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With vaccines — and economic recovery — on the horizon for early 2021, there's still room for caution. High-cost cities like New York and San Francisco will probably see their fortunes lag behind suburban and lower-cost metros.

Even as day-to-day life improves the most in dense, walkable cities, those same places face a few headwinds that will take time to overcome. These aren't insurmountable, but just as the suburban communities hit the hardest by the 2008 financial crisis took longer to recover, the same is likely to be the case for high-cost cities that have undergone something of a reset during the pandemic.

The first issue they face is that housing, office and retail space that emptied out this year will take time to fill back up. People in their 30s or 40s who accelerated their plans to leave for cheaper pastures or to settle down in the suburbs aren't coming back, and will need to be replaced by other households. Office and retail leases tend to be long-term in nature, so the vacancies we've seen this year might be just the beginning as tenants decide not to renew leases coming due in 2021 or 2022.

While lower prices and a resolving public health crisis should draw new people and businesses to cities, it's not like the stock market where dip-buyers are quick to respond to lower prices. It's going to take some time.

And that's assuming apartment and commercial landlords slash their rents in an effort to fill up vacancies as quickly as possible, which they may not do. We've definitely seen price declines in high-cost cities, but the official announcement of a vaccine may lead landlords to hold out for higher rents. Why would it be rational for a landlord to accept bargain-basement rents in 2021 if the pandemic is coming to an end and the possibility exists that rents could be back to their peak by 2022 or 2023? This could lead to a pricing standoff between would-be tenants and landlords, delaying the recovery.

There's also the potential for a clash between business interests and progressive activists who may be determined to focus on achieving wins at the local level after a nationwide Blue Wave failed to materialize. We saw signs of this almost two years ago when backed out of building a second headquarters in New York City after local opposition to the project. In California, politicians tried unsuccessfully to classify workers in the gig economy as employees in order to require companies like Uber and Lyft to guarantee them benefits, and a proposition failed that would have raised property taxes on commercial buildings.

Compared with five or 10 years ago, cities may have less ability to enact progressive change without the tax base leaving for cheaper pastures. To begin with, there's the potential for more remote work. But businesses and talent may also see themselves as more mobile and less beholden to the whims of local politics, whether it's corporate relocations or expansions to lower-cost metros like Austin, Denver or Nashville.

It's hard to know just how much of a push progressive leaders might make and how much opposition they could get from businesses, but this is a dynamic to watch — particularly as local governments already are dealing with financial problems stemming from a pandemic-induced drop in tax revenues.

Three to five years from now, this should all be worked out. New residents and businesses will come back to cities as day-to-day life normalizes. Rents will adjust as need be, and while landlords may hold out for a while, they'll eventually fill their buildings back up if the demand is there. To the extent the politics of high-cost urban centers become progressive enough to lead to a loss of businesses, there will be a backlash and a new equilibrium that everyone can live with.

In the meantime, suburban communities and lower-cost cities, which haven't faced the same emptying-out dynamics this year and don't have the same kind of political pressures, are better-positioned to normalize once the public health crisis winds down. While all communities should cheer a vaccine in the new year, don't look for New York and San Francisco to be fully back for some years to come.

Conor Sen is a Bloomberg Opinion columnist. He has been a contributor to The Atlantic and Business Insider.


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