Latest / Stephanomics / Some Cities Have Emerged Stronger From the Pandemic. Others Haven’t

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Some Cities Have Emerged Stronger From the Pandemic. Others Haven’t · Stephanomics

0:05
Speaker 1: Hello, Stephanomics. Here the podcast that brings you the global economy.
0:09
Speaker 1: This week, we have a Tale of Three Cities, which
0:12
Speaker 1: is also a tale about winning and losing in a
0:15
Speaker 1: world economy in flux, and why sometimes it can be
0:19
Speaker 1: difficult to tell the difference. Take San Francisco. It looks
0:23
Speaker 1: for all the world like a loser from post COVID
0:26
Speaker 1: work habits, A big chunk of its workforce hasn't returned
0:30
Speaker 1: to the city center and financially and socially its entire straits.
0:36
Speaker 1: But the San Francisco area is also at the center
0:39
Speaker 1: of the global AI boom from for large parts of
0:42
Speaker 1: the US tech fraternity, really the only part of the
0:45
Speaker 1: world you'd want to live. So it's complicated. California Bureau
0:49
Speaker 1: chief Karen Breslo and Bloomberg opinion columnists Justin Fox are
0:54
Speaker 1: going to help me make sense of it all in
0:56
Speaker 1: a few minutes. We also have a great piece from
0:59
Speaker 1: Seen Asia economy reporter and Michelle jam Risco in Singapore,
1:03
Speaker 1: a city that has benefited enormously from the economic and
1:07
Speaker 1: political shifts of the past few years, but where long
1:10
Speaker 1: term residents now struggle to afford a drink. But we're
1:14
Speaker 1: going to start with a cautionary tale from Dubai, which
1:19
Speaker 1: on paper at least looks like one of the big
1:22
Speaker 1: winners from the invasion of Ukraine last year and all
1:27
Speaker 1: the geopolitical events that have unfolded since then. But if
1:31
Speaker 1: you're living in Dubai, there's definitely been some downsides to
1:35
Speaker 1: this influx of people and wealth that's followed that invasion.
1:40
Speaker 1: I'm going to have a quick chat with Manus Cranny,
1:42
Speaker 1: distinguished longtime anchor for Bloomberg who's been based in Dubai
1:47
Speaker 1: for a while. Manus, thanks for joining us. I guess
1:49
Speaker 1: I should start by just asking you to paint a
1:51
Speaker 1: bit of a picture. I have been there a couple
1:54
Speaker 1: of times in the last year, and I can certainly
1:55
Speaker 1: see people complaining about there being no Rolex shot watches
1:59
Speaker 1: left in the stores because of the Russians arriving. But
2:03
Speaker 1: you know what's it been like to be there.
2:06
Speaker 2: High class Problemsphanie, And there are many.
2:10
Speaker 3: I mean, I can tell you there was a palpable
2:13
Speaker 3: change in this city how we live, what we spent
2:17
Speaker 3: to live, how we get around in the past year,
2:20
Speaker 3: year and a half. And this acceleration began before the
2:24
Speaker 3: Russian invasion of Ukraine in terms of rent prices, congestion
2:29
Speaker 3: tough to get an uber price gouging by uber Why, Stephanie,
2:32
Speaker 3: Because post COVID you saw this huge influx of not
2:37
Speaker 3: just you know, Russian emigrats, but wealthy Europeans beginning to
2:43
Speaker 3: look at the value differential per square foot here in
2:47
Speaker 3: Dubai relative to the Cortezu, relative to Paris, relative to Berlin,
2:51
Speaker 3: and relative to London. And it began to offer them
2:54
Speaker 3: a glimpse of six months of the year where you
2:56
Speaker 3: could live in beautiful weather from October through to the
3:01
Speaker 3: end of March, and you could get yourself a million
3:04
Speaker 3: dollar pad, which you just couldn't buy in any of
3:06
Speaker 3: those cities on the beach overlooking the Marina. And suddenly
3:09
Speaker 3: people began to look at this city in a very
3:12
Speaker 3: different way. And then the Russians came, and my gosh,
3:15
Speaker 3: it just exploded.
3:17
Speaker 1: And of course the main thing people talk about is rent.
3:20
Speaker 1: And you should tell us you had your own experience
3:23
Speaker 1: with a rent increase which you helped to go viral.
3:27
Speaker 3: Yeah, I got a rent review through They asked me
3:30
Speaker 3: for fifty two percent increase year on year, to which
3:34
Speaker 3: I went what you know, fifty two percent. So I
3:38
Speaker 3: got on LinkedIn Welcome.
3:40
Speaker 2: To my home.
3:41
Speaker 4: So to understand inflation is to understand the rent increase
3:44
Speaker 4: that I've just been sent. My landlord wants to raise
3:47
Speaker 4: my rent by fifty six percent.
3:51
Speaker 2: Yeah, fifty six.
3:53
Speaker 3: And I talked about this is what happens when cities
3:57
Speaker 3: get greedy and landlords get greed.
4:00
Speaker 4: You want to understand the definition of greed, then that
4:03
Speaker 4: is the very personification of it.
4:05
Speaker 2: And all I can say is.
4:07
Speaker 4: You know, the implosion of an economy and a city.
4:13
Speaker 2: Is driven by the lunacy that is greed. I'm really
4:17
Speaker 2: rather vexed.
4:18
Speaker 3: One could say, now through I wouldn't say any great
4:22
Speaker 3: negotiation skills, but I would say through you know, blunt
4:27
Speaker 3: hammer approach. I ended up offering thirty two percent of
4:31
Speaker 3: a rent increase, and they accepted that they wanted to
4:33
Speaker 3: keep me as a long term tenant. We tooed and
4:35
Speaker 3: throwed over a couple of prices, but I chose to
4:39
Speaker 3: pay the extra because this stock and inventory of equivalent
4:43
Speaker 3: properties available in the area where I want to live
4:46
Speaker 3: was very, very limited. And I should add I, Stephanie,
4:49
Speaker 3: you know where the office is here. We're in the
4:51
Speaker 3: heart of the DIFC, the heart of Dubai Financial District,
4:55
Speaker 3: and I live very close. I'm very privileged to live
4:58
Speaker 3: four minutes away in an uber and a fifteen minute walk.
