Will the Rise of WFH Improve Urban Governance?
During the COVID crisis, the looming threat of an "Urban Doom Loop" became apparent. Moving forward, cities must address the challenge of adapting to persistent vacancies in commercial real estate and declining tax revenue. From 2013 to 2022, approximately 30% of Boston’s tax revenue came from the commercial real estate sector, while in Dallas, this figure was around 20%. The rise of hybrid work-from-home (WFH) models presents a significant challenge for city finances, as increased office vacancies and lower commercial rents per square foot lead to decreased revenue, ultimately affecting economic vitality in city centers.
For decades, cities relied on their commercial base; employees commuting to work in downtown areas supported the local economy, as they would often dine out during lunch and after work before heading back to the suburbs. No city wants to turn into a ghost town. What strategies can cities implement to adapt to the challenges posed by WFH?
City centers now face heightened competition to attract and retain residents. Individuals with jobs that allow for WFH have greater freedom to choose how much time they spend in urban areas. They are more likely to spend time in cities if they find that their productivity, quality of life, and overall happiness are enhanced there. This creates a pressing need for city leaders to focus on improving urban quality of life.
The WFH Challenge for Superstar Cities
Reflecting on my youth in the 1970s, I lived in New York City and its suburbs. Wall Street, the vibrant financial hub of the city, bustled with activity during the day, primarily populated by men working in finance. However, once work hours ended, these workers would return home, leaving the financial district eerily quiet and resembling a ghost town.
Historically, certain parts of cities primarily served as places of employment during weekdays, from 9 AM to 6 PM, only to become deserted outside of those hours. In contrast, I envision a future where urban areas become more integrated, blending work and life. Not everyone may choose to live near their workplace, but the goal is to reduce the massive daily movement of people that varies by time and day.
Cities such as Boston, New York City, and San Francisco now have strong incentives to accelerate the conversion of commercial real estate into residential housing. Additionally, improving the quality of local public schools and enhancing local quality of life through law enforcement and maintaining a clean, green environment are vital. These elements are essential for delivering a quality of life that will attract young, ambitious individuals. Below, I will discuss interest groups that might oppose this agenda.
The WFH Opportunity for Declining Cities
Many cities in the Northeast and Midwest have experienced significant population loss in recent decades. Cities like Baltimore and Detroit have lost hundreds of thousands of residents. These cities compete with their suburbs and other nearby urban areas for people and jobs, but they have been losing this competition. Moving forward, if these cities can improve their quality of life, more hybrid and work-from-home (WFH) workers may choose to live there. Consider Baltimore; its proximity to Washington, D.C., and Philadelphia (by train) provides it with an advantage in attracting remote workers.
Well-positioned cities can help power couples solve their co-location challenges. In the past, highly educated dual-earner couples had to live and work in the same metropolitan area, which led them to disproportionately choose major cities like New York City and Los Angeles to address their dual goals (see my Power-couples paper with Dora). In our emerging WFH economy, a power couple could reside in Baltimore, with one spouse working in New York City and the other in Washington, D.C. Such sophisticated individuals would demand street safety, good schools, and cultural and consumer opportunities in the city where they live.
If enough of these individuals choose Baltimore, their combined purchasing power can help local businesses thrive, boosting the prospects for local service workers. Increased demand for the local housing stock would lead to greater maintenance and investment in these older homes. In this way, the competition to attract and retain WFH workers can help reverse past disinvestment. This hopeful scenario depends on the Baltimore Mayor actively pursuing a law and order agenda.
How Would a City Finance Quality of Life Upgrades?
The city may need to consider issuing more municipal bonds to finance its ongoing expenditures. However, suppose a city decides to sell municipal bonds during a period of rising interest rates. In that case, it must first address its perceived default risk as rated by agencies such as Moody’s and Standard & Poor’s. Potential investors may require a risk premium for purchasing municipal bonds from cities with a higher risk of default. Consequently, cities that have lost a significant portion of their commercial tax base may find their bonds rated near junk status, leading to higher interest rates compared to U.S. Treasury bills in order to attract investors for the added risk.
