In a post-Covid, “work from anywhere” world, cities (not companies are the forefront of the war for talent. The game today is not offering tax breaks to draw Amazon HQ2, but instead to draw the next Jeff Bezos to start it in your town. If Economic Development 1.0 was Foxconn, then Economic Development 2.0 is Mayor Suarez of Miami. What will help cities do this more effectively? It’s complicated. But after travelling and investing in a number of cities, some themes emerge. Ultimately cities need assets, and below are five assets that help cities win this new game.
Music
It is counterintuitive that although Spotify can offer us nearly any song ever recorded, we humans crave the human connection of live music even more than ever. It is not a coincidence that two of the cities that have boomed over the last decade – Nashville and Austin – are also two of the coolest music hubs. Similarly, Denver is home to Red Rocks and Seattle has a history of west coast grunge.
In a mobile world, people are free to move around the country and globe, landing at whichever places suit their wants and needs. The key amenities – like music – within a city are not “tradable”, so consumers must be present to enjoy it. The graph below shows the cities ranks as having the best music “scene” (utilizing density of musicians, recording studios, radio stations, venues and a number of other metrics).
Nashville has a great music scene and the city is cashing in on it. Pittsburgh appears to have a great music scene, but the public doesn’t really know. And in this mobile, social-media driven world, if people don’t know about it, does it exist? At the other end of the spectrum, how can places like Chattanooga and Greenville work to improve this asset while remaining true to their city’s character?
Local patrons
The path of a city’s growth is not pre-determined or inevitable. Areas with certain assets are more likely to succeed than others, but cities are emergent system, always changing. Within this complexity, it is remarkable how much a single individual or family can change the trajectory of a city.
Many of the key assets that cities enjoy have been there for a long time, built by people with long-term vision and patience. The Boston Common and Central Park and the Liberty Bell and the RiverWalk in San Antonio all draw thousands of tourists per year, offer a great “story” to each city but couldn’t be built by the private sector with a focus on ROI. These were all built by governments in a time when such institutions were more able and willing to make such investments. This job seems to fall now to private sector, especially to wealthy “patrons” that seek to make their home cities better for future generations.
Dan Gilbert and his investment group Bedrock in Detroit are the most highly publicized example. Detroit has reversed course from its bankruptcy and is now enjoying substantial growth in its startup community, as well as its thriving food scene. Gilbert and his team have catalyzed this, taking risks that others wouldn’t take, and setting an example for others looking to enter or re-enter the market.
Jeff Vinik and his work on Water Street in Tampa alongside Bill Gates’ family office Cascade is just as significant, but done differently. Instead of buying cheap existing buildings and renovating, the Water Street project aims to build a new downtown. Significantly, this program also created the Embarc Collective to foster start-up activity. Tampa is in the early stages of significantly changing its own trajectory and potentially offering a model for cities looking for a significant upgrade. But it wouldn’t happen without two billionaires with a long-term perspective.
As we look across thriving cities we see the Goodmon family in Durham and the Graham Weston in San Antonio (among others) following different versions of a similar playbook. While it is popular to vilify billionaires, in many cases they can successfully serve the role not being served by government. This is another reason that building the local startup communities. Hopefully the newly minted billionaires of today can be the Dan Gilberts of tomorrow.
Connectivity
A city exists to connect people, to one another and to unique places. Like a network, the value is a function of the density of high quality nodes and the number of connections between them. As services make it easier to connect to different parts of cities, those areas become more “valuable”. New train stops increase value at the new locations, burying highways increases the value on the land above, and adding running trails inreases the value along them. The ability to walk (or, less commonly, bike) large stretches in an interesting urban environment is a valuable amenity that has been under-explored since the highway system was created 70 years ago.
But how can cities make areas more walkable? They can widen sidewalks or shut down streets, but both have obvious costs and opponents. Alternatively, they can utilize existing infrastructure. For instance, The High Line in New York City has been a fantastic success, at a cost of $150 million. The cost was low (for NY standards) because it was utilizing elevated rail yards that already existed. The Beltline in Atlanta is a similarly successful walking trail current under development. The Beltline has come at a higher cost of $500 million but is expected to create an additional $4.5 billion in investment. The return on investment in projects such as these are far higher than using tax incentives to create manufacturing facilities or headquarters with only moderate spillover benefits.
Technology is changing how and when we interact with our cities. It is also making much of the existing real estate and infrastructure obsolete. The railyards in New York were transformed from an obsolete structure to a thriving amenity creating billions of dollars of ancillary value for the city. Cities that have the financial wherewithal and long-term vision should look for opportunities to find these opportunities to turn obsolete assets into amenities that can connect people within their city. Also cities should think of their cities not just as a collection of taxable buildings and people, but a network, whose value can be increased by increasing connections.
Flexible housing
You want to move to a new city, what are your first questions? Probably “Where do I work?”, and “Where do I live?” If you’re an “office worker” you might be bringing your job with you. So that only leaves the housing decision. Framed this way, it is clear that great housing options are a huge amenity to a city, as housing is the front door to new migrants. Cities should focus even more on this issue – beyong just affordable housing – recognizing that housing options might make or break their future.
So you have chosen your city. From there, you likely have a small set of options . You can live downtown, in relatively small expensive apartments. Or you can live in the suburbs, where you can take a risk in a new city and buy a house, or you can rent an apartment in a three-story apartment building. You will need to bring your own furniture and sign a lease for a full year. None of it is pleasant. You don’t know the people in the building and there is no process for changing that. These options work for some people, maybe even most people. But certainly not for everyone.
In contrast to the Tomorrow Building, most housing was built with the yesterday’s worker in mind. There is a lack of housing that has the correct amenities, flexibility and technology. Areas that are forward thinking on housing as an amenity to keep and retain a great talent base will enjoy more success.
A supportive sandbox for next generation’s innovators
Business startups and small companies are the the key to economic growth so economic prosperity comes from either continually fostering new startup activity or drawing existing companies from other areas. Historically economic development has focused on the latter, using cost advantages and tax incentives to draw existing firms, a zero-sum strategy. This version of economic development will struggle in the future. The better way is to create the environment and ecosystem (the “sandbox”) for sustainable new business creation.
A couple of things are true. The “initial conditions” matter, and where you are born has historically been a key predictor of future success. At the same time, places that are under-represented on this map have lots of smart capable, risk-seeking people. To create future success, cities should zero in on re-directing dollars they would have used to attempt to draw large existing firms towards their metro and towards nurturing those driven folks in their own zip codes.
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