Covid 19 - Unpacking the City

 The compact city – a crumbling consensus

The policy consensus promoting compact, centralised cities cannot be sustained in a world ravaged by Covid-19. The current pandemic is accelerating the move to dispersed urbanism. Beyond the direct impact of disrupted trade, travel, and consumption on the economic foundations of cities lies the cascading impact of changing work behaviours. This post considers what remote working might mean for urban development.

Calculating the number of jobs that can be decanted

My previous post summarised the McKinsey Global Institute (MGI) analysis of sector-specific potential for remote working, applying the resulting metrics to New Zealand.  Here, in line with other developed nations, around 30% of current jobs offer remote working potential.  

This post considers the possible impacts on urban function and form by applying the MGI approach to New Zealand’s cities and districts.

Urbanisation and Remote Working

The share of tasks that can be undertaken remotely has been calculated across 19 sectors for 67 territorial local authorities (TLA).  The results have been aggregated into: (1) the three largest cities (Auckland, Christchurch, Wellington); (2) ten provincial cities with populations between 50,000 and 175,000; (3) partly urbanised districts characterised by smaller towns and townships; and (4) mainly rural districts encompassing rural areas and small settlements (Figure 1). 

Figure 1: Urban Dimensions of Remote Working Potential, New Zealand

 

The potential for remote working appears to be a matter of scale: the large urban areas offer the greatest opportunities. 36% of Wellington’s jobs could be done remotely, 32% in Auckland and 29% in Christchurch. The potential is lower among small provincial cities (28%), partly-urbanised districts (25%), and rural areas (22%).

It appears that more urbanised areas have greater potential to substitute remote work for fixed-workplace employment.  This is confirmed when we plot potential for remote working against urbanisation across all TLAs (R²=0.47, Figure 2). 

Figure 2: Urbanisation and Remote Working Potential, New Zealand Council Areas

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Examination of the variation around this relationship between urbanisation and remote working potential indicates the role of differences in local employment structure.  More production-based jobs offer lower potential for remote working, while more business and service jobs lift the potential.

Where within the city?

This section considers variation in the potential for remote working within Auckland (New Zealand’s dominant city with 1.7+m residents). Figures for 20 Local Board areas based on the MGI sector coefficients have been aggregated and organised in Figure 3 from north to south (left to right on the axis).  Reflecting the city’s linear geography, areas at each end are most distant from the CBD.  The CBD and its fringe comprise the “Central” area, sitting within the Isthmus, which contains the city’s older, inner suburbs.

Based on this example, remote working potential varies more within the city than among cities, ranging between 41% in the centre (47% in the CBD fringe) to 10% in the upper north and west and 2% in the rural south. The former reflects the high value, administrative, business, and professional jobs in the inner city and suburbs, and the latter the greater share of manufacturing and personal service (face-to-face) jobs in the suburbs and primary production on the fringe.

Figure 3 The Prospects for Remote Working within Auckland

 

Push and Pull Drivers

Much of this theoretical capacity is likely to be taken up.  On the push side, the risk of exposure to infectious diseases is reduced by limiting exposure to places where people congregate for work, education, and entertainment. One benefit is limiting the spread of other infectious illnesses, a personal and productivity bonus. Remote meetings offer another productivity gain, lowering travel costs and focusing information exchange, supervision, and negotiation.

On the pull side, remote working has been positive for many people and businesses, with reports that the practice is being adopted on an ongoing basis in New Zealand despite limited community transmission of Covid and internationally.

What about the downsides? 

A suitable work (or school) space within a dwelling is needed to maintain both productivity and satisfaction from remote working at the individual level. With housing affordability constraints impacting on younger people and families, in particular, their capacity to work effectively from home will be constrained.

Lack of face-to-face contact with colleagues limits the benefits of work based social interaction. In a Covid-free environment, however, one option is to mix remote working with workplace attendance one, two, or three days a week.

Impact at the centre

However it evolves, the urban impacts of remote working will be far-reaching. As employment in the central city stutters, policy makers and investors will have to rethink the principles of workplace location, investment, and development.

Hospitality, personal services, and discretionary retailing in the city centre will suffer from reduced commuter and work-related spending. They will also suffer from any changes in the attraction of the city centre for housing. Modest apartments in multi-storied buildings marketed for a city lifestyle will lose appeal, becoming a welfare, last resort, or first housing step rather than lifestyle choice.

Add the deskilling of high order services, displacement of predictable or repetitive transactional tasks by AI, and the prospect that the international travel industry shifts away from mass tourism, and the outlook for city centres as we know them dims.

Against this, the resurgence of suburban centres, provincial cities, satellite towns, and country life may build on the intrinsic appeal of living locally as more people decamp from intensively urbanised areas, provided, perhaps, that the policy-makers do not seek to impose the densities of inner cities on under-resourced suburbs and cling on to the notion of commuting-based city centres.

And Infrastructure?

As it stands, the compact city comes at considerable cost. The demands on ageing infrastructure from intensification were never anticipated by the city builders.  Maintaining or rebuilding energy and water supplies, the capacity and reliability of wastewater systems, boosting transport networks and retrofitting ageing transit systems all demand substantial expenditures, mortgaged in large part against expectations of growth that must now be in doubt. 

If nothing else, the impetus Covid has given to dispersal must shift attention to infrastructure challenges in existing suburbs.  While highlighting the hard questions in a policy environment beset by an unnatural aversion to greenfield development (in which the potential for sustainable settlement has suddenly become compelling); it also raises challenges for small, erstwhile sleepy settlements unprepared for the demands of a growing flow of ex-urbanites. 

