How to keep New York on top: A former city economic development official lays out four rules crucial to ensuring a growing, entrepreneurial city
The New York City to which I was introduced in the mid-1970s was very different from the one New Yorkers enjoy today. Crime was rampant; the subway system, painted with graffiti, was notoriously unsafe; drug dealers occupied abandoned buildings, and prostitutes solicited openly in Times Square.
The city narrowly escaped bankruptcy with the aid of a $2.3 billion federal loan, following this paper’s famous cover, “Ford to City: Drop Dead,” in response to the President’s vow to veto any bailout. And New Yorkers were leaving in droves, 7,000 each month over the decade.
In short, New York City was in crisis.
Fast forward 40 years: Gotham is an exciting place to live, work and visit. Its population has soared, to 8.4 million from about 7 million in the late 1970s. Private sector employment, including tech jobs, is at a near-record high, crime at a near-record low. A record 56 million tourists visited last year. If the New York tri-state area were a country, its local GDP of almost $1.2 trillion would make it the world’s 13th largest economy.
The city that’s gone from an enterprising Dutch colony to a port city to a finance capital is now becoming a major world tech hub as new companies emerge throughout the five boroughs — a shift that’s not exclusive to New York City, as many cities experience similar transformations driven by a global trend towards urbanization. Every month, 5 million people are moving to cities throughout the developed world and, by 2050, the urban share of global population is projected to surpass 66% (compared to less than 25% in 1950).
The principal driving force behind what author Bruce Katz terms the “metropolitan revolution” is somewhat counterintuitive. People often say that, with today’s interconnected communications services, one can truly live and work anywhere. The practical reality is the opposite.
As knowledge-based industries increasingly disrupt and dominate a rapidly evolving global economy, innovative workers must collaborate with one another more than ever in order to succeed. Bright, curious minds in the sciences and technology feed off each other and demand proximity in order to be more productive, more creative and further stimulated.
Beyond the work environment, members of a growing single population — one that now outnumbers married people in the United States — seek out other singles amid the myriad activities and diverse nightlife that only cities offer.
But for the five boroughs to maintain their preeminence in the 21st century, the city must successfully address the following issues:
Talent is more critical than ever
Cities must both attract and develop the talent of the future that is critical for building new companies, developing new industries and also for reshaping legacy industries. This talent is inextricably linked to a local economy’s growth, as great talent always attracts money. As a magnet for such talent, New York State has quickly become the nation’s second highest recipient of venture capital money, attracting about $4 billion of venture capital in 2014, in large part due to the rise of the technology sector in New York City.
Cities must also relentlessly focus on honing the skills of the next generation of local talent. For this reason, the role of advanced universities in this new knowledge economy is essential, as companies want to locate near world-class research institutions. Mayor Bloomberg’s creation of the applied sciences initiative (most notably, the creation of Cornell-Technion on Roosevelt Island) will be an important component of New York City’s future, leading to over $33 billion in economic impact over the next three decades.
Mayor de Blasio’s initiative to build a tech talent pipeline among the city’s youth will foster the development of a skilled local talent base.
Together, these efforts require strong partnerships among government, universities and businesses, as well as urban economic development policies and programs focused on people and talent along with support for real estate development.
Quality of life is more important than ever
In this global competition for talent, cities must also understand that the best and brightest are increasingly seeking to be stimulated outside of work. Entrepreneurs want to discuss their ideas with fellow entrepreneurs in bars and coffee shops. Even reclusive scientists who happily toiled in relative isolation in suburban laboratories now want to be in New York City to balance their research with time at the city’s museums and restaurants.
More green space, a focus on homelessness, a concern for sustainability and adoption of new urban transportation methods within a growing sharing economy all play an important part. Indeed, one prominent entrepreneur told me that he decided to move his company to New York City only after bike lanes were introduced, as that signaled that New York City was serious about being a sustainable city.
Above all, of course, low crime rates play an outsized role in the quality of life of local citizenry.
Cities are experiencing basic supply-and-demand constraints
It’s economics 101: Supply and demand constraints are driving pricing pressure in cities as never before. As more and more people move to cities, the demand for housing starts to exceed the supply, pushing up prices. The irony is that New York City’s success as a magnet for global talent simultaneously makes it challenging to live here.
New housing units have not kept pace with population growth since the end of the great recession. In fact, all five boroughs had population growth in excess of new housing supply over the last five years. Median real rent is up almost twelve percent in the last decade. On the supply side, a scarcity of available and reasonably priced land, high costs of construction and a complex regulatory environment represent important constraints on badly needed new construction.
Demographic realities exacerbate the tension among various regulatory, zoning and historic preservation constituencies that limit or control new constructions or prevent the greater urban density needed to satisfy growing residential and commercial demands. But such infrastructure constraints are not limited to New York City’s residential stock; public transportation costs, including subway fares, have outpaced inflation over the last decade. Rising costs imperil New York City’s innate demographic and cultural diversity, which is a key facet in its ability to attract global talent.
For these reasons, Mayor de Blasio’s commitment to 200,000 new or preserved units of affordable housing has become the principal focus of his economic development policy.
Space is being rethought in fundamental ways
To accommodate an increasingly collaborative and inclusive way of working, the physical space in cities is being reimagined. For example, many tech companies get their start in New York City’s myriad of incubators and shared work spaces, such as WeWork. These spaces, with open layouts for multiple companies, did not exist a decade ago. Here, entrepreneurs are not simply seeking more affordable space but are attracted to the stimulating environment that often includes unlimited supplies of free coffee and beer.
Even luxury Class A office buildings are changing their layouts as young workers aspire less to the closed off corner office but increasingly to a cubicle in the middle of fellow workers, or desire different modern amenities such as lightning-fast broadband. Once defunct Class B and C office space, with funky layouts and located in hip areas, have seen an uptrend in demand and are consequently commanding higher rents.
New business processes and evolving industries are compounding these changes. For example, standard Class A tenants like law firms no longer require space for law libraries as research is now conducted electronically, thereby compelling real estate owners to adopt new floor plates. Or, take healthcare: the advent of technology is changing hospitals’ real estate needs as an increasing share of patient care moves to the home.
How New York City navigates these challenges will determine its future success. Harvard Professor Niall Ferguson’s writings expose a history of the precipitous collapse of global economic centers. In the early fifth century, Rome collapsed within a few decades as the great metropolis fell into complete disrepair and citizens abandoned its once robust marketplaces. Look no further than Detroit to see a modern day version of rapid urban deterioration. In today’s world, where technology accelerates the pace of disruption, this timetable may even be shorter.
With 66% of the U.S. population now living in cities and generating 75% of the nation’s GNP, urban life will increasingly define our national future. New York City must remain the epitome of this new urban economy.
To do so, New York City must continue to serve as the country’s core laboratory for the 21st century economy, testing and implementing new ideas, innovative programs and forward-looking policies that will lead this country in the future.