On the face of it, the humble hot dog may not seem like the best indicator of economic health. I mean, it’s a hot dog; it’s either made from pork or beef and you eat it. How complicated can it be? But as I watched my beloved Yankees play to an empty stadium, it got me thinking about how many hot dogs weren’t being eaten in Yankee stadium that day. Then, this year. Then about all the hot dogs in all the stadiums this year.
Hot dogs may seem like an odd stand-in for real estate, but my analogy can get us thinking about what comes next. Major League Baseball is playing again, but our return to semi-normalcy masks some troubling clues as to what the future might bring.
Bellwether hot dogs
Here’s the thing — if no hot dogs get sold this year, supermarkets and distributors stop buying them, which means the processing plants aren’t processing them, and those millions of hot dogs aren’t being shipped. Workers and shippers have less work, which means potential layoffs.
Farmers that raise the cattle and hogs suddenly have an entire year’s worth of inventory that they can’t sell—but they still have to house, feed, and care for their livestock. Some will take a loss by dumping their inventory below cost, but others slower to realize the effects of the MLB closure will be faced with a binary choice: Burn through cash/credit to pay the expenses of another year in the hopes the market turns around, or take a hard loss by slaughtering their stock to end the financial drain of maintaining livestock.
The net result is that the real effects of closing baseball fields this year will not be felt until next year when farmers have little money to invest in new cattle/hogs and very few hot dogs are produced.
And you thought hot dogs had nothing to do with real estate
Hot dogs aren’t apartments, but my point is that what we are seeing in real estate right now doesn’t reflect economic effects that won’t show up until next year.
Renters have favored an urban lifestyle and were willing to pay for well-located, high-finish product near places of work or transit, but the Coronavirus outbreak has upended the model of rental demand driving development and investment over the past decade. The massive forced experiment in working from home has all but closed the American city. Empty office towers mean no morning coffees, no lunch crowds, no dry cleaning, no shoe repair, no mid-afternoon errands, and no after-work cocktails. And with every rental lease that comes due, tenants are asking: Why pay $3,000 a month to work at home, when rents in the suburbs or nearby secondary markets offer larger units at savings of hundreds of dollars a month?
So what comes next?
The pandemic will end, but new habits around working at home, on-line shopping, and food delivery may well linger. The hollowing-out of the urban core creates a vicious cycle, in which residents leaving the city reduce demand for local businesses, making urban life less and less attractive, leading to more and more move-outs.
Where does this leave the great American city? Likely in dire straits in the near-term. But the city has reinvented itself many times, from manufacturing center to artist community to capital of finance and technology. And as prices adjust and developers adopt new models, the city will surely reinvent itself again, perhaps as more affordable and economically diverse places that can promise opportunity and quality of life (and hot dogs) to all residents.