Unbuild Downtown to Make Cities for Living
Three years ago, as white collar workers decamped from America's largest cities, one of the great questions was whether places like New York and San Francisco would rebound. Would people return, or had urban life lost its appeal, or dissipated to Austin and Miami, for good?
Today the answer is clear: people have come back. Yet life hasn't quite picked up where it left off. Residential neighborhoods are as vibrant as ever, with new housing and co-working spaces. Apartment rents are up — in some places, like New York, way up, with new record highs highs each of the last three months. Even in San Francisco, beleaguered by property crime, fentanyl, homelessness, and tech layoffs, competition for a decent home is as fierce as ever, at least anecdotally.
Figure 1. In downtown Brooklyn, a forest of new apartment buildings have transformed the area into a residential enclave — reflecting how people want to use it — revitalizing it to a degree that efforts centering on office space, like MetroTech (in the 1980s), never could. Photograph by Matthew Gordon Lasner, 2022.
Downtowns, by contrast, are moribund. Return-to-office rates in central business districts have not only stalled in 2023, but declined, with only half of workers in the top ten U.S. metropolitan areas at their desks on any given day. In the Northeast and on the West Coast the share is about 45%.
Office-district property markets are on the verge of collapse. Vacancy rates are at a record high of 30% in Houston, Atlanta, Los Angeles, and San Francisco. These surpass those of the Great Depression, in the 1930s, when they peaked at 27% nationally. They're still climbing. Property values, meanwhile, are crashing. San Francisco's 350 California Street, valued at $300 million in 2019, sold last month for a reported $60 million: a cataclysmic decline of 80%. Nearby 550 California Street is about to sell for less than half of what its owner, Wells Fargo bank, paid for it in 2005. Share prices of REITs and other property owners that specialize in office space are plummeting. In an echo of the residential mortgage crisis of the late 2000s and early 2010s, many buildings are underwater.
With cities heavily dependent on property taxes on downtown office space to provide the kinds of services that suburbs avoid — and that make life in cities sustainable — leaders claim cities like San Francisco are in a "doom loop."
Exacerbating the problem is the accelerating decline of downtown shopping and of transit. In San Francisco, a flood of store closures crescendoed last month with the announcement by Nordstrom's that it will shut its two locations on Market Street. Working from home and a shift toward commuting by car has left the city's primary transit agencies, SFMTA and BART, on the brink of financial collapse. Without $5 billion in state aid, they warn they will have to make "doomsday" service cuts, prompting activists to stage mock funerals.
Figure 2. Moribund Market Street in San Francisco, shorn of private cars by statute (in a prepandemic effort to revitalize it), and of life — workers, shoppers, pedestrians — by postpandemic preference. Photograph by Matthew Gordon Lasner, 2022.
Policymakers and pundits have proposed all sorts of solutions. Few of them, however, betray an understanding of scope of the problem: a tectonic shift in how Americans use cities that has made office districts redundant.
Farhad Manjoo of The New York Times has suggested shoring up transit first, arguing that the problem is less that workers hate the office, than that commuting is too painful. Civic leaders including New York's mayor Eric Adams and Governor Kathy Hochul have proposed new pedestrian paths; San Francisco mayor London Breed has supported more cultural programming and pop-ups. Others have pinned their hopes on new or expanded university campuses, following a formula used for decades (to only limited effect) by cities like Atlanta. Nearly everyone, everywhere, has set their sights on converting office space to apartments.
“The pandemic catalyzed a historic shift in how people want to use cities: as places to live rather than work.”
With surging rents and a long-brewing shortage of housing, conversion makes sense. But most conversions are impractical. As several studies have shown, the majority of office buildings, including most built since the advent of fluorescent lighting and air conditioning, in the 1930s and 1940s, aren't well suited to housing. Their windows don't open and, even if they did, the buildings are the wrong shape and size, with too much space too far from the windows. Even in older buildings, the cost of renovation is prohibitive except at the highest rents and sales prices.
There is also a more fundamental problem. Downtowns, especially in older cities, with their cheek-by-jowl office towers that create wind tunnels and cast streets in shadow much of the day, are anathema to most Americans' notions of home.
Figure 3. Looking up First Street from Mission Street towards 101 California Street, a 48-story tower with 1.25m square feet of office space in San Francisco’s financial district. The building, which opened in 1982, was developed by Hines and designed by Philip Johnson and John Burgee. Photograph by Ken Lund, 2013. Courtesy flickr, CC BY-SA 2.0.
Until the nineteenth century, Americans in cities lived and worked on top of one another, often in the same small buildings. With the Industrial Revolution and the explosion of clerical and administrative work that accompanied it, investors pioneered, around 1850, the world's first office buildings as we understand them today.
Demand was so strong that within a few decades they generated another novel building type: the skyscraper. In Lower Manhattan, the rush for space near the New York Stock Exchange was so intense that some early skyscrapers were replaced after just a decade or two, making way for yet taller ones. Office workers, meanwhile, began living elsewhere, mostly in new residential districts, first uptown in townhouses and apartments, then in the suburbs. Separation of work and home, for the first time, became the standard.
