Over the last several months I have heard several people ponder whether Covid 19 will be the death of cities. On its face, I think this is a laughable idea, as cities have existed through much worse pandemics and even plagues. The black plague killed 50% of Europe but the cities eventually came back. However, I think the real question is whether the cities will become less desirable in the short term. Since the late 1990s, there has been a general shift back into urban cores. This is for a multitude of reasons but some of the main ones are that commute times became too long, desirable land became limited and lifestyles changed. Covid affects each of these, but I believe that the effects will be much smaller than people believe.
The freeways have been amazingly clear during the stay at home orders in Los Angeles. It was impressive to be able to get from North LA to Long Beach within 30 minutes. If that is how the freeways worked when they were originally built, then I understand why we built so many freeways. Unfortunately, traffic is already coming back and the stay at home orders haven’t been lifted much. And this is because the vast majority of jobs can’t be worked at home. All of the essential workers can’t work at home. Further, anyone working in entertainment, voluntary medical, and in hospitality has to work in person. These are gigantic swatches of employment. In fact, it is probably easier to say who can work from home. That is limited to office workers and tech workers (particularly programmers). So even if people wanted to leave cities, most currently can’t because their jobs aren’t currently located in the suburbs and most people don’t want to live more than a 30 minute commute from their job. I do acknowledge that Covid has increased the viability of remote work, but I feel that the ability to remote work will be small enough that it won’t affect real estate prices or vacancy rates.
While the development world has largely focused on urban infill for the last 20 years, it is not as though the suburbs have emptied out or become less popular. The dream of owning a detached single family home is still alive, especially for families. While the great recession delayed millennials having kids, I am confident that they will eventually decide to have children in large numbers and move to more suburban areas. Either way, the suburbs on the west coast are thriving, despite the focus on urban infill, which means that if suburbs became more popular, then we would need additional development. At least on the west coast, all of the good land is well developed. In Los Angeles, the new developed suburbs are in the desert to the north or east. The desert is an inhospitable area to live in and it will represent a major life change for most people. On the west coast, if someone is going to move to the suburbs, I believe that they will be leaving the major metros and possibly the west coast completely. The general cost of living is definitely driving people to the midwest cities where a traditional vision of suburban living is more achievable. Anecdotally, I have heard of several people deciding to leave expensive metros during this Covid Crises and moving to cheaper inland areas. We will have to wait and see if this is a long term situation, however, I feel confident that people will still move to the west coast and the long term effect on real estate value or demand will be negligible.
One of the reasons that urban infill has been so popular over the last 20 years has been the ability to live and work and play in close proximity. Especially for single people, either before or after having a family, the convenience of a city is highly desirable. Unfortunately, most of those features of city living are greatly affected by Covid. Even when the cities open up, people will be reluctant to go to bars, restaurants, gyms etc. In fact, many of those small businesses are going to close. However, this change has only been about three months long at this time. Time will tell whether this is systemic change in American Culture, or if this is a momentary pause. All of the economic indicators, and individual sentiments must be taken in that light. With everything closed in a city, city life suffers, but once they are open again, will people want to move. Remember, suburbs don’t have the same access to bars, restaurants and other city based experiences. If you are complaining about cities not having those attractions during Covid, why would you move to suburbs that have never had those attractions.
It is important to remember though, that cities are living and dynamic things. People move in and move out all the time. In fact, it is common for young people to move to a city and then move to the suburbs when they want to start a family, or buy a house. What is important for real estate investing is not whether people are moving but what the overall inflow and outflow rate is. While older people may be concerned enough to leave the urban markets, I feel confident that there are going to be plenty of young professionals seeking opportunity and willing to take a potential health risk. Long term, I would bet that cities are the future and Covid will barely affect their growth.