The Pivot
The cliché “don’t waste a crisis” is relevant here. Mayors facing increased spatial competition will be more receptive to new ideas aimed at improving their cities' quality of life. They will be more willing to attend meetings organized by the Bloomberg Foundation, where best practices from various cities are discussed. Additionally, they may be open to piloting A/B testing of different policies to enhance street safety. An important question is whether the typical progressive mayor will embrace any of Milton Friedman’s ideas from *Capitalism and Freedom* and allow for more competition in the provision of education and other services typically supplied by the state.
Until recently, there has been little experimentation in these critical sectors, where local governments often hold monopolies, unlike the innovation seen in companies such as Tesla, Uber, Amazon, and Facebook. The reason for this is clear: with a local monopoly, there is little incentive to innovate. In contrast, businesses in competitive markets are driven to innovate in order to survive. For instance, General Motors lost market share in the 1970s because it was slow to respond to consumer demand trends and failed to produce fuel-efficient cars, such as those offered by competitors like Toyota and Honda. There are synergies between a clean environment, street safety, and the thriving of private enterprises.
Interest Group Opposition to Introducing Reforms
Public sector unions wield significant power in many blue cities, including Boston, Baltimore, New York City, and San Francisco. For decades, mayors have provided these unions with generous retirement deals and salary increases. Collectively, these agreements impose substantial fiscal burdens on cities. In shrinking cities, these liabilities per taxpayer continue to rise. Chicago, for example, is currently confronting a fiscal crisis. The unions want their favorable conditions to persist. The question remains: will the mayors have the courage to engage in tough negotiations with the unions?
Conclusion
The persistence of remote work means that central cities now face heightened competition to attract and retain mobile firms and individuals seeking a high quality of life and reasonably low taxes. Cities that fail to provide such quality of life will experience a brain drain and a decline in economic vitality. Conversely, cities that adapt to this new competition will enjoy an urban renaissance. In the private sector, increased competition leads to better quality products and lower quality-adjusted prices. Are cities any different?
My 2022 Going Remote Book explores many of the themes I have discussed in this Substack. A question arises, why have Mayors been so slow to enact policy reforms? I claim that they have slow-walked reforms because they have expected that a Democrat President, such as a President Harris or a President Newsom, will continue to subsidize their efforts. If these Blue City mayors anticipate that WFH poses a threat and that Federal and State subsidies will not bail them out, then they will be more likely to make the costly reforms and policy changes I have sketched above. Clean, safe cities that offer good schools and allow businesses to pursue their goals have a bright future.
Some Academic Readings on the urban economics of WFH
Brueckner, Jan K., Matthew E. Kahn, and Gary C. Lin. "A new spatial hedonic equilibrium in the emerging work-from-home economy?." American Economic Journal: Applied Economics 15, no. 2 (2023): 285-319.
Cullen, Julie Berry, and Steven D. Levitt. "Crime, urban flight, and the consequences for cities." (1999): 159-169.
Rosenthal, Stuart S., William C. Strange, and Joaquin A. Urrego. "JUE insight: Are city centers losing their appeal? Commercial real estate, urban spatial structure, and COVID-19." Journal of Urban Economics 127 (2022): 103381.
Costa, Dora L., and Matthew E. Kahn. "Power couples: changes in the locational choice of the college educated, 1940–1990." The Quarterly Journal of Economics 115, no. 4 (2000): 1287-1315.
Van Nieuwerburgh, Stijn. "The remote work revolution: Impact on real estate values and the urban environment: 2023 AREUEA Presidential Address." Real Estate Economics 51, no. 1 (2023): 7-48.
