The megacities are doomed!

At the moment, the megacities of the World (such as London, New York, Paris and Tokyo) seem to be unstoppable. They sook up more and more economic activity, and it’s getting harder and harder to have a decent career unless you live in one of them. House prices keep increasing inside them, while they might very well be falling elsewhere in their host country.

However, as a long-term investment I wouldn’t touch metropolitan property with a bargepole, because I think these great cities are going to collapse within the next few decades, and here’s why:

Young people don’t get attracted to the huge cities because life there is good – property prices are so high in them that newcomers will have to pay a fortune for a room in a shared flat with an hour-long commute.

The reason young people flock to the cities is because that’s where the jobs are (and especially because you’ll be able to find a new job within your field every three years or so, which means you won’t suddenly find yourself in a employment cul-de-sac).

As soon as somebody as somebody invents a piece of workplace collaboration software that companies are willing to use for their in-house staff, everything will change.

Suddenly you can apply for a job in London, New York or Melbourne while living in Orkney. And when you move on, your next job can be in Paris, San Francisco or Ruhrstadt while you remain in Orkney.

(This is increasingly already the case for small companies and freelancers – I’ve undertaken work for people living in Hamilton (New Zealand), Edmonton (Canada) and Birsay (Orkney) without ever going there. It’s today normally only the admin staff that have to be in the office.)

Once people’s normal place of work is their home (or a neighbourhood office if they prefer to leave home for work), companies don’t need huge offices in expensive locations. They can rent a hotel or a conference venue if they want to arrange a yearly get-together for their staff, or for having meetings with clients, and all they need is a small registered head office.

The companies will save an enormous amount of money by getting rid of their city-centre offices (more than enough to make up for a potential fall in productivity by letting people work from home), as will the staff by being able to live in much cheaper locations.

However, modern cities rely on the synergies of having a lot of people in one place. As soon as some companies and employees move out, the advantage of being in the city will decrease for the ones that remain. Why move to a city if you can get the same job without moving? Why pay for an expensive office if you can employ the same people by paying for a much cheaper piece of software instead?

Once a few people and companies start moving, prices will start falling. That will make the property investors move out, too, which will make prices fall even faster — at the moment, investing in property in central London is an easy way to make a profit if you have enough money to invest — and this will presumably continue until house prices reflect the attractiveness of living in that location – and for large parts of modern cities that’s not a lot. Of course people people will still pay good money to live in a luxurious penthouse flat overlooking the Thames or the Seine, but how attractive is it really to live in a concrete high-rise an hour away from the city centre?

So if I had a lot of money to invest, I wouldn’t touch unattractive residential areas on the outskirts of cities with a bargepole, but I’d try to snap up idyllic houses with good internet connections within a reasonable distance from a railway station and an airport.

I also think governments should be careful not to invest too much money on prestige infrastructure projects in their capitals (Crossrail and HS2 spring to mind in the UK) and instead invest in projects such as fast Internet connections in rural areas (such as what the SNP is promising in their manifesto).