The future of the superstar city

It really depends!

Happy Friday — no GameStop takes here.

Instead, I wanted to talk about a question a lot of people have been asking lately: Are “superstar cities” in big trouble as a result of remote work possibly proving sticky after the pandemic?

At first, I was deeply skeptical of this claim. But then, as I started to look into it more, I became less skeptical. And one reason for my reduction in skepticism is that it turned out that “superstar cities” means something slightly different than what I thought it meant.

The decline of superstar cities does not mean the decline of large urban agglomerations or big cities in general.

That’s because superstar cities are not the cities that are superstars. Instead, they are the cities that have a combination of high wages and high rents that cause them to be disproportionately home to labor market superstars. These are completely different ideas, and they mean that giant, awesome, “it would be cool to live here if it weren’t so damn cold” Chicago is not a superstar city, but the smaller, frumpier, also super-cold Boston is.

I think I follow urban policy debates more closely than most people, but I was confused about this and you might be too. Getting the definition right also changes my analysis — I am raising my estimate of major changes in the superstar city economies, but also lowering my estimate that this will solve major social problems.

Superstar cities, defined

Because New York and Los Angeles are always mentioned as superstar cities, and San Francisco is also really big, my vague sense had always been that this phrase denoted some kind of sense of economic mass.

But if you delve into it in detail, most people seem to be using more or less the same list as Aaron Renn in this Manhattan Institute report where they are joined by DC, Boston, and Seattle. That means three really big cities — Chicago, Dallas, and Houston — are left out of the list. Philadelphia, which is slightly bigger than Boston, gets skipped over. And Seattle in particular is just not that big of a city. The metro area population should pass Detroit any day now, but that will still leave it well outside the top ten.

A totally different way of thinking about it is this Globalization and World Cities Research Network list which basically asks “how much awesome stuff is in your city.” They have New York and London alone in the Alpha++ category. Then there are no US cities on the Alpha+ list. Los Angeles, Chicago, and Miami all make it as Alpha cities on a par with the likes of Seoul, Taipei, and Madrid. Seattle is a Beta- city like Belgrade, Edinburgh, and Helsinki — not a superstar at all.

I think those GaWCRN rankings track one’s sense of how a major sports free agent might look at things. LeBron James left Cleveland to go play in Miami, an awesome fun city. DC is not awesome and fun. Seattle doesn’t even have an NBA team!

The way superstar cities work is:

• There are lots of high-paying jobs for college-educated professionals.

• All those high-paid professionals bid up the price of land.

• Because of geography and city scale, you run out of space to sprawl into land that’s cheap and still a convenient commute from downtown.

• Because of zoning, you don’t get enough infill development to meet all the demand for home-building, so housing costs are high.

• Working-class wages are also higher-than-average because you can sell stuff to all these college-educated professionals who are willing to pay higher prices.

• But while the wage differential for professionals is high enough to make it worth enduring the higher housing costs, that’s not the case for working-class people.

• Consequently, professionals tend to keep flocking toward the city while working-class people flee. The high housing costs serve as a filter that ensures unbalanced growth.

I wrote about some of these dynamics a couple of years ago in an article titled “The Real Driver of Regional Inequality in America.”

The key thing about this, just as a linguistic matter, is that it’s not obvious that being a “superstar city” is a desirable outcome. As Janna Matlack & Jacob Vigdor showed in 2006, when higher incomes for the rich lead to more expensive houses rather than an increase in the housing supply, that’s going to leave the poor worse off. Indeed, this fact is built into the definition of a superstar city. In other words, the growth and success of the high tech industry in San Francisco has probably been bad for many of San Francisco’s residents. That’s not tech people’s fault; it’s the fault of bad housing policy. But it follows that if San Francisco stopped being a “superstar,” that might be good — it’s not like a superstar athlete getting old and losing his skills.

Slack and Zoom will have their revenge on Seattle

Now the initial reason I was skeptical that remote work would have all that much impact on superstar cities is that New York and Los Angeles are clearly lifestyle destinations.

Matt Damon didn’t pay $17 million for an apartment in Brooklyn because he needs to be there for work. That’s not to say that more companies going remote wouldn’t change the city. Demand for office space will clearly fall, which will let some companies that are currently in New Jersey or White Plains move into the now-cheaper office space in Midtown. The long-term trend toward the Financial District having less office stuff and more residential stuff will continue. But fundamentally, while New York is not for everyone, the people who choose to live there love the lifestyle. There’s a reason super-rich people buy pieds-à-terre there, just like super-rich people buy ski houses in Aspen.

In fact, New York is a big enough lifestyle destination that you could imagine the impact going in the opposite direction. You could imagine a rich guy who owns a car dealership franchise in Ohio deciding to go live in Manhattan and mostly manage the business remotely.

The impact on the New York suburbs, by contrast, could be dramatic. While the people who live in New York City are probably people looking for the big city lifestyle, the people riding the LIRR into Penn Station might well prefer to live in a cheaper, lower-tax suburb of some other city and work remotely.