Althoff, Lukas, Fabian Eckert, Sharat Ganapati, and Conor Walsh. "The geography of remote work." Regional Science and Urban Economics 93 (2022): 103770.
Davis, Morris A., Andra C. Ghent, and Jesse Gregory. "The work-from-home technology boon and its consequences." Review of Economic Studies 91, no. 6 (2024): 3362-3401.
Bartik, Timothy J. "The Effects of Tulsa Remote on Inducing Moves to Tulsa: Estimates and Implications." (2025).
Yoo, Hoyoung. "The Welfare Consequences of Incoming Remote Workers on Local Residents." Available at SSRN 4907833 (2024).
Ramani, Arjun, Joel Alcedo, and Nicholas Bloom. "How working from home reshapes cities." Proceedings of the National Academy of Sciences 121, no. 45 (2024): e2408930121.
Ropponen, Annina. "Remote work–the new normal needs more research." Scandinavian Journal of Work, Environment & Health (2025).
Blumenberg, Evelyn A., Brian D. Taylor, Hao Ding, Samuel Speroni, and Fariba Siddiq. The Equity and Policy Implications of Long-Distance Commuting in the Greater Los Angeles Region. No. PSR-23-23 TO 080. Pacific Southwest Region 9 UTC, University of Southern California, 2025.
Howard, Greg, Jack Liebersohn, and Adam Ozimek. "The short-and long-run effects of remote work on US housing markets." Journal of Financial Economics 150, no. 1 (2023): 166-184.
Anenberg, Elliot, You Suk Kim, and Erica Moszkowski. "Work-From-Home, Commercial Real Estate Risk and Credit Supply: Evidence from a Large Sample of Bank Loan Portfolios." Commercial Real Estate Risk and Credit Supply: Evidence from a Large Sample of Bank Loan Portfolios (April 01, 2025) (2025).
Gupta, Arpit, Vrinda Mittal, and Stijn Van Nieuwerburgh. "Work from home and the office real estate apocalypse." (2022).
Brueckner, Jan K., and S. Sayantani. "Intercity impacts of work-from-home with both remote and non-remote workers." Journal of Housing Economics 59 (2023): 101910.
Delventhal, Matthew J., Eunjee Kwon, and Andrii Parkhomenko. "Work from Home and Urban Structure." Built Environment 49, no. 3 (2023): 503-524.
Delventhal, Matthew J., Eunjee Kwon, and Andrii Parkhomenko. "JUE Insight: How do cities change when we work from home?." Journal of Urban Economics 127 (2022): 103331.
Bick, Alexander, Adam Blandin, and Karel Mertens. "Work from home before and after the COVID-19 outbreak." American Economic Journal: Macroeconomics 15, no. 4 (2023): 1-39.
Been, Vicki, Ingrid Gould Ellen, Michael Gedal, Edward Glaeser, and Brian J. McCabe. "Preserving history or restricting development? The heterogeneous effects of historic districts on local housing markets in New York City." Journal of Urban Economics 92 (2016): 16-30.
Albouy, David, Peter Christensen, and Ignacio Sarmiento-Barbieri. "Unlocking amenities: Estimating public good complementarity." Journal of Public Economics 182 (2020): 104110.
Kahn, Matthew E. "Gentrification trends in new transit‐oriented communities: Evidence from 14 cities that expanded and built rail transit systems." Real estate economics 35, no. 2 (2007): 155-182.
Kahn, Matthew E. Going remote: How the flexible work economy can improve our lives and our cities. Univ of California Press, 2022.
Akan, Mert, Jose Maria Barrero, Nicholas Bloom, Thomas Bowen, Shelby R. Buckman, Steven J. Davis, and Hyoseul Kim. The New Geography of Labor Markets. No. w33582. National Bureau of Economic Research, 2025.
Barrero, Jose Maria, Nicholas Bloom, and Steven J. Davis. Why working from home will stick. No. w28731. National Bureau of Economic Research, 2021.