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The math of New York City's recovery

New York City is suffering its worst year in decades. The years to come, partly as a result, could be some of its very best.

  • The big picture: New York, like San Francisco, entered 2020 with one overarching problem: It was far too expensive, as a place to live and work. The pandemic has fixed that problem, with both commercial and residential rents finally coming back into the realm of (relative)affordability.

By the numbers: New York has suffered more than 23,000 deaths from COVID-19, and its economic activity is projected to plunge by an astonishing 12.9% this year — a much bigger contraction than the expected national decline of 4.9%.

  • Residential rents are already down about 6%, and no one thinks they've bottomed out yet, as families with children leave the metropolis for the extra space and fresh air of the suburbs.
  • Commercial rents are being hit even harder, with Moody's projecting a 21% decline this year.
  • Big business is warning of "widespread anxiety" in the city, along with "deteriorating conditions in commercial districts."

How it works: Cities always drive economic growth. They're machines for creativity, collaboration, and serendipity. The destruction caused by a pandemic helps to clear the way for a future resurgence.

  • Remote work rests on institutional know-how built up through physical proximity: Established and experienced tend to find it relatively easy, while entry-level employees find it much harder.
  • The performing arts, in particular — a longtime strength of New York — require individuals to work closely together. But that's hard when the work pays badly and rents are prohibitive.

The people leaving New York are disproportionately older, richer, more established professionals — people who need the city less.

  • With property taxes still rising, most residential landlords will not be able to keep their properties empty while waiting for rents to rebound. So they will rent them out at much lower market-clearing rates, to less wealthy individuals who require less space per person.
  • The math: If residential space stays constant but the number of square feet per person goes up, New York's population will end up rising, rather than falling.
  • Lower rents also mean higher disposable incomes, to be spent at new local establishments that will rise where old ones were felled by the pandemic. The newer businesses will also be much less likely to cater to the rich elites.

The catch: The main driver of both new business formation and population growth in New York has historically been international immigration. So long as immigration remains suppressed, New York will suffer.

  • What they're saying: "New York City has a dynamic population, with several hundred thousand people coming and going each year. This churn has long characterized the city," says a New York City government report. "This vibrancy is one aspect of what makes New York City’s population extraordinary and different from most other places in the nation and, perhaps, the world."

The bottom line: Insofar as COVID-19 increases the churn of New York City's population, that will only help it over the long term.

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