The End Of Urbanization? Sam Zell Says ‘Stop Hiding Out In The Hamptons’

The End Of Urbanization? Sam Zell Says ‘Stop Hiding Out In The Hamptons’

Sam Zell is concerned about American cities. And you can probably guess why.

Over the past couple of weeks, I’ve spent quite a bit of time pondering the somewhat dystopian prospect of a mass exodus from the country’s urban centers.

Proximity to other humans is something I gave up on long ago, abandoning Manhattan for a comparatively blissful existence spent in almost total isolation. Most Americans aren’t likely to follow my lead, but the combination of COVID-19 and some of the most dramatic social unrest seen since the 1960s has compelled many city dwellers to embrace new, suburbanite identities.

With many companies set to extend work-from-home arrangements in perpetuity, the appeal of the larger living spaces on offer outside the city is growing. The relative “social distance” that goes along with a suburban existence likely makes fleeing overcrowded, downtown apartments and townhomes seem like a prudent (even necessary) step, even for those accustomed to immersion in city life.

From where Zell is sitting, this is potentially problematic. “Everybody is being impacted by issues of safety”, he told CNBC’s Joe Kernen on Wednesday, before suggesting that Chicagoans were “surprised by the organized nature of the attacks”. The reference was to recent protests in the city, some of which turned violent.

He then praised Chicago and other cities across the country for their efforts to “take back control”, but conceded that people are, in fact, “running to the suburbs”.

That’s a literal “flight to safety”, and it’s manifesting in falling rents in some large metropolitan areas. The US, I wrote earlier this week, may soon have its own Chinese-style “ghost cities”. (I was mostly kidding, of course, but there’s some truth in it.)

As noted in the chart legend, the data used for the figure is from Apartment List, which last month flagged softening rents in a number of key US cities.

And yet, a separate report from the site (also from July) suggests evidence to support concerns about a large-scale exodus is mixed, at best.

“While the coronavirus’s short-term impact on the housing market has already started to materialize in the form of softening rents, the long-term implications for the urban landscape are still far from certain and being hotly debated”, the site’s Chris Salviati and Rob Warnock wrote, adding that,

One of the biggest outstanding questions is the degree to which COVID will shift preferences away from cities. Over the past several months, many consider the close quarters associated with urban density to be a liability, and many of the local amenities that city-dwellers love are shut down in compliance with social distancing requirements. At the same time, there are indications that a shift towards remote work will outlast the pandemic, weakening the physical link between housing choice and employment opportunities… This has led some to hypothesize an end to urbanization and a retreat to more affordable suburban and rural lifestyles. Anecdotal stories abound, but hard data on these trends remains scant.

Counterintuitively, Salviati and Warnock actually discovered that renters now slightly favor density when it comes to searching from new living arrangements.

“Despite economic lockdowns and the health risks recently attributed to cities, Americans on the whole are maintaining an appetite for density”, they went on to say, noting that “the share of all searches for higher-density cities has actually increased over the first two quarters of 2020″ as has search activity for suburban-to-urban moves. Urban-to-suburban search behavior, on the other hand, “has faded”.

Still, search activity for some cities does, in fact, point in the direction of de-urbanization, with Chicago and Boston being standouts in that regard (figure above).

Ultimately, Salviati and Warnock conclude that while “some dense cities like New York and San Francisco do not appear to be at high risk of an urban exodus, others like Chicago and Boston show more troubling signs”.

Of course, some of the clearest “signs” of de-urbanization have come from the US housing market, and it’s not obvious that one can draw any conclusions from data on renters looking to keep renting. It’s also possible that many renters don’t have the wherewithal (and you can take that any number of ways) to simply pack up and move.

For Sam Zell, a key piece of the puzzle when it comes to staving off mass de-urbanization is leadership from for business luminaries and executives.

“It’s going to require leaders of all the companies to come back to their offices and lead the people and create the opportunity”, he went on to tell CNBC. “Hiding out in the Hamptons or hiding out in Vermont or wherever doesn’t make any sense and is counter-productive”.

It may be “counter-productive” from the perspective of a real estate legend, but one thing society has learned during the pandemic is that in-person interaction, while necessary for most people’s psychological well-being, isn’t necessarily indispensable when it comes to working.

As for Zell’s contention that it doesn’t “make any sense” for the rich to “hide out in the Hamptons”, I suppose I would jokingly ask Sam this: “What good is being rich if you can’t hide in the Hamptons (or preferably New Zealand) during a viral apocalypse?”

Read more:

No Going Back (Squaring The Circle)

As Housing Booms, Confidence Busts

7 thoughts on “The End Of Urbanization? Sam Zell Says ‘Stop Hiding Out In The Hamptons’

  1. First of all, I would like to say that I am completely with you on New Zealand.

    Also, I am a big Sam Zell fan- but I think that what is happening goes even beyond the trend he was discussing.

    Corporations have figured out that they can significantly reduce overhead with, what is currently believed to be, only minimal disruption to their business. Much cheaper to have their employees use their own homes (paid for by employees, not employer) for office space than to rent corporate office space.
    Urbanites are also moving to geographically beautiful areas ( i.e. river, lake, mountains, ocean etc.) and, if possible, resort communities. Mountain resort residences are “flying off the shelf” in Colorado. Why settle for a move to the burbs if you can live in a physically beautiful environment and get outside in nature during the non-working hours of your life?
    Public schools are so bad in many communities that online school won’t seem so bad given covid- which can be done from anywhere.
    The possibility of future continuing violence and unlawful behavior in urban areas is very, very scary- especially if that is where you are spending your money to live.

  2. I doubt this is any kind of end but cost of living in many urban centers is so far beyond what even generally high salaries can afford that it was either going to fully devolve into foreign investment or begin to disperse a bit. Many markets even the suburbs and exurbs are so overheated that you need to go 40 to 50 miles outside of downtown before you start to see declining rents or home prices.

  3. First…it should be increasingly clear that a lot of the violence is not random. it is being orchestrated.
    Second…one of the joys of city life is the variety of first rate arts centered entertainment. Most of which is shut down during the Covid pandemic out of necessity. Combine that with the best restaurants and sports venues and there is a lot that cities have to offer.
    Third…a lot of the best health care is found in the large metropolitan areas.
    So it’s not all bad.

    1. Agree on all points.

      The majority of young professionals like to live in urban environments that are rich in social and cultural options. Most cities also have a variety of nearby venues for outdoor activities for weekend or even day getaways.

  4. There is a good deal of scientific evidence that cities are like animals, the larger and more dense they are, the more efficient they are. Large cities use less energy and resources per capita than smaller cities. Less energy useage means a lower carbon footprint. There is a distinct curve that is nearly the same for an elephant or a whale as it is for a very large city. If too many people move out that advantage will be lost.

  5. While H loves an island, it is not really my taste. The Alps are more my taste. Anyway, I left the city earlier this year although it was pre-COVID. This is an interesting debate because as mentioned the cities have some attractive elements, but it is also true that tastes change. Collecting antique furniture used to be a thing and now hardly anyone sees any value in that. Still, one is right to be a little skeptical of sweeping pronouncements about the future. Nevertheless, its potential impact can be profound so it is good that we are discussing it.

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