We've passed peak city - what now?

Changes to our way of life that seemed unthinkable or far in the future just a few weeks ago are suddenly going mainstream due to the current lockdown in response to COVID-19. As we get used to these new ways of living and working, many are set to become permanent, even after the pandemic has receded. Could that include a reversal of the long-term trend towards ever more concentrated city living?

In an intriguing post earlier this month by one of diginomica's partners, Zoho CEO Sridhar Zembu put the case for what he calls a "cloud-based rural revival." He argues that a tech-enabled retreat to the countryside could be an antidote to the growing challenges of rapid urbanization, which according to a UN report from 2018, will see 2.5 billion more living in cities by 2050. He believes:

[T]his doesn't need to be our future. Through advancements in communication and collaboration technology, the world could reverse this trend and restore both the pride and practicality of living outside of a major city.

Vembu has been developing this concept for some time and outlined his thinking during a conference I attended in January — that turned out to be my last international trip for the foreseeable future. At the time, he was talking about the cloud-based rural revival as a slow, incremental change. I agreed, concluding that "none of this kind of change happens fast."

The trend has peaked

But three months on, I do wonder, if working from home becomes more mainstream, if local sourcing becomes more prevalent, and people become more comfortable with remote-access alternatives to gathering together in person, where that leaves our cities? Perhaps they already hit their peak and the historic trend towards mass urbanization has now turned. This trend reversal is more of a slow-burning fuse than others — long-term leases and home ownership mean that most people are stuck where they are for the moment. But the pandemic has lit the fuse, and the attractions of living and working in cities are suddenly less powerful than they were.

Even after the initial crisis subsides, I suspect many people will still be wary of returning to busy offices, populous city centers and crowded public transport for some time to come. There are already reports that migrant workers in India are resolving to stay in their rural homelands rather than return to the cities.

While governments in Europe and America are seeking ways to ease the current lockdown, some aspects are expected to remain in place until the winter. Even then, it may be as long as 18 months before a vaccine becomes widely available and people finally feel safe mixing with others as they used to. That's plenty of time for people and businesses to settle into new patterns of working and living that will make many central office locations redundant, and further undermine the viability of the shops and entertainment venues that serve them.

Leaving metropolitan centers

It only takes a small percentage of people at first changing their habits to reverse a trend, however deeply seated that trend may seem. But those small percentages are rapidly amplified as the new direction gathers pace. Coworking spaces are already feeling the heat as businesses pull out. If working from home becomes more entrenched, office leases will be next. Meanwhile, the pandemic has pushed the long-term decline of traditional retail into overdrive, leaving many site owners unable to collect rents. Cities are shedding their former sheen of prosperity and vigor, while the price of continuing to mix in metropolitan centers may be increased electronic surveillance and strict controls on movement.

What seemed at the start of lockdown to be a temporary outflow of homeworking professionals from cities back to their commuter towns and weekend boltholes could rapidly turn into a settled trend once the lockdown ends. That may be enough to kickstart a rebalancing of fortunes towards small towns and rural areas, and away from formerly booming metropolitan city centers.

Digital revives rural prosperity

There's evidence to support Vembu's arguments that businesses no longer need to gravitate towards metropolitan centers as rural locations become more connected. As early as 2016, global management consultant Bain & Co identified the declining cost of distance as a factor in city planning:

Individuals may opt to live further from city centers, for example, as advances in transportation and connectivity allow them the abundant space of a rural town combined with many of the employment options, goods and services once available only in cities.

My colleague Derek Du Preez drew attention earlier this month to research released by Arizona State University and the University of Iowa that found that communities with a higher density of websites and domains have greater economic output and prosperity, irrespective of other factors including location. There's also a correlation between broadband subscriptions and prosperity, but the impact of each active digital venture is much greater — the research found that adding just one to a community has a much more significant effect than adding other businesses. The impact is particularly strong in communities with low rates of broadband connectivity.

Moving away from high-cost hubs

Vembu argues that the economic viability of smaller rural communities can be restored through the provision of effective mobile broadband and cloud technology, but only as a prelude to bringing back people with complementary skills. He emphasizes the use of this infrastructure so that organizations like Zoho can redistribute their center of gravity away from large offices to function as networks of small, geographically distributed workgroups. This is not just about bringing more prosperous employment back to those areas — it also brings expertise and talent.

Another side-effect is that such moves decrease the costs borne by businesses in paying the office rents, worker salaries and benefits required to maintain a presence in high-cost hubs like Silicon Valley. Up until just a few weeks ago, this was where the talent wanted to be. Now, maybe not so much.

Of course, technology businesses and others whose work is mostly knowledge-based will find it relatively easy to make the shift to remote working. Manufacturers and others whose work is tied to physical plant are going to find it much harder to abandon their current locations — although ongoing disruption to supply chains may lead some to switch to more local manufacture where that's feasible.

But for businesses who can quickly adjust and who are looking to make substantial cuts in their costs, it may not be a bad strategy — as Vembu had already chosen to do at Zoho — to encourage a growing desire for rural living among their staff. Our cities may have a very different future than we imagined just a few months ago.