How to harness NYC’s creative destruction

New York has to adapt to changing circumstances in order to avoid becoming a "ghost town."
New York has to adapt to changing circumstances in order to avoid becoming a "ghost town."
Shaun Jeffers/Shutterstock
New York has to adapt to changing circumstances in order to avoid becoming a "ghost town."

How to harness NYC’s creative destruction

New York City should come up with a plan for adaptive reuse and regeneration.
October 6, 2020

President Donald Trump was lying when he said in the first presidential debate that New York City is “like a ghost town.” But New York must adapt to rapidly changing circumstances, or else it could go the way of ghost towns like Detroit.

The mid-20th century economist Joseph Schumpeter coined the phrase “creative destruction,” which refers to the revolutionary process of change that happens to modern economies, wherein new and more efficient industries replace older, antiquated business models. In recent history, think of Amazon’s displacement of swaths of retail, Uber’s upending of taxi and livery car models, Airbnb’s submerging of the hotel industry, as well as Spotify and Pandora replacing Tower Records and the archaic record album. 

New York City is now entering a period of “creative destruction,” where age-old business models and industries will have to adapt or perish. Just as it did during the deindustrialization and flight to the suburbs that challenged New York from the 1960s to 1980s, the pandemic and its aftermath will require enlightened leadership to help guide the city’s business and real estate community through this highly disruptive revolution.

The most immediate and glaring examples of this change will be felt by commercial real estate and the hotel and hospitality industries. We are already seeing large employers indicating that even after the pandemic ends, they will move to hybrid office/work-from-home models. Facebook said that by 2025, half of its workforce will work remotely. Countless small businesses in the city – particularly those with expiring leases – are planning for the new era of smaller offices and bigger Zoom accounts. 

Hotels and restaurants, perhaps the most challenged businesses in the COVID-19 era, are also frantically adapting to a period of unknown duration that will see less tourism and business travel. In the short-term, hotels being paid to house the homeless and restaurants expanding take out and outdoor dining have mitigated the apocalyptic futures they are facing, but they need even further policy changes or will see a wave of closures

New York City should come up with a plan for adaptive reuse of various types of real estate in the city as well as come up with new paradigms for industries that will be part of New York’s eventual renaissance in the coming decade.

Additionally, the city and New York state will need to creatively devise ways to supplement the steeply declining tax base. Many wealthy residents have fled the city or are currently house shopping in the suburbs and beyond. With even the best policies in place, another wave of small businesses will not survive the pandemic; many already have shuttered. The next mayor should consider adding a new deputy mayor position for a chief revenue officer.

Here are some ideas that could help get New York back on track economically:

  • Change zoning and building codes to enable out-of-business hotels to be adapted into affordable micro-housing. Housing costs remain high and retaining population is a necessity. With many of the city’s large hotels closing due to the massive drop in tourism, developers could retrofit the buildings so that each floor has a large communal kitchen and thus could support many long-term residents. Think of these “permanent hotels” as modern-day single-room occupancy structures, also known as SROs. SROs were once a significant source of affordable housing in New York City and they could be again. If necessary to induce developers to undertake the risky expense of renovation, the state could offer a tax credit in exchange for making some of these units rent-regulated and permanently affordable. 
  • Change zoning and building codes to turn office space into live/work communities. Demand for office space fell off a cliff in March, and it may never return to its previous heights. As small businesses transition to hybrid office/work-from-home models, why not set up mixed-use office buildings in office-space rich neighborhoods such as Midtown Manhattan and the Financial District? Workers increasingly want to live near where they work, or live in an office-filled neighborhood. That’s why Lower Manhattan’s post-9/11 recovery was partly driven by the rising population of the Wall Street area. These homes could be especially appealing to employees of industries that require long hours, such as finance and law. And it would cut down on overcrowding on subways, a vital reform in even a post-COVID era, as everyone will have heightened sensitivity to picking up bugs from others in cramped settings.
  • In order to make up for lost tax revenue, New York City should figure out how to better monetize city assets. One idea that could improve the environment while raising revenue is to eliminate free street parking. Huge swaths of publicly maintained roadway are currently being lent to drivers for free car storage. This is a waste of public space. The current program letting restaurants and bars take over parking spaces for outdoor dining shows one way that it can be put to better use. And losing parking spots won’t bother drivers as much if demand for on-street parking drops, as it surely will if the city starts charging for it. A bonus: fewer cars and less driving leads to cleaner air. A combination of residential parking permits for annual fees along with paid meters on every street would supplement congestion pricing as a revenue stream for the cash-strapped Metropolitan Transportation Authority, and – unlike congestion pricing – couldn’t be delayed indefinitely by the Trump administration. 
  • Sell naming rights. As I suggested in a Daily News column in 2012, it may be time to revisit selling naming rights to all subway and bus stops around the city. If New York got an average of $10,000 per month for each subway station and $2,500 per month for each bus stop it would add tens of millions of dollars in new revenue annually. What would you rather have: higher subway fares or to hear a conductor say, “Next stop Google 14th Street?”
  • The city should also appeal to wealthy New Yorkers civic pride and sell naming rights to the city’s hundreds of parks and playgrounds. This would be another new revenue stream that could forestall raising taxes. The Central Park Conservancy and Riverside Conservancy already sell plaques on park benches, so why not issue naming rights on everything from Central Park to the playgrounds within it? Wealthy New Yorkers spend tens of millions of dollars to get university buildings or hospital wings named after them, so why not parks, too? This could also bring in tens of millions more in annual revenue to a cash-starved city budget.
  • Invest in an infrastructure jobs program to rebuild and expand public schools, subway tunnels, public housing and subsidized housing. New York City’s 12.5% unemployment rate is a three-alarm fire that will need government help to douse. Thousands of restaurant, hotel and retail workers are now unemployed and the city cannot begin to come back unless New Yorkers get back to work. Instead of expanded unemployment rolls, why not start work programs to shore up our crumbling infrastructure, like school buildings that are lacking ventilation in places? 
  • Get New York’s tech industry involved in a “moonshot” to make the city’s public schools the best in the world. Even after COVID-19 is a distant memory, we will need to figure out how to employ remote learning as a necessary supplement to in-person classes. The tech industry titans who are expanding in New York – Facebook, Apple, Google – can help schools and families bridge the digital divide by making sure all kids have the proper hardware and broadband access to give them the tools to succeed. They can also help fund teacher training and research studies to see how remote learning can be employed most effectively. These mammoth corporations are betting on New York’s future, so they should also be great corporate citizens by ensuring that we educate our kids for 21st Century careers.

The mayoral campaign season is already getting started, and the next occupant of Gracie Mansion will need lots of new ideas and a steady hand to execute them. There are likely to be 8-10 candidates competing in the Democratic primary, each of whom brings their ideas and impressive backgrounds to the race. Hopefully, whoever emerges victorious in one year will have the playbook and the management experience to guide the city through this period of “creative destruction.”

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Tom Allon
is the president and publisher of City & State.
20201027