INVESTMENT
omists recognized the importance of the bid / rent curve – the negative relationship between rents and distance from urban centers . Stated differently , rents and house prices are higher near city employment and other centers ( e . g ., retail , entertainment , cultural ) and decline with distance farther away . The reason is that people seek to minimize the cost of getting to places they need or want to frequently visit . People also prefer cheaper location prices . Hence the tradeoff that Muth formalized in his model between housing costs and avoiding transportation costs , including the time to travel .
Muth ’ s model predicts that changes in either transportation costs or housing prices will change equilibrium locations . A reduction in transportation cost resulting from additional lanes added to major highways , for example , incentivizes households to move farther from city centers . Potentially the largest ever reduction in transportation cost has come with videoconferencing . The surprisingly gradual adoption of videoconferencing suddenly spring boarded during the COVID-19 pandemic and arguably serves as the foundation for the rise of working hours in less dense locations than city centers .
A second trade-off must be considered to formulate a long-run prediction of city internal structure changes . Agglomeration is a term to describe the phenomena of establishments and people beneficially clustering in urban centers . The advantages of nearness have been attributed to benefits from sharing , matching , and learning . Glaeser ( 1999 ) and others highlight innovation from creation and acquisition
MANY URBAN CENTERS AND HIGH TAX STATES RUN COUNTER TO THE TREND . ONE OF FAMED WALL STREETER MARTY ZWEIG ’ S RULES FOR INVESTING IS ‘ THE TREND IS YOUR FRIEND .
of shared knowledge as one of the most important agglomeration benefits . 3 High density urban centers foster innovation . Videoconferencing enables efficient non-location specific communication likely without the same level of innovation .
A note on the comparative advantages and disadvantages of teleconferencing . Several studies pursued the question of comparative advantage including Danstadli et . al . ( 2012 ) who conduct surveys that directly address the purposes for each mode of business communication . 4 This study and others find that home telecommunication provides a useful purpose for exchanging information but does not fulfill the needs of firms for creative thinking and making new business connections . The research suggests that the interpersonal issues surrounding home teleconferencing may not be as limiting to straightforward information exchange as for creative thinking and new business development .
The prediction coming out of urban economic theories for the post-pandemic era is that declining transportation costs from advancements in telecommunication technology will continue to induce lower densities across major United States mass statistical areas . However , the benefits of agglomeration represent a significant friction to dramatically lower densities until similar benefits can be realized without clustering . Evidence on pandemic – related density and innovation effects will come from future measurements and empirical research . Perhaps the hybrid working model will prove optimal for serving the needs of employees and those of businesses with respect to daily operations and innovation .
Exodus ? Most studies conducted during the latter stage of the pandemic report results for both types of relocations . I reviewed a sample of ten empirical studies from various sources . 5 A few reoccurring themes emerge from the results of these studies . First , a sizeable majority of recent relocations happened within the same geographic area . This finding suggests movers took advantages of lower transportation costs from teleconferencing , which allowed them to benefit from lower housing prices ( Muth model ) and improved tax / public service relationships ( Tiebout model ) while remaining within commuting distance to their offices . Second , net out-migration from major U . S . cities was quite modest in relation to total population ( e . g ., 3 % to 5 %) although large in number . Anecdotal evidence suggests that many of these movers are knowledge workers in the top 10 % of all wage earners . Yet the impact on smaller city and suburban populations from in-migration was meaningful both in percentage terms and numbers . Third , movers were young and mobile who work in jobs that can be remotely conducted .
58 hotelsmag . com July / August 2021