New York City commercial real estate: expert says 1970s-style ‘doom loop’ is here

Now, he tells Fortune, he sees an “event horizon” for a 1970s-style downward spiral known in the economics profession as a “doom loop.” And it’s just the first inning.

Everyone knows office buildings across the country have taken a beating from Covid and the rise of remote work. Perhaps only San Francisco is a better example than New York City, where the amount of offices collecting dust is at a record high: almost 20% are sitting empty, hemorrhaging money and shrinking the city’s tax base. 

More economists than Van Nieuwerburgh say that the effects could reach far beyond just the real estate sector: Without drastic changes, he says, NYC could be headed for a self-perpetuating “doom loop” that will affect everything from housing values to public services budgets to the crime rate. The most famous example is the 1970s, when “white flight” and a fiscal crisis sent New York into a slump that it didn’t kick for over a decade. 

It’s a simple equation, Van Nieuwerburgh said in an interview with Fortune, “Governments cutting spending means less money for transportation, less money for education, for sanitation, for all the things that make cities attractive.”

Van Nieuwerburgh, who joined Columbia in 2018, just a few years after winning an award for his research on shocks in the housing market affecting the macroeconomy, sees the “event horizon” for this doom loop coming soon. As federal grant money runs out and delayed tax effects kick in, he says New York is in the “first inning” of what could spiral into a legitimate urban crisis.

“Over the next three to five years, we’re really going to start seeing…