But — at long last coming to my point — the key point here is that remote work makes the Superstar Six more different from each other. Boston and DC are fine places to live, but neither of them are glamorous lifestyle destinations. If Boston-era biotech companies decide that people can work remotely indefinitely, then I think it’s common sense that a lot of them will opt for someplace warmer or cheaper. And while there are clearly plenty of people who’d happily move to Manhattan if it became more affordable to get a decent-sized apartment, it’s not obvious to me that there’s a ton of pent-up demand for Boston winters.

DC is in the same boat with a similarly uncool rep and weather that’s bad in a different way. The DC difference is that the federal government is such a dominant player here, and is not subject to market logic. Congress has opted to eschew remote work even in the middle of the pandemic, and Biden’s cabinet secretaries seem eager to take physical possession of their new offices. I was an advocate of moving more federal employment out of the DC area even before everyone was on Zoom all the time, so there’s a political decision that will have a huge impact on the regional economy.

But the superstar I’m really bearish on if remote work takes off is not the widely discussed NYC/SF, but rather Seattle, which is the truly odd duck among the superstars.

Two of the country’s five biggest companies are up there in the country’s 15th biggest metro area. Jeff Bezos supposedly launched Amazon there specifically because it was cheaper than the Bay Area but Microsoft meant there were plenty of computer programmers around. Already pre-pandemic, he seemed to feel the company was outgrowing Seattle and was establishing lots of satellite offices. If he decides that it’s fine for people to work in the cloud indefinitely (and why shouldn’t he, Amazon owns the cloud), it’s easy to imagine the economy of the city changing dramatically.

Check out these survey results from Initialized about where people are thinking it might be good to locate a software startup. Obviously the biggest news is about the rise of the “distributed or remote” option. But a secondary story is a total collapse of Seattle as a desirable location, falling not just relative to the cloud but to several other cities that are perceived as more fun:

I’m not saying it will suddenly become a ghost town, but Seattle is way more expensive than other comparably sized cities and way smaller than other comparably pricey cities. That equilibrium is pretty clearly sustained by the job opportunities and it might unwind really fast.

Things get even worse for declining cities

If you’ve read One Billion Americans, you know that I’d really like to find a happy story for midwestern cities like Cleveland, Milwaukee, Detroit, and St Louis.

The book envisions revitalizing these cities with big influxes of skilled immigrants from abroad who could stabilize local economies and reverse a dangerous pattern of locked-in decline. I’ve seen some people suggest that remote work could have that effect — freed from the need to commute to the Googleplex, engineers currently paying through the nose to live in Silicon Valley could get a great bargain in Detroit instead.

I think the problem here is if you like big cities, you could also get a great bargain in Dallas. Or if you like the beach, you could go to Daytona Beach. Or if you like mountains, you could go to Denver. If you specifically like the Midwest, you could go to Chicago. I just don’t know what makes a person who’s planning to work from home indefinitely decide that a troubled post-industrial city with cold winters (Detroit) is where she wants to go.

If anything, the risk is that you get the opposite dynamic. If Moderna employees can leave Boston, then KeyBank employees can leave Cleveland. And while you don’t have the same cost pressure in Cleveland, you also have a much more troubled urban core that’s much less able to withstand even a mild negative shock. The outlook for these cities was bad 18 months ago, and I’m afraid it’s only gotten more negative. I really want there to be a more optimistic answer here — again, I think we should do the One Billion Americans thing — but the beneficiaries of superstar unraveling are likely to be places that are already doing pretty well.

The rise of the lifestyle city

Rather than remote working giving a shot in the arm to struggling places, I think it’s likely to give a shot in the arm to vacation destinations.

Recall, again, LeBron signing with the Heat. People have been going to Miami for fun for a long time now. But unless you’re an NBA player, it hasn’t necessarily been a great place to find high-paying jobs. Remote work changes that. Portland, ME has a totally different vibe but a similar situation. Lots of people like to visit Maine. Some of them retire there. Some even move up there as a lifestyle choice. But what’s way more common is for people who like to visit coastal Maine to sort of vaguely muse about moving there and then not doing it because the labor market situation doesn’t work.

Remote totally changes that. Ski towns. Beach towns. Nashville. New Orleans. Charleston.

Anywhere people like to visit will be a place that remote workers like to live. That will mean an influx of well-paid professionals, which in turn means an increase in business opportunities for restauranteurs and other providers of locally-focused services. And that’s why I think New York and LA probably won’t be changed all that much, because they are superstar cities in the labor market sense, but also major destinations.

Now what’s unfortunate here is that I think at the end of the day this means that remote work does less than you might think to solve the big problem of the superstar cities’ high housing costs. Rich people moving to town looks superficially like it’s going to be a win for the servers and bartenders and hairstylists and plumbers who now get to sell their wares to a larger and richer clientele. But what we’ve seen in the superstar cities is these gains wind up being eaten away by rising housing costs. That can happen to lifestyle boomtowns just as easily unless they do what the superstars never did and reform their land-use policies.