The latest economic data shows some US cities are slowly recovering from the COVID slump. But a longer-term problem looms in 2022 and beyond for the country’s urban centers.
The problem is that many city centers across the country, large and small, are at risk of shrinking and turning into ghost towns as the pandemic tsunami recedes and workers across the country demand remote work as employment basis.
“We project that 25% to 30% of the American workforce will be working from home one or more days a week post-pandemic,” said Kate Lister, president of Global Workplace Analytics, which tracks attitudes toward remote work.
This percentage could still increase over time. The group estimates that 56% of American jobs could be done remotely, at least partially. Before the pandemic, only about 10% of the US workforce worked remotely.
The implications for city centers are significant. Fewer workers translates into less demand for commercial office space, less local tax revenue for schools, police and other basic services, less demand for industries that serve downtown tenants and fewer jobs in these industries such as restaurants, hotels and retail.
“As workers move out of city centers, the decline in demand for office space not only results in lost tax revenue for municipal budgets,” said a statement from the International Downtown Association. “It will threaten the livelihoods of millions of small business owners who depend on the daily flow of office workers and will drain the vitality of city centres.”
Rebuilding a shrinking tax base
The National League of Cities estimates that U.S. cities, towns, and villages face a $360 billion budget shortfall through 2022 due to lost tax revenue due to the impact of COVID.
The concern is particularly pronounced for smaller towns and cities lacking sufficient industry, or those that were already in decline before the pandemic, they are the ones most likely to struggle with chronic vacancy rates.
Now, nearly two years into the pandemic, cities are experimenting with various strategies to mitigate the impact of job vacancies while fostering economic development that can provide a stable tax base for a long time.
In one such example, the COVID exodus from city centers is driving the conversion of office space into apartments. Since 2020, when the pandemic hit, some 41% of apartment conversions have been for former office buildings, accelerating a trend that began in the 2010s, according to a report by RentCafe, which analyzes the rental industry.
He noted that office-to-apartment conversions transcend geography and are happening nationwide as cities fight urban decay and spur development. The main cities for these conversions are Washington, DC, Chicago, Alexandria, Virginia, Los Angeles and Cleveland.
In 2022, RentCafé says former office space will likely comprise around a quarter of apartment conversions. But it would most certainly increase if lawmakers had a say.
Congress considers tax credits for home conversions
Sen. Debbie Stabenow, D-Mich., and Rep. Jimmy Gomez, D-Calif., are sponsoring a measure in Congress that would create a 20% tax credit for expenses to convert office buildings to residential, commercial or mixed-use properties. An eligible residential conversion would be required to incorporate affordable housing.
Mayors of small and medium towns are very supportive of the idea. Rosalynn Bliss, Mayor of Grand Rapids, Michigan, said, “The ability to convert these buildings into residential or commercial properties will help our city adapt to changing labor dynamics.
At least one of these dynamics offers something of a silver lining and another important avenue for economic development — new opportunities for workers.
“People who historically had to suppress their creative tendencies in a 9-5 job are now harnessing the digital economy in new ways and are happier because of it,” said Dr. Christos Makridis, affiliate researcher at the Digital Economy Lab at the Stanford University and Columbia. Chazen Institute of the business school.
The new year brings new opportunities for communities to be creative in saving downtowns, including appealing to altruism. Economic developers, chambers of commerce, landlords and city officials must impress on office tenants that returning to city centers not only benefits their own businesses, but is also vital support for the tax base and neighboring businesses.
About the Author
Jeff Finkle is President and CEO of the International Council for Economic Development. He wrote this for InsideSources.com.