5:01
Speaker 2: Yes, I walk home from work.
5:05
Speaker 1: It's when it's not but it's good five degrees heat.
5:08
Speaker 1: But yeah, you have to keep that, keep that quiet
5:12
Speaker 1: because everyone else living in big cities will hate you
5:15
Speaker 1: for that four minute commute. But I have heard some
5:20
Speaker 1: horror stories about rent. I mean, is this was this
5:22
Speaker 1: typical of the experience of other people, friends of yours,
5:27
Speaker 1: colleagues in Dubai.
5:28
Speaker 3: I got away lightly, if you can call a thirty
5:32
Speaker 3: two percent hike getting away lightly. Lots of friends have
5:35
Speaker 3: been through different scenarios. One, you're giving a notice to
5:38
Speaker 3: quit because the landlord says we're going to come back
5:40
Speaker 3: in and live in the property.
5:41
Speaker 2: They don't. They simply get you to vacate.
5:44
Speaker 3: They are then able to raise the rent by an
5:47
Speaker 3: even bigger proportion. The second thing that they do is
5:53
Speaker 3: think of Dubai as a concentric circle, Stephanie. Inside the middle,
5:57
Speaker 3: there's the DIFC where there is no rent regulation and
6:00
Speaker 3: what soever. And then you go outside of that and
6:04
Speaker 3: you have a whole other area of Dubai, which is
6:06
Speaker 3: ruled by a regulatory boldery called rerop so me the
6:10
Speaker 3: tenant can go to the regulatory body challenge the rent
6:14
Speaker 3: rise and to a certain extent it will be enforced
6:17
Speaker 3: because do Bai still want people to come from London,
6:20
Speaker 3: from Madrid, from all around Europe and the United States
6:23
Speaker 3: of America, so they're conscious of this housing costs. And
6:27
Speaker 3: I got quite a few calls and responses to the
6:30
Speaker 3: video that I put on LinkedIn in terms of, you know,
6:34
Speaker 3: just an.
6:34
Speaker 2: Overall response from a variety of levels of organizations in
6:39
Speaker 2: the city.
6:40
Speaker 1: We're going to talk more broadly in this show about
6:42
Speaker 1: the way that cities have handled economic success and the
6:47
Speaker 1: problems it can sow for the future if you don't
6:49
Speaker 1: handle it well. I mean, housing comes very high on
6:53
Speaker 1: the list if you start to make it difficult for
6:55
Speaker 1: people to not right at the upper end of the
6:57
Speaker 1: income scale, to live comfortable in that city. When we
7:01
Speaker 1: think of Dubai, we think of construction and you know, building,
7:05
Speaker 1: apartment buildings and other things going up very quickly. Is
7:08
Speaker 1: it something that they're responding to effectively? Do you think this?
7:12
Speaker 1: Are they handling this success well?
7:14
Speaker 3: I think they are even shot by the level of
7:16
Speaker 3: success that they have had. And in terms of the risk,
7:20
Speaker 3: the risk is this is that you price on the
7:22
Speaker 3: very sort of typical expatriate family that might come to
7:26
Speaker 3: live here, or you know, the kind of construct to
7:30
Speaker 3: parents and a couple of kids.
7:31
Speaker 2: I'm just looking at some stats.
7:32
Speaker 3: The average rent for a villa, a family home jump
7:35
Speaker 3: by twenty six percent last year. That's eighty thousand dollars. Okay,
7:39
Speaker 3: that's called in Cbori. The average apartment rent went up
7:42
Speaker 3: by twenty eight percent. They are conscious they need to
7:45
Speaker 3: deliver more supply, and that supply is coming like they
7:47
Speaker 3: have a bit of a desert that they can build into.
7:50
Speaker 3: So they are extending the growth of Dubai in a
7:55
Speaker 3: variety of directions, both along the coastline. And there's some
7:59
Speaker 3: big prime projects coming on board there that were perhaps
8:03
Speaker 3: you know, dumped in the post financial crisis, and they
8:07
Speaker 3: are building lots of smaller family units, smaller apartments which
8:11
Speaker 3: are affordable. It just means you need to move further out.
8:14
Speaker 3: You won't get a four minute commute. You move further right,
8:17
Speaker 3: you can get a consider you can get a less rent.
8:19
Speaker 2: I don't know.
8:20
Speaker 3: About considerably less rent, but you can get a much
8:22
Speaker 3: more competitive rent in a lot of various Let's say
8:25
Speaker 3: family constructs apartment constructs around the periphery of the city,
8:30
Speaker 3: and that is the growth of a city, isn't it.
8:32
Speaker 3: The question is the infrastructure is that there to support that?
8:35
Speaker 3: And that's perhaps the bit that's lagging.
8:37
Speaker 1: And I'm sure your colleagues of Bloomberg will be delighted
8:39
Speaker 1: for you having given chapter and verse to senior management
8:42
Speaker 1: at Bloomberg on why they need a bigger pay rise
8:45
Speaker 1: at the end of this year. I'm going to let
8:47
Speaker 1: you go in a minute manage, but I know you're
8:49
Speaker 1: about to relocate to New York. Do you think it's
8:50
Speaker 1: going to be any better there?
8:52
Speaker 2: Seventy? I guess it is.
8:53
Speaker 3: I've done a lot of steps in New York last week,
8:55
Speaker 3: fourteen to fifteen thousand steps a day, So, first of all,
8:58
Speaker 3: to give you some perspective, and very fortunate, I live
9:01
Speaker 3: in about fifteen hundred and sixteen hundred square feet.
9:03
Speaker 1: Somebody said to me, which part of this is not
9:05
Speaker 1: going to happened?
9:05
Speaker 2: Yeah? Which part of this trade? Have I given great
9:07
Speaker 2: thought to? Forty percent tax?
