Job Market: UC Researcher Predicts “Superstar Cities” Will Rise Again

Real Estate News: Real Estate Investing Podcast

Remote work has become a dream come true for many people. But, can it also become too much of a good thing? One UC Berkeley researcher predicts that cities will thrive again once the pandemic is under control. His arguments are compelling and support the idea of a metropolitan or suburban lifestyle with fewer days at the office and commutes that are easier because highways are less congested.

UC economist Enrico Moretti spoke with Vox about his forecast for the return of “superstar cities.” He talks about how highly skilled workers like to congregate in different metros, and why that trend is probably not going to go away -- although some amount of the urban to suburban shift may remain. Living in the suburbs is still within driving distance of the city and many major companies, making it an attractive option for a hybrid work schedule.

The academic term for the clustering of different industries in certain cities is called “agglomeration.” Moretti says it’s one of the most important concepts for understanding why this happens. And he doesn’t think it’s going away. He says: “I think everything that we know from the economic geography before Covid tells us that these forces of agglomeration are quite powerful. And there’s no reason to think that the same tendency to cluster will be all that different in the post-Covid world.”

He explains that, for example, the biotech industry clusters geographically in three or four cities. That same goes for other industries, like finance and pharmaceutical. He says: “If you look at all the inventory in computer science, the top 10 metro areas in the U.S. account for 70% of all inventors in computer science.” And it isn’t just in the U.S. Moretti says over the past 20 to 30 years, you can see signs of agglomeration in industrialized countries around the world.

Moretti says one of the reasons for the growth of these clusters is that employees leave companies like Microsoft in Seattle, and start their own companies in the same area. But it’s not just that. Moretti says that start-ups also want to tap into a labor force that is already specialized. Although many of these more specialized high-level industries can support remote work, Moretti feels that working remotely 100% of the time won’t work well with the benefits of agglomeration.

What he does see is that more work will be done from home but that workers will live within commuting distance of their office. He says: “For the typical employer it’s going to take the form of one work-from-home day a week, or at most two days of work-from-home a week.” He says: “If you have to show up at the office three or four days a week, you still need to live in the metro area where your office is.”

And it isn’t all about work, either. Moretti says that people, especially the younger generations, are attracted to city amenities. The fact that cities like New York and San Francisco have looked deserted during the pandemic supports that argument because a lot of the urban amenities have been shut down.

He says that once people feel safe from COVID-19 and the amenities re-open, he expects all those well-educated workers will return to cities. If enough people end up working a hybrid work schedule, that could make cities even more attractive because there will be fewer people on the road, commuting.

The pandemic had many people thinking that cities were doomed as they moved to far flung areas that didn’t have as many people, or germs. And there have been plenty of headlines about this pandemic migration. But just how far did they really move?

A report by retail traffic analytics firm Placer.ai supports the idea that while some people did move to other states, many people stayed closer to home. The results show that most U.S. states saw less than 1% population growth last year and that all that moving around was mostly to the suburbs, not other states.

The report shows that Montana and Idaho had the highest number of migrants at 3.7 and 3.9% respectively. Florida, Arizona, and Maine also did well with more than a 1% increase. Cities that were above the 1% mark include Tampa, Charleston, Austin, and Phoenix.

So there have been population growth hot spots. Many people have been moving to the Sun-Belt states, but it seems a larger percentage have just moved farther away from their nearby cities.

Expedia CEO, Peter Kern, published an opinion piece in Fortune that discredits the idea that cities will remain undesirable after the pandemic is over. He says: “The global health crisis we’re living through is serious, and it will have lasting effects, but does anyone truly believe this event… is capable of fundamentally altering human nature?”

The human nature he is referring to is the desire for social interaction. When you think of being human, you don’t think of living in social isolation. Kern says: “Maintaining close relationships with others is essential to our mental health and, ultimately, our survival.”

He says he used to live 20 blocks from the World Trade Center and that after 9/11, many people were worried about a mass exodus. But the opposite happened. Kern says: “New York City witnessed booming real estate values, strong economic growth, inward migration, and yes, record tourism.” He says: “People always find their way back to cities.”

We don’t know for sure what our post-COVID world will look like, but it looks like people may be more spread out in suburban single-family homes that are within commuting distance of their nearby cities.

You’ll find links to these stories on the podcast player page for this episode at www.NewsForInvestors.com

Links:

1 - https://www.vox.com/22352360/remote-work-cities-housing-prices-work-from-home

2 - https://www.bisnow.com/dallas-ft-worth/news/commercial-real-estate/pandemic-forced-many-to-move-but-most-stayed-in-state-108370

3 - https://f.hubspotusercontent00.net/hubfs/5995051/Migration%20Trends%20Deep%20Dive.pdf

4 - https://fortune.com/2021/03/15/cities-covid-coronavirus-travel-expedia/