In recent decades, uptown and suburbia have lost some of their luster. Cities underwent a renaissance, manifest in swelling populations, loft conversions, and new apartments, along with gentrification and displacement. But with a few exceptions, little of this activity has been in high-rise office districts, especially ones dominated by towers built since World War II. Giving up a house and yard for urban vitality and walkability is one thing; living in a steel and glass canyon is another.
Figure 4. Advertisement for apartments in a 1928 office building successfully converted to housing (between 2003 and 2007), albeit at very high prices, in Lower Manhattan, America's first high-rise office district. Collection of Matthew Gordon Lasner.
Today, there are two ways forward for most American downtowns. One is to put many existing buildings, much as they currently are, to new commercial uses: not as a high-rent office space, but as low-rent: $1 or $2 per square foot per month (versus current rents, which in New York and San Francisco remain stuck at prepandemic levels of around $6.25). At reduced prices, buildings would not need to fill with big tech and law firms, but could accommodate art studios, maker workshops, and startups. It was artists, after all, who salvaged much of Manhattan's old industrial district, in SoHo, in the 1960s and 1970s, by virtue of manufacturing lofts' high ceilings and large floor plates and windows.
The other is to transform downtowns physically to make them more appealing as places to live. This wouldn't mean replacing financial districts with single-family subdivisions. But it would require going beyond a few isolated conversions to partially unbuild central business districts.
“Downtowns are anathema to most Americans’ notions of home.”
Many buildings would need to be modified to introduce spacious, landscaped setbacks and courtyards. Some might need to shed stories. Others would need to go entirely to make way for parks, playgrounds, and community gardens. Banking halls, food courts, and office supply stores would have to be replaced by schools, libraries, and grocery stores.
To reach this future, cities can accept the status quo and leave things to the market. Over the coming months and years, owners will default and lenders will foreclose. Already, some are handing over keys to lenders, including at more than a dozen buildings in San Francisco. Hundreds of towers will be auctioned at fire-sale prices — hopefully ones low enough to make cheap rents or costly conversions feasible. Given the "stickiness" of prices, however, that scenario seems unlikely, at least the first time around, forcing the cycle to repeat while retail and transit continue to wither.
Figure 5. Empty office space. Photograph by Thomas Brenac. Courtesy pexels.com.
A better option is to revive a powerful policy tool that was conceived to address physical and economic obsolescence of buildings on high-price city land: urban renewal.
Urban renewal has a toxic reputation and rightly so. In the 1940s, older U.S. cities faced a doom loop of their own. White, middle-class families were leaving for suburbs and Sunbelt cities. So were factories and corporate headquarters. Housing in many neighborhoods was falling into disrepair, creating new "slums." Commercial neighborhoods, with their small storefronts and tight parking, faced economic "blight."
To staunch the flow of people and capital, city officials, business leaders, and architects and urban planners — including progressive activists such as UC Berkeley's Catherine Bauer, who had ushered public housing through Congress in the 1930s — concocted the idea of redevelopment, or renewal: subsidizing the cost of retrofitting cities, physically, to meet new needs by using a mixture of public and private funds and, when necessary, eminent domain, to buy out landlords. State after state got on board and Congress created a federal program in 1949.
In practice, renewal was a disaster. City leaders ended up using it to target Black, Latinx, and immigrant communities like New York's San Juan Hill, Boston's West End, and San Francisco's Fillmore, displacing them with insufficient compensation. Cleared sites often struggled to attract new investment. Some of the rebuilt neighborhoods, which planners hoped to fill with white upper-income families, struggled to attract tenants. Most observers, even then, considered it a failure.
Figure 6. In San Francisco, urban renewal was used to clear much of the Western Addition, home to the Japantown and historically Black Fillmore districts, primarily for luxury housing and the Japan Center trade mart and shopping center. Today, renewal could target failing office districts. Photograph by Matthew Gordon Lasner, 2013.
Today, though, as a policy directed specifically at transforming the physical fabric of cities, renewal offers an essential tool for averting catastrophe.
There are big hurdles: where to find the funds and, in California, a 2011 state law prohibiting cities from engaging in redevelopment. But with such a program, cities would be empowered to acquire buildings from struggling landlords and distribute losses in value among owners, lenders, and taxpayers. They could also offer grants or below-market-interest-rate loans to finance retrofits that would otherwise be too expensive, especially if apartments are to be affordable to low- and middle-income households.
The cost would be astronomical. But not as high as a new global financial crisis precipitated by a collapse of real estate markets. There are other ways to subsidize conversion. A task force in New York City, for example, has recommended a tax-incentive program. But renewal offers a much stronger and more flexible instrument.
If the first half of 2023 has revealed anything about American cities, it is that the pandemic catalyzed a fundamental, historic shift in how people want to use them: as places to live rather than to work.
This dynamic poses a direct challenge to prevailing explanations for the recent resurgence of great cities offered by sociologist Saskia Sassen, economist Edward Glaeser, and others who view employment, specifically the needs of big business, as the primary determinant of settlement patterns. In the networked age, residential preference, not the imperatives of the workplace, is the proverbial horse pulling the urban cart. It's time that lawmakers acknowledge this new reality and address it with the attention and resources it requires.
CITATION
Matthew Gordon Lasner, "Unbuild Downtown to Make Cities for Living," PLATFORM, June 12, 2023
