Of all the post-pandemic futurology going on at the moment, the idea of using green bonds to facilitate the death of city rush hours will have few objections from weary commuters.
Economists, businesses and investors have for the past year tried to imagine the lasting impact of the COVID-19 shock on cities, workplaces and the transport that gets us around them.
Global trends surrounding digital connections and green investments dominate everything.
Assuming full economic recovery, a likely persistence of some hybrid work-from-home arrangement for some employees is perhaps one of the big durable disruptions. The change could affect potentially everything from housing demand and office rents to shops, restaurants and metro trains.
A Deutsche Bank client survey out this week showed more than 50% of U.S. and European respondents favored working from home for two or three days once COVID had passed. And almost 70% of those polled cited no commute as the best thing about remote work.
So far, judged solely by booming aggregate home prices worldwide and resilient commercial real estate (CRE) markets in the United States and elsewhere, some of the worst initial fears about the fallout for cities seem wide of the mark.
Morgan Stanley analysts claimed this week that “reports of CRE’s death were greatly exaggerated.”
That said, impressive aggregates doesn’t fully capture underlying shifts and U.S. central business district prices remain down 2.4% over 12 months.
A deep dive into “Future Cities” by HSBC’s James Pomeroy and Stephen Bramley-Jackson this week doubted wilder speculation of urbanization going into reverse worldwide - not least because fewer than 50% of jobs in cities in emerging economies are in services that would even allow that.
But it examined subtler changes to Western cities as a result of more remote working longer term.
DISAPPEARING RUSH HOURS
One area it spotlighted was the impact of remote working and health concerns on public transport systems and how it may end rush-hour congestion, which it estimates costs an equivalent of 3% of world output every year due to the time wasted.
Using the example of detailed footfall stats from Transport for London, which runs the UK capital’s once-crowded tubes and buses, and surveys showing preferences for post-pandemic home working, the report reckoned London’s pre-pandemic weekday rush hours could morph into the same numbers as Saturday lunch times.
All very well, but less passengers means less fares. And aside from remote working, lingering virus and health concerns could also see people avoid trains and buses for cycles or cars.
“The problem for cities is that transport networks have flicked from facing a capacity problem to a funding one as a result of fewer passengers going forwards,” Pomeroy and Bramley-Jackson wrote.
The funding issue has multiple overlaps. While pressure for more investment to expand capacity wanes, revenue shortfalls yawn. Discounting to get more people back on board won’t help much with income and any enforced distancing to reassure the health-concerned riders could slash numbers even more.
On the other hand, governments’ growing climate priorities will want to support use of public transport systems by avoiding steep fare increases while increasing tax and physical barriers to commuters just jumping in their cars instead - at least into the centers of cities.
But the competition for central government funding is clearly intense and public debt ratios are already stretched.
HSBC reckons cities could issue at least some green bonds given the surge in demand for sustainable assets that comply with environmental, social and governance metrics.
The green bond market alone is almost a trillion dollars and growing, with $347 billion alone identifying clean transportation as a theme. And the scramble for ESG-badged bonds means these debts are typically cheaper than for other issuers due to the “greenium.”
At any rate, a likely price worth paying to fund the disappearance of the commuter crush.
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