Covid made London and Paris cheaper — for the rich

Betting on the "death of the city" after Covid always looked extreme — Classical Athens survived far worse plagues and disasters. Yet places like London and Paris are once again having to confront the risk of hardening into enclaves for the rich.

Even as the scars of past lockdowns keep tourism subdued and some workers in far-flung locales, house prices in European cities are as bubbly as they were before Covid. Real estate in London and Paris may be underperforming the Zoom-friendly suburbs, but they're still far from affordable. A highly-skilled worker needs 16 years to save for a 60-square-meter apartment in Paris, according to UBS. Meanwhile, in London's priciest neighborhoods, rents are back to pre-pandemic levels. Mortgage rates have sunk in both markets.

Yes, remote work has decreased demand for office space, and should eventually soften housing demand too, but it's not happening yet. Plus, look at city streets and you'll see how the splendid isolation of the elite, suburban "Zoomocracy" is already starting to backfire: The shift to "hybrid" home and office working has drivers commuting into town at ever more random times. Traffic congestion over the past month in Paris and London has been even worse than the comparable period in 2019, according to TomTom. Cities, after all, are still where the jobs are, especially when it comes to high-skill services — Google Inc. recently announced a 7 million square-foot campus in San Jose.

Busy streets and expensive apartments might once have been a marker of metropolitan success. What mayor wouldn't want a first-world problem like too much demand? But that only makes sense if cities continue to attract creative and aspiring talent who can keep them productive. It becomes a major problem when workers and young people get priced out, entrenching the dominance of established insiders. Even before Covid, superstar cities were shrinking.

The risk now is that urban centers fail to recapture the benefits of density and agglomeration (e.g., entrepreneurs, jobs and wealth creation) and become less attractive in the fight for talent. Cities that wither on the vine will end up losing valuable revenue, making it harder for them to deliver their visions of a greener, fairer future, such as Paris's objective of offering residents all the public services they need within 15 minutes of their doorstep.

Persistent inequality also heightens the risk of counterproductive  policy, whether flawed mechanisms like rent caps or something far bigger. The UK's Brexit vote, which some have linked to a divide in the country's housing wealth, has added to London's recent supply-chain woes by chasing away workers. More than 200,000 EU nationals left the UK last year alone, according to the Office for National Statistics. Brexit has also reallocated dozens of millionaire bankers to euro-zone finance hubs, fueling those cities' own booms while threatening to cut the City's tax take.

What should be done? The inequities of the housing market are too numerous to address in one fell swoop. Hiking supply by building more homes, while also curbing demand through credit constraints, regulation and tax policy, will take time and political courage. Central bankers may be applying the brakes to emergency stimulus, but slowly.

There should at least be more incentive to convert excess and relatively low-quality commercial real-estate into housing. This isn't something the market will do automatically, especially in cities where a hotel might offer more attractive returns on investment. So a financial prod needs to come from the top.

Better and more extensive public transport links would alleviate traffic congestion and make it easier for workers priced out of the city to still work and create wealth there. Bicycles and electric scooters are fine for short trips, but they have a long way to go before becoming dominant modes of transport. The "Grand Paris" project, which is building 200 kilometers of new railway lines and 68 new stations, is where the future of the French capital lies, says Jean-Louis Missika, the city's former deputy mayor. Other cities should heed the same lesson.

And instead of hiding behind glossy architectural reports, city officials need to listen to their own communities. London and Paris are again intriguing case studies: A survey by King's College London, the University of Paris and Ipsos MORI found that the UK capital fares worse when it comes to people acting in offensive ways towards women, while the French capital is less positive about immigrants. Initiatives to improve urban environments have to take such findings into account. Housing is only one aspect that could be driving future workers and employers away.

It took Athens 15 years to recover from plague, according to Thucydides, but the schisms in society lasted far longer. Cities should realize that, even without dying, they could become victims of their own success.

Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.