The glue that binds information-rich industries to cities can be summarized in a word: meetings.

I found this a very useful article helping to clarify my own thinking.  From Urban Growth Will Continue But the post-Covid city may be even more self-selecting by Mario Polèse.

I have a small commercial office building which I no longer want to manage and have been considering selling.  I am approaching an age when it is no longer as commercially compelling to be near the urban center as it once was.  Should I be thinking of a rural retreat, move to the suburbs, keep a small city pied-à-terre?

Its nice to have choices but now is a slippery time to be making decisions.  Just what is happening with cities?  I am fully convinced temporarily thinned residential and commercial populations will bounce back.  The city advantage of close proximity for collaboration and innovation is just too compelling.

Not to belittle Covid-19, virtually the entirety of the impact has been from bad government policy rather than the inherent lethality of the virus.  We have been through far worse mortality events with hardly any interruption in the importance and value of cities.  

Were I to sell either property now, am I selling at the top of the market, the bottom, or the middle?  I think the only reasonable answer is that I would be selling into a frothy market.  No one knows quite what direction residential and commercial market trends will develop.

Covid-19 bad social policy has only been part of the issue.  At the same time, in many cities, we have had absolutely shameful responses to Covid in combination with riots.  Locking down the productive population while restricting police, encouraging rioting, and allowing violent crime to shoot up.  Who would want to continue to live in a nice neighborhood with crime rising 25-50% a year?  

Further, the federal government policy of deficit spending and concomitant printing of money points to future rapid inflation (evidence of which is rearing its ugly head).  How will inflation affect property values as investors try and seek an inflation hedged safe haven?

Three major variables (bad government response to Covid-19, bad city government response to crime, and bad government monetary response) open up innumerable scenarios which can get cluttered among one another and make it increasingly hard to discern probabilities of outcomes.  

Mario Polèse tackles a fair amount of this in a reasonably structured fashion, and making the outcome scenarios a little more selective.  Most importantly, he brings us back to the central truth.  Cities are critical for the human purpose of togetherness and interplay.  Dense living is a pain in the neck but it allows us enormous scope for commerce, entertainment, choice, and innovation.  Covid-19 will disappear as a disease concern.  Memories of dreadfully bad government policies will recede.  

Work practices will return to normal with two material modifications - We have a better sense of which jobs can truly function digitally than we did (a greater percentage than was the case but not the majority), and we have a better appreciation of human interaction.  As he puts it, we have learned that "e-communications and face-to-face meetings are complements, not substitutes."

Some of Mario Polèse's points:

Two decades ago, Nobel Prize economist Robert Lucas observed: “What can people be paying Manhattan or downtown Chicago rents for, if not for being near other people?” That statement was true 20 years ago—and, despite Covid-19, it will be true 20 years from now, too. The same fundamentals will continue to drive urban growth.

It’s useful to recall that Covid-19 is not a unique event. The 1918–19 Spanish flu, much more lethal than Covid, did not halt the exodus from countryside to city, then in full swing in industrializing nations. Before the medical advances of the twentieth century, cities were deadlier than the countryside, hotbeds of infection and disease. Yet rural folk kept flocking to cities in America, Europe, and elsewhere. Such was (and remains) the power of what economists call agglomeration. Writing in the American Economic Review in 2002, Donald Davis and David Weinstein, two American economists, showed how Hiroshima and Nagasaki, after being flattened by the atomic bomb, resumed their growth paths 20 years later—powerful proof of the resilience of cities. If the atom bomb failed to arrest their growth, why would a passing pandemic, however destructive, do so?

The glue that binds information-rich industries to cities can be summarized in a word: meetings. The need to meet will return. Hurried businessmen and women will again run from meeting to meeting, iPhones glued to their ears. The business lunch will return, to the relief of downtown restaurant and bar owners. This optimistic prediction, I understand, is of scant solace for those who have borne the brunt of urban lockdowns, which have turned many downtowns into wastelands. But it will happen, I believe. 

[snip]

The design of the post-Covid office will likely change, but not its basic economic rationale.