9:09
Speaker 3: To pay fifty percent more rent to live in fifty
9:11
Speaker 3: percent smaller apartment. It's not quite as drastic as that,
9:14
Speaker 3: but I can tell you, having walked around a lot
9:16
Speaker 3: of property in New York last week, I'm going to
9:19
Speaker 3: be living in a heck of a smaller apartment, and
9:22
Speaker 3: I reckon, I'm going to be up another fifteen percent
9:25
Speaker 3: to live in fifty percent smaller apartment.
9:29
Speaker 1: Well, you did have it relatively easy for a few years,
9:32
Speaker 1: as you've admitted, But thank you very much, Betters. And
9:35
Speaker 1: you've you've introduced actually something which we're going to be
9:38
Speaker 1: talking about now, which is, you know, maybe a city
9:41
Speaker 1: that's a bit further down this road and actually is
9:44
Speaker 1: not making it easy for middle class, ordinary families to live.
9:52
Speaker 5: Because people aren't just rich, they're crazy rich. And you
9:55
Speaker 5: really should have told me that you're like the principal Inamodesia.
9:57
Speaker 6: That's ridiculous.
9:58
Speaker 2: That's more of a Harry.
10:03
Speaker 5: When the international blockbuster Crazy Rich Asians was released in
10:06
Speaker 5: twenty eighteen, Singapore's Prime Minister Lisia and Lune laughed at
10:11
Speaker 5: the impression the movie brought on the city state.
10:14
Speaker 6: Crazy Rich Asians have nothing to do with us. We
10:17
Speaker 6: don't live like that, and I think it'd be disastrous
10:21
Speaker 6: that Singapore has got the idea that that is the
10:23
Speaker 6: way we ought to live.
10:25
Speaker 5: Well, that kind of jinxed it five years in one
10:28
Speaker 5: global pandemic later, a huge influx of wealth, a lot
10:32
Speaker 5: of it from China, has made Singapore a playground for
10:35
Speaker 5: the rich and crazy expensive for everyone else. Singapore's core
10:39
Speaker 5: inflation is April held firm at five.
10:41
Speaker 6: Thought has been ranked the most expensive city to live.
10:44
Speaker 2: In over and over and over again.
10:47
Speaker 7: Every day is expensive cars, housing, I think four is
10:53
Speaker 7: also rising in con.
10:54
Speaker 3: Berries and I was it there so much as property
10:56
Speaker 3: costs in Singpole like one million.
10:58
Speaker 8: Five bedroom house four hundred and eight million dollars.
11:08
Speaker 5: You can see the stresses, especially in rents.
11:11
Speaker 9: Yes, I mean the rental market was still continuing its
11:15
Speaker 9: crazy upward spiral from the beginning of the year.
11:18
Speaker 5: Juliette Standard of City prop Property, who's been a Singapore
11:22
Speaker 5: real estate agent for twenty three years, It's seen a.
11:24
Speaker 9: Lot of experts coming in from Hong Kong and a
11:28
Speaker 9: lot of mainland Chinese coming in from Hong Kong, China, Taiwan,
11:33
Speaker 9: and a lot of locals still were having to rent.
11:37
Speaker 2: What did ch.
11:40
Speaker 5: As Chinese President Xijingping PUSH's common prosperity at home. The
11:45
Speaker 5: most prosperous Chinese are looking to protect their cash. They're
11:48
Speaker 5: pouring it into assets beyond their borders, and that accelerated
11:52
Speaker 5: with the end of China's COVID zero policies and resumption
11:55
Speaker 5: of travel. A lot of that money has ended up
11:58
Speaker 5: here in Singapore. The number of family investment offices nearly
12:02
Speaker 5: tripled over the past two years, and just recently the
12:06
Speaker 5: city climbed ranks into the top five most expensive cities
12:09
Speaker 5: in the world and the most expensive for luxury living
12:12
Speaker 5: by some estimates. Unlike other major cities, rents didn't drop
12:16
Speaker 5: in the COVID era, They've only gotten worse. One measure
12:20
Speaker 5: shows condo rents surge more than thirty percent in the
12:23
Speaker 5: first quarter compared to the same period a year earlier.
12:27
Speaker 5: That's the fastest pace in fifteen years. Expiring leases has
12:30
Speaker 5: become a source of stress, as it's not uncommon for
12:33
Speaker 5: landlords to demand double or more upon renewal. Under the pressure,
12:38
Speaker 5: real estate agents are seeing an outflow, especially of middle
12:41
Speaker 5: class foreigners who simply can't afford Singapore anymore.
12:46
Speaker 9: So there's been a lot of remigration out of Singapore
12:50
Speaker 9: back to other parts of Asia. Specifically, a lot of
12:54
Speaker 9: Hong Kong expats who came in last year, quite a
12:58
Speaker 9: few kind of number are going back to Hong Kong
13:00
Speaker 9: because they're kind of comparing the prices with Hong Kong
13:03
Speaker 9: prices and you know, there's actually not much difference now.
13:06
Speaker 9: And then there's a lot of people who are leaving
13:08
Speaker 9: Singapore and going to places like Bali or jb or Vietnam,
13:16
Speaker 9: Thailand because it's so much cheaper. So you know, there's
13:20
Speaker 9: a lot of people who are rethinking their plans and
13:23
Speaker 9: having to leave Singapore.
13:24
Speaker 10: Now.
13:25
Speaker 5: It's not just the housing market getting squeezed. The food
13:28
Speaker 5: and beverage industry aka Singapore's pride and joy is also
13:32
Speaker 5: seeing a hallowing out in the middle market. Michelin Star
13:36
Speaker 5: chef Michael Wilson told me that he added a steak
13:39
Speaker 5: entree to his menu for eighty eight SEEING dollars or
13:42
Speaker 5: about sixty six US dollars, just to test the range
13:45
Speaker 5: of prices customers were willing to pay. That's more than
13:48
Speaker 5: twice the cost of any other entree he had on offer.