The long-term consequences of Covid-19 on the workforce: who – and how many – will work from home?

 Crises are transformational.

The second world war was a crisis that transformed the world.  Out of the ruins of a militaristic, fascist state, Germany emerged as the exemplar of liberal democracy. It led to the unification of Europe after centuries of conflict. And it transformed technology, precipitating a revolution in the communications and computing which drives today’s economies. 

More recently, the oil crises of the 1970s drove the search for alternative sources of hydrocarbons, boosted ongoing investment in alternative energy , and fueled the geo-political fire in the Middle East. Another: the terrorist challenges of the 21^st century, highlighted by the 2001 bombing of the Twin Towers, escalated Middle Eastern conflict, promoted advances global in surveillance technology and information exchange, and initiated the undermining of US hegemony in world affairs.

 And now, Covid-19

The 2020/21 pandemic has boosted research into the virus and its mutations, has seen massive investment in vaccine development (and now global distribution ), and stretched emergency medical facilities.  It will lead to lasting gains in public health practice. It has invigorated debt-led state spending, altered the trajectory of the world’s economies, and tested the foundations of liberal democracy.

What are the impacts on employment?

The obvious impacts are on economic structure – which sectors have increased and which have lost jobs and income.  Health and IT, distribution and communication services have made big gains.  In some areas limits on trade have sustained or even increased manufacturing jobs, in others they have reduced them. Travel and hospitality are suffering, and may have changed forever. We may even see the toning down of mass consumption necessary to avert the worst of climate change.

There will be other more immediate changes.  The design of workspaces will change, with attention likely to shift from fitting as many workers as possible into a space to addressing workforce wellbeing. And the rigid timetabling of the production day is likely to fall away as more people work remotely. 

 Working Remotely

The capacity to work from home – or on the road  – has been increasing slowly for three decades building on advances in IT and Cloud-based computing. With Covid’s aggressive contagion, the case for remote working has become compelling.  

The result has been a rapid lift in the capacity, flexibility, and reliability of the necessary technology. With this infrastructure in place, there will be no going back, even in a vaccinated world. Quite apart from diminished risk of illness, people will be reluctant to relinquish the up-side of lock down: flexible work practices, more control over their working (and leisure) lives, and, perhaps, more appealing work environments.

 Who will be affected?

The answer depends on what tasks can be performed effectively outside the disciplines of a set workplace. Back-of-office jobs processing and transferring information are obvious candidates in the historic view that higher order jobs (involving negotiation, personnel management, or specialist expertise) require face-to-face contact. The success of virtual boardrooms, classrooms, offices, courtrooms, and council chambers under lock-down has put the lie to that.

Lock-down has demonstrated that traditional face-to-face tasks do not demand a continuous joint presence. Remote working will mean fewer days at the office, better organised meetings, and fewer social precursors to getting business done.

 The numbers

McKinsey Global Institute analysed jobs and tasks in different sectors across nine nations to identify “work that doesn’t require interpersonal interaction or a physical presence at a specific worksite” [i]. Figure 1, reproduces the results for the United States, showing the shares of jobs in each sector that can be undertaken effectively at a distance. [ii]

It demonstrates substantial potential for remote working in high value-added sectors. For example, 76% of financial services jobs could be undertaken remotely, 68% in business management, 62% in technology, scientific and professional services, and 58% in information technology and communications 58%.

Figure 1: The potential for effective remote working in the United States

Source: McKinsey Global Institute (November 2020) 

Potential is lower in sectors where tasks demand direct contact with materials or customers . Just 8% of tasks in hospitality can be performed remotely without eroding productivity, 7% in agriculture.

The analysis was repeated for eight other countries. The results largely reflect their different economic structures.  UK has the greatest potential for remote working (33% of the total workforce). Germany, Japan, and France had levels similar to the US (29%).  Less developed countries have less potential: Mexico (18%), China (16%) and India (12%).

And in New Zealand?

Applying McKinsey's sector estimates to New Zealand[iii] suggests that here as well 29% of jobs could be undertaken remotely without reducing productivity. The two most “footloose” sectors (professional, scientific, and support services and business management and administration) account jointly for 30% of the potential (Figure 2).  Education and health sectors are also potentially major contributors given numbers they employ.

 Figure 2: The potential for remote working in New Zealand sectors

 

What Next?

The Covid-19 crisis, an event that almost nobody predicted[iv], is driving significant change to economies, migration, geopolitics, and public health.  It is also promoting rapid changes in the way we work.  There can be no expectation of reverting to the old ways. It makes sense to prepare for a  future in which a third of the workforce, more in high-value growth sectors, only occasionally attends a formal workplace.  The consequences for lifestyles and land use, especially in advanced economies, will be far reaching. The next post will consider some of those consequences for New Zealand .

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[i]              McKinsey Global Institute (November 2020) What’s next for remote work: An analysis of 2,000 tasks, 80 jobs, and nine countries[ii]            The McKinsey study also estimated a greater potential for more remote working in each sector, but the marginal increase to a theoretical           maximum came at a cost to productivity. This analysis draws only on the lower, effective figure.

[iii]        Based on Statistics New Zealand Business Demography Tables

[iv]        Bill Gates’ 2015 prediction in a Ted Talk is a noteable exception: - Bill Gates: The next outbreak? We're not ready | TED Talk