are buying homes in hot markets and converting them into rentals. In the first quarter of 2021, roughly 1 out of every 7 homes was bought by an investor, according to Redfin, up from 1 in 10 in the previous three quarters.
At the same time, urban planners and radical environmentalists are exerting massive pressure to curtail all suburban expansion on environmental grounds. This future can already be seen in places like California, where—thanks to stronger land use regulation and regulatory fees—housing has become unaffordable for all but the very affluent. Some new developments that could help fill this demand have been delayed for decades by the state’s overly burdensome environmental regulations, one net effect of which has been to raise California’s cost adjusted poverty rate higher than any other state, including that of Mississippi.
None of this is necessary. Irvine, south of Los Angeles, has provided a model of what to do instead: a huge employment pool, short commutes, 270 parks, one-third of land dedicated to open space, and infrastructure to facilitate at-home work. New planned communities like the Woodlands and Cinco Ranch outside Houston, or Ontario Ranch east of Los Angeles, reflect updates to the Irvine approach, with a heavy emphasis on high-speed telecommunications, mass use of drone delivery systems, e-scooters, and even robot carriers to help people lug groceries back home without requiring the use of a car. Given the shortage of affordable starter homes, these types of planned communities should attract increasingly suburban-oriented millennials.
Some progressives assert that such peripheral suburban and exurban developments are intrinsically “racist.” This may have been true in the past, but it’s a ludicrous assertion today. In the 50 largest U.S. metro areas, 44% of residents live in racially and ethnically diverse suburbs, in which nonwhites make up between 20% and 60% of the population. Over the past decade, non-Hispanic whites accounted for less than 4% of growth in suburbs and exurbs, while Latino Americans accounted for nearly half, with Asian Americans, African Americans, mixed raced, and other groups making up the rest.
The pandemic has ruined plenty, but it has also handed us an opportunity to redesign work and community, creating new possibilities for millions of Americans and providing a boon for young families. If we take advantage of it, we could finally begin to restore the future prospects for our increasingly diverse metropolitan populace, liberating them from overcrowded and unaffordable housing, debilitating commutes, and obligations to big capital.
Joel Kotkin is the Presidential Fellow in Urban Futures at Chapman University and executive director of the Urban Reform Institute. His new book, The Coming of Neo-Feudalism, is now out from Encounter. You can follow him on Twitter @joelkotkin.