13:51
Speaker 5: In the first weekend on the menu, they ran out
13:54
Speaker 5: of steaks. Besides the influx of new cash. The government's
13:59
Speaker 5: labor policies aren't helping either. In twenty twenty one, Singapore
14:03
Speaker 5: tightened hiring quotas, limiting foreigners to thirty five percent or
14:07
Speaker 5: less of staff and services jobs. This year, they raised
14:11
Speaker 5: the minimum salaries for local employees and food and beverage rolls.
14:15
Speaker 5: Michael Callahan is the owner of Barbary Coast Bar. He
14:18
Speaker 5: told me this is all making for a very complicated calculus.
14:21
Speaker 11: As we're seeing actually where we saw the inability to
14:25
Speaker 11: afford new staff, now we're seeing the inability to retain
14:29
Speaker 11: our current staff.
14:30
Speaker 5: A lot of restaurant owners said, the quotas for hiring locals,
14:33
Speaker 5: we're making it unwise to hire foreign workers at all,
14:36
Speaker 5: because when one local staffer quits, the resulting ratio could
14:40
Speaker 5: make them ineligible to stay open. Callahan warns that too
14:44
Speaker 5: many in the industry will break under the pressure and
14:46
Speaker 5: raise menu prices that will force restaurants to cater to
14:50
Speaker 5: an even wealthier, more niche clientele.
14:52
Speaker 11: When you get to the point that you're charging twenty
14:54
Speaker 11: eight twenty nine thirty dollars a cocktail, there isn't a
14:58
Speaker 11: lot of people that can justify going out two three
15:02
Speaker 11: nights a week, much less four or five nights a
15:05
Speaker 11: week when the single serving of a cocktail is twenty
15:08
Speaker 11: eight dollars plus plus. So now you have a very
15:12
Speaker 11: very small pie and they're very very much I don't
15:15
Speaker 11: want to say too similar, but they kind of are.
15:19
Speaker 11: So what's happening now.
15:20
Speaker 7: Is that we're catering towarding well, we are personally, but
15:23
Speaker 7: a lot of the industry's catering towards this smaller group
15:27
Speaker 7: that have a particular taste, and that's actually reducing how
15:31
Speaker 7: creative we're getting.
15:32
Speaker 11: And that's why said, yeah, I see that, because.
15:35
Speaker 5: It's Callahan helped me understand the changes to Singapore's dining
15:38
Speaker 5: out culture. But since this is an economics podcast, I
15:42
Speaker 5: also turned to sing one song he's watched the shift
15:45
Speaker 5: play out over the past three decades. He's an economist
15:49
Speaker 5: at cimb Private Banking who follows trends in the industry
15:52
Speaker 5: as a gauge of how Singapore's broader economy is doing.
15:55
Speaker 8: I suppose I come here weekly mainly just because I
15:59
Speaker 8: pretend I'm up not in Singapore.
16:01
Speaker 5: At the glass and cased Flower Dome, part of the
16:04
Speaker 5: popular gardens by the Bay, complex. I sat with Song.
16:08
Speaker 5: The place was buzzing with tourists on a recent weekday a.
16:10
Speaker 8: Fifty years ago, when it's really about finding jobs and
16:15
Speaker 8: housing for the people after the production of that Singapore
16:21
Speaker 8: and so FMB fairly basic at that point in time.
16:26
Speaker 2: Just eating and.
16:28
Speaker 8: Feeding as a necessity to today greater disposable income especially
16:35
Speaker 8: important then it allows obviously the whole range of options.
16:42
Speaker 5: The whole range of options is getting leaner in the
16:44
Speaker 5: middle at the bottom of Singapore's famed hawker centers where
16:48
Speaker 5: you can get a full hot meal for just a
16:50
Speaker 5: few dollars, and those are still popular up and down
16:53
Speaker 5: the income ladder. Since twenty twenty, they've been protected with
16:57
Speaker 5: UNESCO World Heritage Status, top of special attention they received
17:01
Speaker 5: from the government such as Digital Transformation assistance in the
17:04
Speaker 5: past few years. On the high end, like Callahan pointed out,
17:09
Speaker 5: more wealthy customers are keeping up those top priced outlets,
17:13
Speaker 5: but in the middle there's a real crunch. But Song
17:17
Speaker 5: says Singapore will never be a cheaper place for doing business,
17:20
Speaker 5: and the high demand also comes from Singapore's neutrality in politics.
17:25
Speaker 8: Given the increased tension between China and US or Western
17:31
Speaker 8: government in general, where Singapore becomes even more of attraction
17:37
Speaker 8: for businesses as many of them Reshaw and Unshaw whatever
17:43
Speaker 8: businesses are on the U Singapore.
17:46
Speaker 2: As their hub.
17:47
Speaker 5: Altogether, the rising costs are raising some political and socioeconomic
17:52
Speaker 5: stress that's ahead of general elections that are due by
17:55
Speaker 5: November twenty twenty five. Officials have reassured that resumed construction
18:00
Speaker 5: will bring relief to rent soon. They've also instituted stamp
18:04
Speaker 5: duty increases, including a move in April that doubled the
18:07
Speaker 5: levee for foreigners buying residential property to sixty percent, and
18:12
Speaker 5: on Wednesday, Central Bank Chief Rovimannon played down the impact
18:15
Speaker 5: that cash flows into Singapore are having on inflation.
18:19
Speaker 1: Wealth in flows in Singapore into Singapore have literal effect
18:21
Speaker 1: on the exchange rate, domestic inflation, property prices or conferences.
18:26
Speaker 8: The step of inflation since late twenty one was mainly
18:29
Speaker 8: due to shop increases in global energy and food prices
18:32
Speaker 8: and beach proof.
18:34
Speaker 5: The Monetary Authority of Singapore says that the inflation fight
18:37
Speaker 5: isn't over, but they do see energy and food prices
18:41
Speaker 5: slowing further and wage growth easing. Real estate agent Juliet
18:45
Speaker 5: says she's seen rents fall off a cliff in the
18:47
Speaker 5: past few weeks, so maybe a market cool down is
18:51
Speaker 5: just around the corner. But the damage has been done
18:54
Speaker 5: and the stereotype that crazy rich Asians projected on Singapore
18:58
Speaker 5: seems to be solidified. It'll take a long time for
19:01
Speaker 5: people to change their minds. Here's Juliette again.
