(Bloomberg Opinion) -- For the past three decades, the U.S. has experienced an urban revival. As old-line manufacturing gave way to knowledge industries, educated workers and their employers clustered in and around big cities. At the same time, crime fell nationwide, making cities safer, while the internet facilitated urban life in a variety of ways.
No metropolis typified this renaissance better than New York. In the mid-20th century the city became notorious for crime and decay, and its population in 1990 was lower than it had been a half-century earlier. But in the next decade, violence began a spectacular decline that would make New York as safe as some European cities:
At the same time, the city’s high-value service industries -- finance, media, advertising and others -- became engines of fabulous wealth. In 2015 it was estimated that the New York metropolitan area had an economy larger than Canada, and was responsible for about $1 out of every $12 of economic value created in the U.S. The incomes of people in and around the city were consistently higher than those of the nation as a whole:
Meanwhile, the city became a cultural touchstone, with countless television shows glamorizing the freewheeling lifestyles of its inhabitants, and immigrants pouring in from all over the globe. It is also one of the world’s most diverse metropolises, with inhabitants speaking more than 800 languages. If any city can claim to be the center of the world, it’s the Big Apple.
But just as New York was the prime example of the U.S.’s urban revival, it may now be emblematic of the challenges facing the country’s superstar cities. The main problem comes from the dependence of knowledge industries on highly educated workers. As salaries soared for skilled professionals, rents did too, squeezing workers in traditional middle-class jobs in offices and factories. The result has been increasing inequality within cities, including New York.
That may be one reason the city saw a rare decline in population in 2018:
Usually, people tend to move from New York to other parts of the country in any given year, but this has been more than cancelled out by a combination of natural population increase and immigration. But not this year.
Some cities could accommodate the challenges of the urban revival by building more housing in order to keep rents down. But New York will have a harder time building its way out of the problem, because it’s already the most densely populated city in the nation:
This doesn’t mean New York is full. Tokyo, which is even denser, has managed to hold down rents by building ever more living space. But housing needs to be matched by transit capacity, so people can get around the city efficiently. And here, New York has a special disadvantage -- extremely high infrastructure costs. Although the reasons are not precisely known, it’s a fact that New York has a much harder time than other major cities building new train lines and even maintaining existing ones. That will make it difficult to accommodate a much larger population.
Rather than push for increasing its housing stock, the U.S.’s biggest city has decided to attack the rent problem with a more traditional method -- rent control. The New York state legislature just passed a bill expanding the use of ceilings on rent increases and making it a crime to forcibly evict tenants. Meanwhile, some of the city’s residents have tried to stem the growth of knowledge industries. Earlier this year, Amazon.com Inc. cancelled its plan for a second headquarters in New York after strenuous opposition from a vocal minority, including Representative Alexandria Ocasio-Cortez.
In the short term, these measures might bring relief to the city’s beleaguered renters. In the long run, they may weaken the foundations of the city’s recently recovered prosperity. Rent control will probably prevent landlords from adding new housing supply, raise prices for non-rent-controlled units, and cause existing units to fall into decay. Meanwhile, activist politics might make some of the city’s important technology employers wary of expanding.
Of course, New York can still rely on its old standbys -- finance, publishing and other services. But with the growth of automated trading and other technologies that allow financial services to be provided remotely, there might be less incentive for big banks to cluster in New York City. Finance has been declining as a share of the city’s total employment for a while:
Meanwhile, the news and advertising industries are experiencing their own woes. If tech shuns an increasingly hostile political scene, the city’s traditional mainstays may not be enough to sustain the kind of prosperity achieved in the 1990s and 2000s.
New York isn't in imminent danger of decline. It is still a remarkably safe city with a diversified economy, plenty of educated workers and unique cultural appeal. But its heyday of growth may be over. And that may herald a similar transition for the country’s other superstar cities.
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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