The economic impact of the pandemic on urban real estate markets is well known, including soaring rent and mortgage rates, a significant drop in sales, and a general mismatch between housing supply and demand.
But the pandemic has sparked an even more profound shift in the relationship Americans have with the properties in which they live and work, with effects that will have a generational impact on American cities, where 80 percent of Americans now live. There is a possibility.
The rise of remote work, the growing power of technology in professional fields, and the declining demand for downtown office space are all currently reshaping American cities, and planners, business leaders, and legislators are increasingly paying attention. are.
“As far as the post-pandemic situation goes, that’s an open question,” Christopher Hall, urban strategy leader at SOM, a major Chicago-based architecture and urban planning firm, told The Hill.
“It's very dynamic in terms of changing conditions around employment, retail and demographics. There's still a lot going on in terms of long-term processes. [on] “Household structure, household size, when people get married, when they have children, all of those things influence cities,” he says.
Shocking downtown housing enthusiasts: trend of migration from urban areas
The coronavirus disease (COVID-19) pandemic has caused rental prices to soar in urban areas as the Federal Reserve raises interest rates to combat inflation.
While rents have started to taper off over the past year, urban rental inflation has exploded from 1.8 per cent annually in April 2021 to 8.8 per cent in March 2023. Last year, Moody's Analytics described the typical renter as “rent burdened.” The average rent in 2022 will be about $1,800, or 30% of median income.
This, combined with increased remote work and other pandemic-related restrictions on gatherings, has contributed to a long-term trend of people leaving large cities for small to medium-sized cities and rural areas.
According to research, Even after the initial surge in domestic migration to rural areas in the United States dissipated immediately after the pandemic, the overall trend continued into 2023, the researchers said.
“Migration from large metropolitan areas and counties to smaller metropolitan areas and rural counties continues across the country,” Hamilton Lombardo, a demographer at the University of Virginia, said in a May analysis.
Migration from counties with a population of more than 1 million people last year remained at nearly double pre-pandemic levels, while migration to the nation's small metropolitan areas and rural counties increased from already near-record levels in 2022. , observed Mr. Lombard.
While there are some conflicting studies on the prevalence and usefulness of telecommuting, there is enough positive data when it comes to the telecommuting transition to suggest that hybrid work may indeed become a permanent transition. .
Many commercial property owners reassure potential customers that their buildings are fully occupied under lease. But building occupancy data, measured by metrics such as employee keycard swipes and fob use, tells a much different story, one Wall Street investor told The Hill.
Weekly average office occupancy rate It was 51% According to data from Castle Systems, it averages data from about 2,600 buildings in the 10 largest cities in the United States.
This affects not only the businesses themselves that are avoiding office work, but also many ancillary businesses such as downtown retail stores, fast-casual restaurants, and office supply stores.
One study found that more than a quarter of all paid workdays in the U.S. in May were remote work days. Awareness survey regarding work style and style Funded by the Templeton Global Philanthropic Foundation and the Smith Richardson Foundation.
While this number has been on the decline since the immediate aftermath of the pandemic, the rate of decline has also slowed over time, potentially indicating a firm plateau.
Successful remote work could mean the end of commercial real estate
The declining use and importance of offices is pushing the commercial real estate (CRE) sector into crisis, raising serious questions about the physical makeup of cities and the purpose they serve.
With the widespread adoption of working from home, CRE valuations have declined significantly, impacting local banks' balance sheets.
In March, Federal Reserve Chairman Jerome Powell warned that a decline in commercial real estate would cause local banks to fail. Ratings agency Moody's downgraded six banks in June, including Old National Bancorp, First Merchants Corp. and Peapack Gladstone Financial Corp., citing CRE concerns, according to media reports. .
This change will also impact other parts of the financial sector, including insurance operations, corporate bond markets, and real estate investment trusts (REITs). The Fed highlighted the CRE sector as a potential threat to financial stability in its May report.
“CRE exposures can have a negative impact on the banking system, and small and regional U.S. banks are particularly vulnerable,” the Fed said.
