Dec 15, 2023 - Politics & Policy

"The donut effect" is reshaping America's cities

Illustration of a chocolate glazed donut with arrow-shaped sprinkles pointing outwards

Illustration: Sarah Grillo/Axios

The most pronounced dynamic shaping U.S. cities heading into 2024 is "the donut effect" — a hollowing of the urban core as people, jobs and retailers flee to the suburbs and exurbs.

Why it matters: For all the talk of 2023 being the year of downtown recovery, the reality looks more like a swirl of experiments in how to attract residents, commuters and visitors to cities where the pulse beats differently than it did pre-pandemic.

  • Large cities' populations are trending down as people move to the suburbs to work — and avoid urban crime, homelessness, shoplifting and drug use, whether real or perceived.
  • "People can get much of what they used to get in the city in the suburbs, in the exurbs and on their computer," says Joel Kotkin, professor of urban studies at Chapman University in Orange, California, and executive director of the Houston-based Urban Reform Institute.

Driving the news: Cities are using all kinds of strategies to restore their former vibrancy and encourage people to shop, work, recreate and dine.

  • Chicago, Boston, Pittsburgh and Washington, D.C., are dangling tax incentives for converting office buildings to residential apartments.
  • New York City is poised to introduce "congestion pricing" to try to keep traffic out of Manhattan's busiest districts.
  • Charlotte, North Carolina, and Indianapolis are embracing creative "placemaking," building safe and vibrant downtown attractions.

What they're saying: "Cities are trying to figure out how to redefine their downtowns," Nico Larco, director of the Urbanism Next Center at the University of Oregon, tells Axios.

  • "Cities that are only offices, and had thought of their downtowns as only central business districts, are and will continue to be in a whole lot of pain."

Context: The "donut effect," a term coined three years ago by Stanford economists Arjun Ramani and Nicholas Bloom, refers to ongoing real estate trends set in motion by the pandemic.

  • The definition: "Rising prices in the suburbs and slumping prices in major city centers being hollowed out by a fear of crowds and the growth of working from home."
  • Today, the phenomenon is "quite evident in some of our top-performing cities, such as Dallas, Houston and Austin," says Maggie Switek, director of regional economics in the Milken Institute's research department. "What this is leading to is high commercial vacancy rates in these major places."

What's happening: Cities are experimenting with new laws, policies and strategies in...

Housing

Office-to-apartment conversions are a hot topic as landlords and mayors seek to fill empty downtown buildings — but pulling them off is "getting even harder," the Wall Street Journal reports.

  • It typically costs more to retrofit a building than to tear it down and start from scratch — and it's hard for developers to get loans to do the work.
  • Windows and structural pillars tend to be in the wrong places; extensive plumbing work can be needed to build enough kitchens and bathrooms.
  • Overall, "it's very, very difficult to build housing in cities," Kotkin observes. "A percentage has to be affordable, and that means that the rest is less affordable."

Zoning laws are being rethought to bring about cities' desired results.

  • Minneapolis and Portland are striking down single-family zoning laws to encourage more affordable housing.
  • A growing number of cities, including Raleigh, Austin and Spokane, are abolishing parking minimums, which require developers to create a certain number of parking spaces alongside new housing.

Transportation

New York's impending test of congestion pricing will be one of the nation's most widely watched urban transit innovations.

  • Starting sometime in the spring, drivers may have to pay $15 to enter Manhattan's busiest streets. (The MTA has approved a plan, which faces hearings and a final vote in April.)
  • It's the first U.S. test of this strategy, which was pioneered 20 years ago in London.
  • "If it's successful, it'll be a model for places like Los Angeles and Chicago that certainly struggle with a great deal of traffic congestion as well," Sarah Kaufman, director of the NYU Rudin Center for Transportation, tells Axios.

Separately, the Open Streets movement has Washington, D.C., and other cities considering banning cars in certain areas to create pedestrian corridors.

  • Charlotte, Minneapolis and others have toyed with just how permanent to make these pandemic-era policies.

Excitement about "urban air mobility" has automakers pouring money into flying taxis, which in theory would pluck passengers from urban "vertiports" and whisk them to a nearby airport or elsewhere — but the jury's still out.

  • "There's been a ton of hype around this, but the business case just does not exist," Larco said.

Crime

A "violent crime spike that began during the pandemic," as Attorney General Merrick Garland described it in a Dec. 11 speech, has left people feeling unsafe in major cities — rightly or wrongly.

  • While high-profile murders and subway assaults have tarnished the reputation of cities like San Francisco and New York, neither tops the lists of cities ranked by violent crime rates.
  • In Memphis, which does top some of those lists, downtown crime has so devastated the economy that one City Council member told news channel WREG, "There won't be a city left."

Cities tackling the issue head-on include Newark, New Jersey, where Mayor Ras Baraka is treating crime like a public health issue, leaning heavily on community outreach workers to reduce violence by diffusing conflict.

  • Baton Rouge is using a similar violence prevention model.
  • Baltimore has been paying its "squeegee kids" to stay off the streets and participate in job training.

Quality of Life

More cities are embracing the "15-minute city" concept, which calls for neighborhoods where residents can have all their needs met within a 15-minute walk or bike ride.

City leaders are also "looking at our parks and how we can use them to bring more residents downtown and create more foot traffic," the National League of Cities executive director, Clarence Anthony, tells Axios.

  • Salt Lake City opened a pop-up park earlier this year to draw people downtown — an experimental prelude to plans for an ambitious "Green Loop" surrounding downtown.
  • "In Salt Lake City, they've grown their foot traffic 140% since the pandemic because they created more opportunity and ideas for people to come downtown," Anthony said.

Reality check: While the urban "doom loop" scenario may be overblown, many American cities face daunting existential challenges — from climate change to surges in migrant populations.

  • "We are experiencing an unrecognized urban crisis as cities grapple with post-COVID realities," former New York Gov. Andrew Cuomo wrote in the Wall Street Journal this week, making the argument that the federal government should foot the bill for migrants.
  • "Cities have a lot of work to do to bring people back downtown," Bunmi Akinnusotu, director of city innovation at the Aspen Institute, tells Axios.
  • Kotkin argues that the "donut effect" changes are vast enough to produce an essential reshaping. "We are going to see somewhat of a reduction of the role of the core cities," he predicts. "The real competition is going to be between the big metros."

What's next: Expect to hear more about urban innovations in 2024 — everything from rain gardens to help offset climate change to "Smart Curb" trials to manage streets and sidewalks to efforts to attract university satellite campuses.

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