2021年6月25日 星期五

Wonking out: What New York could learn from Utica

The upsides of a real estate glut.
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By Paul Krugman

Opinion Columnist

Last week I took advantage of the fading pandemic to take a bike tour in the Finger Lakes region, making a detour on the way to visit the old industrial city of Utica, N.Y. — which is where I lived until I was 8 years old. I found the street we used to live on, although to be honest I couldn't remember which house was ours. But perhaps that's not all that surprising: The neighborhood has changed since 1961, having become home to many Bosnian refugees in the 1990s.

And whereas my mother used to take me out for lunch at the local White Tower, a once popular hamburger chain, this time I stopped near our old house for cevapi.

The thing is, for a city that has lost most of its original reason to exist — the glory days of the Erie Canal are ancient history, and the industries that drove the upstate economy in its heyday are pretty much gone — Utica is doing relatively OK. Those refugees and other immigrants, drawn in part by low housing costs, have helped generate new businesses — Chobani yogurt has a plant nearby — that in turn have partly offset the loss of the old industrial base.

All of which is surprisingly relevant to discussions about the economic future of New York City — which those of us who have lived in or around it tend to call simply "the city" — whose trajectory has probably been permanently altered by Covid-19 and its aftereffects. Even though the U.S. economy as a whole seems headed for rapid recovery, the post-pandemic economy will probably be different in some ways from what we had before. And New York might seem, on the surface, to be one of those places that will lose from those differences.


From an economic point of view, New York is, above all, a city of office buildings, empowered by the most effective mass transit system ever devised — the elevator. The pandemic, however, gave a huge boost to remote work, and while many workers will eventually go back to the office, many others won't — probably leaving Lower Manhattan with a large glut of office space.

Politico recently had an interesting article asking a number of experts what, if anything, should be done to get workers back into those buildings. The most common (and persuasive) response? Nothing.

As Jason Furman, who chaired Barack Obama's Council of Economic Advisers, put it, even if there is a persistent decline in the demand for Manhattan office space, the result won't be empty buildings; it will be lower rents. The journalist Matthew Yglesias made the same point. Ultimately falling rents will bring workers back — maybe not the same workers, maybe not the same businesses, but someone will make use of those buildings.

When I read that discussion, I immediately thought of a relatively old paper by Edward Glaeser and Joseph Gyourko, with the admittedly not very inspiring title "Urban Decline and Durable Housing." They pointed out that while a growing city's supply of housing is highly elastic — if prices are high, lots of houses will be built, unless the NIMBYs get in the way — a shrinking city's housing supply is inelastic: Houses aren't torn down when their prices fall.


A key consequence of this asymmetry, Glaeser and Gyourko argued and documented with data, is that while cities can experience explosive growth, they rarely experience rapid decline. Why? Because housing in a city is, as the title says, durable: It doesn't disappear when a city falls on hard times; it just becomes cheap.

And cheap housing itself helps attract workers and families — often immigrants, who seem especially willing to seek affordable housing and then figure out a way to make a living wherever they are. The availability of these workers in turn becomes a draw for new businesses, in some cases making it possible for troubled urban economies to reinvent themselves along entirely new lines.

Something similar will happen if, as seems likely though not certain, New York City experiences a long-run transformation caused by the rise of remote work. In this case, the durable assets in question will be office buildings, not houses, and the "immigrants" drawn in by lower real estate costs will be businesses rather than families. But the basic logic of urban persistence will be the same.

In fact, having real estate developers take a big hit might eventually be positive for New York as a whole. While the city is incredibly diverse culturally and ethnically — you can even find some Republicans if you look hard enough — its economy has, as Glaeser more recently put it, become a monoculture, dominated by finance.


So what? If the financial industry is willing to pay higher rents, why not accept the market's verdict?

Well, cities are all about "externalities" — the spillovers businesses generate by being near one another. And there's a good argument that being a one-industry town reduces positive externalities, because it limits the cross-pollination of ideas that can foster innovation.

So New York will probably be slower to recover economically than much of the rest of the nation, and once it does recover, it will probably emerge with a cheaper, more diversified economy than it was in 2019. But that may be a good thing in the long run.

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