Time to bid adieu to the big city?

The 21st century, for mankind, has been transformative in many respects — one of which has been rapid urbanisation. There are already 29 mega-cities with populations of 10 million or more. The number was expected to reach 50 by 2035. These cities alone account for around 1/7th of world’s urban population. By 2050, with the urban population more than doubling its current size, nearly 7 of 10 people in the world will live in cities.

The growth of modern industry led to the emergence of cities as a centre of socio-economic development and a major attraction for people to migrate from villages. Life in these cities revolved around work places, and working in offices and factories became the norm.

The growth of the services sector, especially IT and finance, led to the development of dense urban areas. The Silicon Valley of India, Bangalore, and Cyberabad in Andhra Pradesh are among some of the notable latest additions. A life in a big city is a dream for many in the hinterland.

Nobody perhaps would have imagined that this trend will face an unforeseen challenge from a tiny but mighty virus. Covid-19, along with the enormous health challenge it poses, has also brought corrective changes in the course of our lives.

The cities are witnessing reverse migration to villages/small towns — people are moving back to places where they came from. The government has taken various initiatives to provide employment to migrant workers post-lockdown near their hometowns. It is evident that post-Covid, everybody may not come back to big cities.

New challenges

This has been made possible due to the Work from Home (WfH) phenomenon. The new “working-from-home economy,” which is likely to continue long past the coronavirus pandemic that spawned it, poses new challenges — from a ticking time bomb for inequality to an erosion of city centres — according to Stanford economist Nicholas Bloom.

In developed nations, the WfH was already on the rise for a decade now, but at a very slow pace. According to American Community Survey (ACS) 2017, 5.2 per cent of workers in the US — or eight million — worked from home in 2017. In June 2020, 42 per cent of the US labour force was working from home full-time.

The story is not different in other developed nations. Employers and employees are increasingly experimenting with WfH (of course with no other option given the virulence of Covid) and have realised gains in terms of improved efficiency, better levels of satisfaction, work-life balance, saving in time spent in commuting and saving in expenses towards office space.

In an information economy and a gig economy, indeed WfH is seen as one of the determining factor for choosing a company to work for by millennial. Unsurprisingly, many companies have announced ambitious plans to continue with WfH even after Covid19. TCS is set to allow 75 per cent of its workforce to work from home, by the year 2025.

Facebook has extended its work from home policy until July 2021. Google will allow its employees to continue working from home until at least June 2021. Similar is the story across major IT giants world over.

Changing the city

One thing is very clear that the WfH is going to be the norm wherever possible and is likely to alter the development trajectory of cities. The very reason for people to live in cities, which is to stay near their offices, is losing its relevance. When one can work from a remote location, there is no financial sense in spending an exorbitant amount for living in cities. The impact of this game changing trend in urbanisation is evident in declining demand for housing in once burgeoning cities and falling value of real estate in big cities.

Rent prices in San Francisco have plummeted to their lowest levels in three years — dropping 9.2 per cent in May 2020 alone. Home inventory and vacancy rates continue to rise with each month that the coronavirus pandemic is spreading across the US.

According to a report by PropTiger, an online real estate platform, real estate sales dropped over 70 per cent in the April-June quarter compared with the previous year in India.

There is perceptible change in home demand. Home buyers are looking for spacious houses which can have an office space to work from home. They are willing to move to peripheral areas to have bigger and affordable houses. A large number of flats in big cities are lying vacant as many are working from their hometowns thanks to availability of fast internet in tier 2 cities.

This trend of relocation of people from big cities to tier 2 cities is not likely to be stopped given the benefits of working from remote location for both employees and employers. However, not everyone can work from home at present. The workers engaged in retail, manufacturing, healthcare, transport and business services cannot work from remote locations.

With fast-paced advancements in technology, the automation is likely to replace many of these workers also in future. Around 25-30 per cent jobs are reportedly at high risk of automation by 2030. These jobs include taxi drivers, factory workers, salesman, finance, legal firms, healthcare, etc. With automation, there will be a further decline in the number of people living in big cities.

With more and more workers opting to work from remote locations, many activities in the big cities such as restaurants, entertainment centres, shops, and malls, are going to see a drop in footfalls, which will further fuel the decline of growth of big cities.

The big cities have seen incredible growth since the 1980s as younger, educated workers have flocked into these cities such as Delhi, Mumbai, Bangalore, Hyderabad and development of new cities such as Cyberabad, Gurugram.

But it looks like that trend will reverse in 2020 — with a flight of economic activity out of these big cities to peripheral ones. The decline of big cities may have just started to set foot.

Amit Kumar is working with the Ministry of Railways. Surbhi is an economist with the Ministry of Finance. Views are personal

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