19:05
Speaker 9: So the perception of Singapore is that it's no longer
19:09
Speaker 9: a place where you can come and live relatively inexpensively.
19:12
Speaker 9: You can't save money here anymore. That's what a lot
19:15
Speaker 9: of expats see in Singapore.
19:19
Speaker 5: Michelle Jamrisco for Bloomberg News.
19:26
Speaker 1: So not so long ago, it was San Francisco that
19:28
Speaker 1: was the great boomtown. The city benefited more than any
19:31
Speaker 1: other from the rise of Silicon Valley. Books were written
19:34
Speaker 1: about how other places in the US might learn from
19:38
Speaker 1: its example. Now, though, it's become a byword for urban
19:42
Speaker 1: decline and dysfunction, with homelessness, a fentanyl epidemic making downtown
19:48
Speaker 1: and no go area for a big chunk of the population,
19:51
Speaker 1: and the commercial real estate market imploding. Big retail businesses
19:56
Speaker 1: are heading for the door. In fact, in recent weeks
19:58
Speaker 1: we've seen Whole Foods Nordstrom and the Westfield shopping mall
20:02
Speaker 1: all deciding to quit the city. So how did San
20:05
Speaker 1: Francisco get to this unhappy state? And are there parallels
20:10
Speaker 1: or lessons for cities elsewhere in the US. Well, I've
20:13
Speaker 1: got two excellent people here with me to speak about that,
20:16
Speaker 1: Karen Breslau, our California Bureau chief who's based in San Francisco,
20:20
Speaker 1: and Justin Fox, who's been on the program before, a
20:23
Speaker 1: Bloomberg opinion columnist who writes about lots of interesting things,
20:27
Speaker 1: including US cities and the challenges that they're dealing with. Justin, Karen,
20:32
Speaker 1: thank you very much for talking to me. Karen, there
20:35
Speaker 1: are a lot of horror stories about San Francisco doing
20:38
Speaker 1: the rounds at the moment. Just give us a sense
20:40
Speaker 1: how bad is it day to day.
20:43
Speaker 10: It really depends where you are and who you talk to.
20:47
Speaker 10: So if you are in the downtown financial district, which
20:51
Speaker 10: is where I am right now in our Bloomberg bureau
20:53
Speaker 10: here in San Francisco.
20:56
Speaker 2: It is dire.
20:57
Speaker 10: If you are a downtown landlord, if you are a
21:01
Speaker 10: downtown retailer, if you are a mayor staring into you know,
21:06
Speaker 10: empty city coffers, it is you know, from a fiscal standpoint,
21:12
Speaker 10: obviously terrible to have these giant skyscrapers with a thirty
21:16
Speaker 10: percent vacancy rate, you know, for the last several years
21:19
Speaker 10: due to COVID, and now with the tech downturn and
21:24
Speaker 10: work from home, you know, becoming the norm. You know,
21:29
Speaker 10: you are seeing definitely this, you know, the proverbial doom
21:33
Speaker 10: loop in this downtown area. If you go outside of
21:37
Speaker 10: the downtown into neighborhoods, I think you see a more vibrant,
21:43
Speaker 10: alive San Francisco. And the city is also undergoing an
21:48
Speaker 10: AI boom, right, so a lot of a lot of
21:50
Speaker 10: AI startups are here. But these you know, these are young,
21:54
Speaker 10: early stage companies. They don't fill skyscrapers, you know, their
21:58
Speaker 10: their work live lots and people's you know, the modern
22:02
Speaker 10: day version of the of the Hewlett Packard garage. So
22:06
Speaker 10: it really is it is blocked by block, but the
22:10
Speaker 10: city from a fiscal standpoint and also from morale, it
22:15
Speaker 10: is it is unusually dire.
22:17
Speaker 1: I mentioned that San Francisco obviously was the center of
22:22
Speaker 1: the previous tech booms of this century, and I think
22:28
Speaker 1: that's what people find surprising, because, as you suggested, there's
22:32
Speaker 1: success still there. There's still all those startups. How does
22:35
Speaker 1: that coexist with the kind of horror stories that we
22:39
Speaker 1: hear about downtown. Why is the city not benefiting from
22:42
Speaker 1: that continued success of parts of its economy.
22:45
Speaker 10: When you think about San Francisco, you really have to
22:48
Speaker 10: hold more than one thought in your head at the
22:50
Speaker 10: same time. This is a city, you know, that's been
22:52
Speaker 10: through booms and bus since the gold Rush. It is
22:56
Speaker 10: a boom and bust town, and so you know the
23:01
Speaker 10: most you know recent obviously we have the tech crash,
23:05
Speaker 10: you know, on the heels of of the COVID shutdowns,
23:10
Speaker 10: and before that we had the dot com boom, the
23:13
Speaker 10: dot com bust. So the city has seen this before.
23:18
Speaker 10: The difference is I think really that the hybrid or
23:24
Speaker 10: work from home models have flattened out what would be
23:28
Speaker 10: a normal recovery, uh and made so much of the
23:32
Speaker 10: commercial real estate, this incredibly valuable commercial real estate in
23:36
Speaker 10: downtown San Francisco that powers you know, the tax base
23:40
Speaker 10: of the city, and the and the and the retail
23:41
Speaker 10: base that has all gone. San Francisco is a very
23:44
Speaker 10: small city. It's surrounded by affluent suburbs where people you know,
23:49
Speaker 10: come into work. The population of San Francisco is hovers
23:52
Speaker 10: around eight hundred thousand. It's not a big major city
23:56
Speaker 10: in terms of population, but the you know, the commuters
23:59
Speaker 10: who come in and fill those offices and spend their
24:03
Speaker 10: money are simply not here in the numbers they were
24:06
Speaker 10: before the pandemic.
