Is this the end for New York?

Why live in New York if you can do all your work from Miami? Lower taxes, better weather, vastly more living space – the case for retiring to the sun was always there. But now the pandemic has given a new impetus to people who are still working and thousands of high-net-worth families from the northeast are relocating to the Sunshine State.

The United States and, to a lesser extent, other developed countries are carrying out a huge socio-economic experiment. They are testing the strength of the glue that binds people to any particular location. That glue between where you work and where you live has become weaker since the epidemic struck. It is partly the obvious thing that if you are working from home or even mostly from home, that home does not need to be near the office. But it is also whether that office (assuming we will still have them, which I think we will) needs to be near other offices in a similar line of business. Do clusters still matter? Because if they don’t, New York is in big trouble.

This is one of those cases where what people say matters less than what they do. People often say they are going to leave New York, or London, or Paris, but actually most of them don’t – and even if they do, they are outnumbered by the people who move in.

So what do we know? Well, we know that New York City taxes are very high and likely to go higher, with the headline top marginal rate of income tax reaching 52 per cent. That is adding federal, state and city taxes together, and pushes NYC above California into the prime slot. But you have to earn over $25m a year to hit that level, and given the loopholes built into the US tax system, in practice the effective rates would be quite a bit lower.   

There is, however, no state income tax in Florida and eight others, including Texas. So the pattern has been for New Yorkers to move to Florida and Californians to go to Texas. Thus Elon Musk has said he has moved to Texas. But Musk is number two on the latest Forbes billionaires list so has the freedom to live more or less anywhere. What about people who are very well paid by any standards but a bit further down the pecking order? 

Here, a good clue comes from Larry Fink, CEO of BlackRock, the world’s largest asset manager. They are still moving to their new New York offices but he warns that they are seeing that many employees would like to relocate. Some smaller firms, including Elliot Management and Tiger Global Management, have moved senior managers out of New York to headquarters in Florida. And of course the more rich people move, the greater the rationale for firms to move at least part of their staff to service them. Money follows the money. 

There are as yet no reliable numbers as to how many people are leaving New York permanently and how many are simply working from a holiday home in a different city or state. What seems to be happening, however, is that asset management is the most footloose segment of the financial services business. If you are creating deals you probably have to be part of the cluster or you miss out. If on the other hand you are an investor, what matters are the returns you make for your clients. Maybe, no one knows, being a little distant from the herd brings greater judgement. That may not matter much in a bull market when everything is going up but certainly would as and when the wind changes.

My instinct is that New York will be wounded but will fight back reasonably effectively, providing whoever is running it (there is an election this year) is gracious to the city’s wealthy. This is partly about money but it is also about civic pride and respect – respect for the diversity of the place, not only for the high earners. We know from the dreadful 1970s that if the city is badly run the wealthy leave, and a downward spiral begins. New York came within an ace of going bust in 1975, when it was saved by an extraordinary banker called Felix Rohatyn, who managed to drum up the money to keep it going.  

This is not as dire as that. But it is much easier for the rich to leave now than then because it is easier to work remotely. Once people go, they are gone. The damage is not evident until it is too late.

But New York in the 1970s was part of a global pattern of urban decline – both London and Paris were also losing population. Now, or at least until the pandemic struck, it was a period of renaissance for great cities. Some of that glamour will re-emerge. For southern Florida, however, the boom will continue for a while yet.