And that’s assuming apartment and commercial landlords slash their rents in an effort to fill up vacancies as quickly as possible, which they may not do. We’ve definitely seen price declines in high-cost cities, but the official announcement of a vaccine may lead landlords to hold out for higher rents. Why would it be rational for a landlord to accept bargain-basement rents in 2021 if the pandemic is coming to an end and the possibility exists that rents could be back to their peak by 2022 or 2023? This could lead to a pricing standoff between would-be tenants and landlords, delaying the recovery.

There’s also the potential for a clash between business interests and progressive activists who may be determined to focus on achieving wins at the local level after a nationwide Blue Wave failed to materialise. We saw signs of this almost two years ago when Amazon.com backed out of building a second headquarters in New York City after local opposition to the project. In California, politicians tried unsuccessfully to classify workers in the gig economy as employees in order to require companies like Uber and Lyft to guarantee them benefits, and a proposition failed that would have raised property taxes on commercial buildings.

Compared with 5 or 10 years ago, cities may have less ability to enact progressive change without the tax base leaving for cheaper pastures. To begin with, there’s the potential for more remote work. But businesses and talent may also see themselves as more mobile and less beholden to the whims of local politics, whether it’s corporate relocations or expansions to lower-cost metros like Austin, Denver or Nashville.

It’s hard to know just how much of a push progressive leaders might make and how much opposition they could get from businesses, but this is a dynamic to watch – particularly as local governments already are dealing with financial problems stemming from a pandemic-induced drop in tax revenues.

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Three to five years from now, this should all be worked out. New residents and businesses will come back to cities as day-to-day life normalises. Rents will adjust as need be, and while landlords may hold out for a while, they’ll eventually fill their buildings back up if the demand is there. To the extent the politics of high-cost urban centres become progressive enough to lead to a loss of businesses, there will be a backlash and a new equilibrium that everyone can live with.

In the meantime, suburban communities and lower-cost cities, which haven’t faced the same emptying-out dynamics this year and don’t have the same kind of political pressures, are better-positioned to normalise once the public health crisis winds down. While all communities should cheer a vaccine in the new year, don’t look for New York and San Francisco to be fully back for some years to come.

Bloomberg

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