24:08
Speaker 1: And when people take the sort of long view, there's
24:12
Speaker 1: kind of a range of culprits that people point to
24:16
Speaker 1: for how the city got to this position, which, as
24:18
Speaker 1: you say, it's not all bad, but certainly downtown feels
24:22
Speaker 1: pretty bad. There's a one whole set of arguments that's
24:28
Speaker 1: around the tech boom itself, all the money that came in,
24:31
Speaker 1: the enormous increase in real estate values that made so
24:35
Speaker 1: much of San Francisco unaffordable. There's another set of critiques
24:38
Speaker 1: that's around sort of dysfunctional politics, and obviously that's what
24:42
Speaker 1: Republicans are doing attack ads about. You know, this is
24:45
Speaker 1: an example of leftist politics gone amuck. And then, as
24:49
Speaker 1: you've mentioned, you know, there's COVID and the fact that
24:53
Speaker 1: more people have just stayed at home since the very
24:56
Speaker 1: long period of shutdowns from the pandemic. When you think
25:00
Speaker 1: about it in your mind, I'm sure it's all of
25:04
Speaker 1: those things. But is there was there a sort of
25:07
Speaker 1: an original problem that in the way that that that
25:10
Speaker 1: all that influx of enormous amount of money from related
25:15
Speaker 1: to Silicon Valley got got handled.
25:17
Speaker 10: I think you've really laid out the cast of culprits
25:22
Speaker 10: very well. I would say the blame the tech Bros.
25:26
Speaker 10: Storyline was certainly here. What you know, during the boom days, right,
25:30
Speaker 10: you had people throwing tomatoes at these big white buses
25:33
Speaker 10: that would carry unlabeled of course, unmarked buses that would
25:38
Speaker 10: that would ferry workers from San Francisco to Google and
25:41
Speaker 10: Meta and Apple and Genent Tech and you know, all
25:46
Speaker 10: the big employers, and they were blamed for, you know,
25:50
Speaker 10: ruining the vibe in San Francisco. Then, of course dysfunctional politics.
25:56
Speaker 10: Why does this heavily democratic city in a heavily democratic
26:01
Speaker 10: state not have sufficient thousand there are? You know, I
26:07
Speaker 10: think I think there is legitimate blame for I would
26:12
Speaker 10: say an air of permissiveness around drug use which has
26:19
Speaker 10: completely gotten out of hand. I think that is legitimate criticism.
26:23
Speaker 10: And then overlying all of this, of course, is the pandemic,
26:28
Speaker 10: which really exacerbated trends that were clearly in place before
26:33
Speaker 10: and accelerated those trends and revealed, you know, a society
26:39
Speaker 10: that is so deeply unequal it cannot recover from COVID
26:46
Speaker 10: from the pandemic as other cities have.
26:50
Speaker 1: But I want to get on to the other cities
26:52
Speaker 1: in a minute. But just I guess one last question
26:55
Speaker 1: for now. Does it feel like there is a way out?
26:59
Speaker 1: I mean, as you identify, is not just one negative storyline,
27:02
Speaker 1: but certainly downtown that's the dominant story that's currently playing.
27:09
Speaker 1: Does it feel like the existing administration and the mayors
27:14
Speaker 1: has a route out of this? If only how to
27:17
Speaker 1: get hold of some money for a.
27:18
Speaker 10: Start, right, there's definitely a way out of this. San Francisco,
27:23
Speaker 10: you know, was flattened. I mean, this is what the
27:25
Speaker 10: mayor London Breed talks about. She said, Okay, so this
27:28
Speaker 10: is a city that was literally in smoke and ashes
27:32
Speaker 10: in nineteen oh six.
27:34
Speaker 2: It was over.
27:35
Speaker 10: It would never it would never come back after the
27:38
Speaker 10: great earthquake. And she says, a change in people's work habits,
27:41
Speaker 10: a change in people's retail habits is not the end
27:44
Speaker 10: of San Francisco. And there is definitely intellectual ferment. There's
27:49
Speaker 10: venture capital, a tremendous talent pool, major universities. All of
27:54
Speaker 10: that stays. But I think San Francisco is going to
27:58
Speaker 10: have to undergo a tremendous reining. There's not going to
28:02
Speaker 10: be this downtown core of thirty percent empty skyscrapers and
28:08
Speaker 10: empty shopping malls. These buildings look like fossils of the
28:11
Speaker 10: way American cities were even you know, just a few
28:15
Speaker 10: years ago before the pandemic. So I think, you know,
28:20
Speaker 10: the tax space is going to have to shift away
28:23
Speaker 10: from tech, it's going to have to shift away from
28:25
Speaker 10: real estate and financial services, it's going to have to
28:29
Speaker 10: shift away from retail, and these these are all the
28:32
Speaker 10: things that powered San Francisco as recently as the before times.
28:37
Speaker 2: So will this.
28:39
Speaker 10: Happen on our current political cycle. I think it's highly unlikely.
28:43
Speaker 10: I mean, we have an election you're coming up next year.
28:46
Speaker 1: Justin I mean, what Karen's describing obviously is sort of
28:49
Speaker 1: everything that we think of as being a city is
28:51
Speaker 1: going to have to be rethought. But you know, how
28:52
Speaker 1: much is San Francisco an outlier in a US context,
28:57
Speaker 1: and how much is it potentially a sort of harbinger
29:00
Speaker 1: of problems that other cities will be starting to have.
29:04
Speaker 12: I mean, it's a pretty big outlier. And really, I
29:07
Speaker 12: think Karen expressed this already. It's the working from home
29:12
Speaker 12: that has sort of caused all these things to come
29:15
Speaker 12: to a head. San Francisco had been struggling with all
29:17
Speaker 12: these problems for a while, and then suddenly Bay Area
29:20
Speaker 12: based companies were the most gung ho about getting people
29:24
Speaker 12: to stop coming into the office at the beginning of COVID.
29:27
Speaker 12: Let it keep happening forever. The one other city in
29:30
Speaker 12: the US that's sort of big city that's comparable in
29:32
Speaker 12: the percentage of people that are still staying home is Washington,
29:35
Speaker 12: d C. But it feels different. I guess like tourism
29:39
Speaker 12: has come back to Washington in a big way. So
29:42
Speaker 12: at least the streets are full of people, even though
29:43
Speaker 12: the offices are I guess all empty, especially the government offices.
