Major US Cities Still Suffering Downtown Decline

New research from Stanford University economist Nicholas Bloom indicates that the structure of some of the largest U.S. cities remains fundamentally changed since the Covid-19 pandemic. Bloom has dubbed this the “donut effect,” referring to “the hollowing out of big-city financial districts, the rising attraction of surrounding areas, and the impacts on local economies.” 

Bloom and his team conclude that downtown economies are not, in fact, bouncing back after the pandemic. According to Bloom, the 12 largest U.S. cities have lost 8 percent of their downtown residents, with two-thirds of those households migrating to suburbs. There was also an attendant drop in the number in businesses in downtowns in major metro areas. “The reason, according to the study’s authors, is because of the staying power of working from home – particularly for high-skilled workers who made up the bulk of downtown exits during the pandemic.”

This means a sharp drop in tax revenue and economic activity for cities, where officials must make difficult decisions to accommodate lower budgets. For public transit agencies, changes in travel patterns have led to sometimes devastating cuts in budgets and service.

Bloom points to one potential benefit of the effect, provided that housing costs go down. “As essential workers and others with lower-paying, in-person jobs get priced out of the suburbs, they might be able to afford living again in the big cities where they need to be every day.”

The donut effect is notably absent or limited in small and medium-sized cities, where more jobs require in-person attendance and housing costs are lower.