City planners say they are hearing about the near-term “death” of the commercial real estate sector.
“We're hearing about the impending demise of the commercial real estate sector and how neighborhoods are facing a lot of challenges due to unfilled buildings,” said U.S. engineer and design firm Breaux Happold. City Manager Alice Shea told The Hill.
Converting commercial space to residential units is one of the main ways the construction sector is responding to the shrinking demand for office space, Hsieh said.
Inner city business districts, which have long defined the overall contours and movement vectors of American cities, are giving way to more mixed-use downtowns, what planners call “core social districts.” There is a possibility that
“There's this concept and a lot of research being done about moving beyond the central business district to the central social district,” Doug Vogt, an urban design and planning partner at SOM, told The Hill. . “[It’s about] It truly represents the capabilities of our urban centers in terms of livability, quality of life and a diverse mix of uses. ”
Vogt emphasized that one of the characteristics of urban planning that has developed in recent years and is supported by legislation at various levels of government and that will not go away is sustainability.
Whether it's new building projects in the southern Sunbelt or retrofitting existing buildings in older cities in the Northeast, environmental considerations are now part of the fabric of American urbanism.
“As we renovate and upgrade these buildings for new uses, can we combine them with new ideas about urban segregation, increased energy efficiency, sustainability and quality of life?” he said. Ta. “This is important because it puts life at the center of urban design.”
Employee productivity decreases,is being noticed by researchersThe costs at the University of Chicago and Autonomous Technological University of Mexico could be offset by savings in office leases and hiring from abroad.
This trend is likely to accelerate further as large-scale language models and other types of artificial intelligence (AI) are widely adopted into business practices.
In 2023, the Chicago researchers predict that “working from home will continue to grow as research and development of new technologies to improve remote work expands in the future.”
Is there a legal solution?
Policymakers are working to develop laws that respond to these changing economic dynamics. But with so many moving parts and large portions of the U.S. tax code set to expire at the end of next year, no clear new direction for incentive structures or tax policy has yet emerged around cities.
“We've been thinking about this issue for almost two years,” Rep. David Schweikert (R-Ariz.), head of the Ways and Means Committee's “New Economy” task force, said recently. -Told Hill.
“As the nature of work changes, artificial intelligence will step in as a replacement for the workforce…and in fact, traditional office space will no longer be needed,” he said.
Means and Means Democrats are working hard on housing and infrastructure issues, focusing on the physical infrastructure of cities while also showing interest in higher levels of taxes on businesses.
“There's nothing wrong with money flowing into real estate, but maybe there should be at least some level of intermixing, so if you're going to build luxury high-end apartments, maybe a third of it is It should be affordable housing,” Rep. Gwen Moore (D-Wis.) said during a committee field hearing in Erie, Pennsylvania, in May.
Census Bureau statistics released in September, the most recent month for which data exists, show that after years of record lows, the U.S. housing supply is now beginning to rise, covering nearly eight months' worth of demand. There are enough homes on the market to meet the demand. .
“Many of these projects were effectively backed up during the pandemic and then all moved forward as things started to open up again,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told The Hill. spoke.
Last year, there were 1 million multifamily units under construction, more than single-family homes, which is a historical anomaly, Fratantoni said.
The Biden administration is working at the executive level to help convert commercial office space into residential space, announcing $35 billion in a Department of Transportation initiative for “below-market rate transit-oriented development projects.”
In contrast, the Trump campaign has made suburban America a policy priority and disputes what it sees as unreasonable zoning requirements on the part of the Biden administration.
Former President Trump wants to repeal the Department of Housing and Urban Development's Affirmative Fair Housing (AFFH) regulations, which he believes is the case.[destroys] “Increase asset value by building huge apartment complexes in the suburbs.'' On the other hand, “[forcing] Allowing communities to pay for low-income housing development. ”
In a statement to The Hill, President Trump's press secretary said, “Joe Biden has ravaged America's urban centers with inflation, tax increases, and violent crime, driving investors, businesses, and residents alike from cities run by Democrats to Republicans.” We are evacuating them to leading states.”