29:48
Speaker 1: So yeah.
29:49
Speaker 12: And then the other issue is that the Bay Area
29:52
Speaker 12: public transit system, at least the Bay Arey Rapid Transit,
29:56
Speaker 12: the biggest part of it, is very much just funded
29:59
Speaker 12: by and to a much greater extent than most other
30:04
Speaker 12: public transit systems in the US. So that's undergoing all
30:07
Speaker 12: of these problems. Obviously, every major commercial district is struggling
30:12
Speaker 12: to some greater or less extent with the fact that
30:15
Speaker 12: people are coming into the office less often and maybe
30:17
Speaker 12: they don't need all those buildings, and that's going to
30:20
Speaker 12: be a long and difficult and expensive process to figure
30:22
Speaker 12: out what to do about it. But I have not
30:24
Speaker 12: seen any place else in the US, except maybe Portland, Oregon,
30:28
Speaker 12: which is sort of a similar economy and has kind
30:31
Speaker 12: of some issues of its own. They're even worse than
30:33
Speaker 12: San Francisco. But in general, it's unique.
30:38
Speaker 1: But it's interesting. I mean, it does. It feels a
30:40
Speaker 1: little bit like we're talking more now about kind of
30:45
Speaker 1: managing the long term consequences of success and of having
30:48
Speaker 1: a certain amount of wealth come into a city or
30:51
Speaker 1: a city sort of region in a way that maybe
30:54
Speaker 1: twenty thirty years ago we were talking about managing decline
30:57
Speaker 1: in some of these old industrial cities. When you look
31:00
Speaker 1: at somewhere like Miami or other places that are actually
31:03
Speaker 1: is starting to attract people from other parts of the country,
31:06
Speaker 1: certainly quite a lot of coming from Chicago for example,
31:09
Speaker 1: and sort of heading south. Are there things they should
31:14
Speaker 1: be looking out for, things to avoid or to try,
31:18
Speaker 1: and how should they respond to that influx of money
31:21
Speaker 1: and then not have some of the same dynamics that
31:23
Speaker 1: we've seen played out in San Francisco.
31:25
Speaker 12: Well, the simplest answer is you build lots and lots
31:27
Speaker 12: of housing. The difficulty is if you're in a coastal
31:30
Speaker 12: city that's already kind of pretty much full, it's hard
31:34
Speaker 12: to do. I think it's hard to do anywhere in
31:36
Speaker 12: the world. It seems especially hard in the US, although
31:39
Speaker 12: I guess I get the sense that the south of
31:41
Speaker 12: England is not super easy either. And so, I mean,
31:46
Speaker 12: like Austin, Texas has had this big inflow of people
31:49
Speaker 12: in wealth and has been adding new housing at a
31:52
Speaker 12: pace just way beyond any other large metropolitan area in
31:56
Speaker 12: the US, and so it's gonna have a lot of
31:59
Speaker 12: growing pains. And I don't know how all those people
32:00
Speaker 12: are going to get to work, but maybe they'll just
32:03
Speaker 12: work from home. But it's clear that it's these coastal
32:07
Speaker 12: cities in the US have had this extreme problem. In
32:11
Speaker 12: California's it's been by far the most extreme in responding
32:15
Speaker 12: to new demand for housing. That the Bay Area was
32:19
Speaker 12: creating all these jobs for the last couple decades and
32:21
Speaker 12: building very few new houses and apartments. I'm one of
32:25
Speaker 12: those people who it's all about the housing. I think
32:27
Speaker 12: clearly it's other things too, And right now a lot
32:30
Speaker 12: of the focus is on other issues. And you know,
32:33
Speaker 12: right now the Bay Area the last couple of years,
32:34
Speaker 12: people have been leaving, So you'd think that adding a
32:38
Speaker 12: whole bunch of new housing isn't the most pressing issue.
32:40
Speaker 12: But I don't know. I feel like that's that's at
32:44
Speaker 12: the core of it. And I mean in New York
32:46
Speaker 12: City it's a huge problem, which in New York City
32:48
Speaker 12: has had more of a rebound, more of a return
32:50
Speaker 12: of people, and housing prices here just in the city
32:54
Speaker 12: proper are insane, and whereas there's been at least some
33:00
Speaker 12: correction in San Francisco.
33:01
Speaker 1: In Europe, is very fashionable to talk about the fifteen
33:04
Speaker 1: minute city. I mean, is that going to be part
33:06
Speaker 1: of the sort of reinvention of downtown in some of
33:08
Speaker 1: these places?
33:10
Speaker 12: Well, I mean in San Francisco, the issue is that
33:12
Speaker 12: and this is true in New York although New York
33:14
Speaker 12: sort of has a couple of downtowns, but the best
33:17
Speaker 12: transit connections are all sort of go through that downtown,
33:22
Speaker 12: the financial district and nearby areas and so it's absolutely
33:26
Speaker 12: true that the neighborhoods out in San Francisco are pretty
33:29
Speaker 12: vibrant and you can live a fifteen minute lifestyle. But
33:33
Speaker 12: if you want to get to the other side of town,
33:35
Speaker 12: very often it ends up going through the middle. And
33:37
Speaker 12: so if that, something's got to happen with that core,
33:40
Speaker 12: and I just don't know what it is at this point,
33:42
Speaker 12: I just wanted.
33:43
Speaker 10: To chime in on the reimagining down the middle. I
33:47
Speaker 10: interviewed London Breed at our technology summit last week and
33:52
Speaker 10: she just threw out, She just spitball. She said, why
33:54
Speaker 10: are we all worked up about the empty mall? The
33:57
Speaker 10: Westfield Mall, which was taken, as you know, the death knell.
34:01
Speaker 10: And she asked the audience how many of you have
34:03
Speaker 10: shopped there in the last two you know, even in
34:05
Speaker 10: the last five years. Very few hands went up. She said,
34:08
Speaker 10: where do you get your stuff? You go online, you
34:10
Speaker 10: buy it, So why are we flipping out about an
34:12
Speaker 10: empty shopping mall. I'm paraphrasing her very very crudely, but
34:17
Speaker 10: she said, why do why do we need a shopping mall?