[snip]

Remote work is doubtless here to stay, to a significant degree. But studies for the U.S. and Canada suggest that the proportion of workers in occupations that lend themselves to teleworking is about 40 percent, with knowledge-rich occupations obviously at the top of the list and hospitality, construction, and manufacturing at the bottom. Before Covid, teleworking remained an option for a small minority. The pandemic has changed that, of course, with telework approaching and even surpassing 50 percent in many cities (for those lucky enough still to be employed). Surveys suggest that the majority of those forced to work at home would like to continue doing so. But for the vast majority of these teleworkers, the link with the office will remain strong. Survey data suggest that a hybrid work schedule will emerge, with a varying mix of days at home and at the office. The umbilical link with place of work and the city won’t disappear.

[snip]

Arguably, the most significant change that Covid will bring is in the perception of home. If I’m to spend many hours working at home, I want a house (or an apartment) where I can comfortably work and a neighborhood where, ideally, I can easily find the amenities of daily life: eating places, gyms, grocers. Teleworking means making or adding room for a home office, putting a premium on space but also on gardens, porches, and balconies, which, added to the convenience of less commuting, will favor suburban locations, in many cases. The memory of home confinement and lockdowns may cause many homeowners and renters to take a second look at their home and ask: “Is this where I want to be when the next pandemic strikes?”

Polèse raises a concern:

The post-Covid city—in which home has acquired renewed importance and households, especially in upper income brackets, will enjoy greater freedom to choose where they live—does have a dark side. A basic rule of urban economics is that improvements in communications and transportation allow cities to expand. The tramway and, later, the car facilitated suburban growth, giving those able to take advantage of the new transport modes a greater range of housing options—but also facilitated the growth of socially (and racially) segregated neighborhoods.

The same rule applies to telework. Here, again, is a technology that enables those who so wish (and who can) to self-segregate. It’s too early to predict conclusively the social geography that this new technology will produce. But we have no reason to think that teleworkers will not largely replicate a region’s preexisting social geography, with demand concentrated in upscale markets. 

Maybe.  Well, actually, I pretty much agree that there will be greater assortative selection, which some can characterize for rhetorical purposes as segregation but which is not.  But this assortative selection is coming from increasing specialization and pursuit of productivity, not from Covid-19.

If you accept that there is a power curve of productivity, and if you accept that a mix of high IQ and pro-social adaptive cultural behaviors are the two key components of such a productivity power curve, then assortative neighbor selection will continue and accelerate.  

It is comfortable being around people who share cultural and behavioral traits, who are similarly competent, people with whom it is easy to communicate and collaborate given shared high productivity traits of IQ and culture/social behavior.  It is unpleasant to be in an environment of antagonism, conflict, violence, dysfunction, miscommunication, highly variant culture and social behaviors.

So yes, assortative neighbor selection for productivity purposes will continue and even accelerate.  That might exacerbate social/class differences.  But I am not sure what the alternative is.  There is a certain inexorability.  

The challenge is not so much that IQ and cultural/behavioral traits drive different productivity outcomes.  It is that those differences fit a power curve.  Everyone is better off due to the higher productivity but the absolute gap continues to grow.  High productivity societies are always high inequality societies and the only times when that gap has closed has been during war, famine, plague and other similar destructive events.

Polèse finishes with

Covid will add a new layer to the technology-driven capability of urbanites to create and inhabit their own cultural silos. Laptops and smartphones can be great liberators, but they also allow users to “select” their own informational universe, to which Covid will now have added a residential dimension. In a post-Covid world, promoting greater social cohesion—whether via housing, zoning changes, public transit, or intermunicipal fiscal cooperation—will be no easier.

Robert Lucas was right: cities exist because people wish to be “near other people.” Behind that self-evident statement lurks another: the no less natural impulse to select whom one wishes to be near. The post-Covid city will probably be more selective, both in terms of residence and social interaction.

I think he is right about the outcome but not about the cause.  Assortative neighbor self-selection will continue and possibly accelerate.  But it is not Covid that is driving that.  Covid just stressed the system a little bit and revealed that there is a wider range of technology enabled professions able to work more virtually.  It is the pursuit of productivity which will drive the inequalities arising from increasing assortative neighbor self-selection.