34:19
Speaker 10: Why why don't we have a soccer stage? So she
34:21
Speaker 10: kind of spitballed this idea, which got picked up here
34:25
Speaker 10: in lots of memes, and you know, then, of course,
34:28
Speaker 10: being San franciscoverybody started piling on about what a terrible
34:31
Speaker 10: idea that would be in hell could you? But you
34:34
Speaker 10: know I did that. Well, there there was a little
34:36
Speaker 10: she took a little, a little uh you know, flight
34:38
Speaker 10: of imagination right there in real time, with absolutely no forethought.
34:43
Speaker 10: But it maybe it does take that kind of radical reimagination.
34:47
Speaker 10: I mean, the Giants play downtown, you know, why not?
34:51
Speaker 10: Why not major League soccer?
34:53
Speaker 1: So all football as we might.
34:56
Speaker 10: I'm sorry, thank you. Yes, the spherical object to es.
35:00
Speaker 1: Well, that would be that would be very controversy. That
35:02
Speaker 1: would set us up for an enormous debate. In my household,
35:05
Speaker 1: we live in the shadow of an enormous Westfield, but
35:07
Speaker 1: we also where at least one of my children spends
35:10
Speaker 1: a lot of their lives. But there are also some
35:12
Speaker 1: keen football fans who quite wouldn't mind having a new
35:15
Speaker 1: stagment a very bad local team. So yeah, that'll set
35:20
Speaker 1: the conversation around the dinner table. So finally, we have
35:24
Speaker 1: to always because we now live also in the shadow
35:26
Speaker 1: of the presidential and general election in twenty twenty four.
35:30
Speaker 1: I mean I should ask both of you, but certainly, Karen,
35:33
Speaker 1: what are the political Clearly the Republicans think that they
35:37
Speaker 1: can make score some points, pointing to San Francisco as
35:41
Speaker 1: an example of an indi California as an example of
35:44
Speaker 1: a democratic rule runner.
35:45
Speaker 10: Muck.
35:47
Speaker 1: Are there broader political implications from what's going on?
35:52
Speaker 10: Yes, I think you can. You can throw San Francisco
35:54
Speaker 10: on the ballot pretty much anywhere you're running right and
35:57
Speaker 10: say is this what you want? We're already seeing this.
36:00
Speaker 10: We saw Ron de Santists come out. There does seem
36:02
Speaker 10: to be a little pattern of stopping to record, you know,
36:06
Speaker 10: a horror scene somewhere in San Francisco and shake their
36:11
Speaker 10: heads and say, oh my, is this what you want?
36:13
Speaker 10: So San Francisco is on the ballot everywhere, you know,
36:17
Speaker 10: shorthand for for democratic. Uh, dystopia if you're a Republican.
36:24
Speaker 10: And yeah, even if you're a Democrat, San Francisco right now, Uh,
36:31
Speaker 10: this bastion of you know, of tolerance and acceptance and
36:35
Speaker 10: creativity and social progress is very hard to point to
36:40
Speaker 10: the social values that Democratic voters might might agree with.
36:46
Speaker 10: If you look at some of the streetscapes, So it's
36:50
Speaker 10: it's very tricky, but I think in a weird way,
36:52
Speaker 10: you're going to see a lot more Republican candidates here
36:55
Speaker 10: to record their ads and collect their money.
36:58
Speaker 9: Uh.
36:58
Speaker 10: But that and maybe four or five percent of the
37:01
Speaker 10: of the electorate will vote for them.
37:04
Speaker 1: Well, it sounds like the mess to increase the fees
37:06
Speaker 1: for filming on the street anyway.
37:08
Speaker 10: Political ads, Yeah, they want to pass the tin cup
37:11
Speaker 10: right there.
37:12
Speaker 1: And just in final question to you, can you imagine
37:15
Speaker 1: any politicians, I mean, given that there's some serious economic consequences,
37:19
Speaker 1: is anyone going to be brave enough to tell people
37:20
Speaker 1: to go back to the office.
37:23
Speaker 12: I mean, obviously lots of people in New York have
37:27
Speaker 12: done that and in the financial sector pretty successfully. But politicians, well,
37:33
Speaker 12: I mean the mayor Adams here does that all the time,
37:36
Speaker 12: although he's final. It's funny because in New York City,
37:39
Speaker 12: and this was under Deblasio, his predecessor, they actually, uh
37:43
Speaker 12: required all city employees to come in five days a week,
37:46
Speaker 12: and they're finally relaxing that. Yeah, that's a pop I mean,
37:51
Speaker 12: the Republicans had this bill that they keep bringing up
37:55
Speaker 12: to I forget. It's got some great acronym, but it's
37:57
Speaker 12: in Washington to force federal employees to go back to work.
38:01
Speaker 12: So yes, I think there's a slight partisan valance to
38:03
Speaker 12: the whole going back to the office thing, because it's
38:06
Speaker 12: it's something that white collar professionals are the ones who
38:10
Speaker 12: can work from harm and they almost all the democratic
38:12
Speaker 12: these days.
38:14
Speaker 1: Karen Breslaud, Justin Fox, thank you very.
38:16
Speaker 10: Much, so closure, Stephanie, thanks for having us.
38:21
Speaker 1: That's it for this episode of Stephonomics. Next week we'll
38:24
Speaker 1: have more. In the meantime, you can get a lot
38:26
Speaker 1: more economic insight and news from the Bloomberg Terminal website
38:30
Speaker 1: or app. This episode was produced by Mangnus Hendrickson, Yang
38:33
Speaker 1: Yang and Summer Sadi, with help from Abria Ruffin. Special
38:37
Speaker 1: thanks to Manus Cranny, Michelle jam Risco, Kevin Varley, David Ramley,
38:43
Speaker 1: Karen Breslau, and Justin Fox. But Mollie Smith is the
38:46
Speaker 1: executive producer of Stephanomics and the head of Bloomberg podcast
38:49
Speaker 1: is Sage.
38:50
Speaker 2: Both