The Impact of Changing Work Arrangements on the Fiscal Base of Urban Government: Prospects for Adaptation and Mitigation

Abstract

The pandemic has brought about various changes, such as work-from-home or telecommuting, and an increase in online shopping for day-to-day necessities. These changes have had a sizeable impact on commercial real estate businesses and, to a varying degree, on the fiscal base of local governments, especially in large cities. As the world settles into the post-pandemic era, flexible working arrangements such as remote work, hybrid work, and telecommuting are expected to become the new normal. As a result, large and small corporates have been reviewing policies on remote working. Some of them have either dialled back their office expansion plans or have shown preference for premium office spaces. This move is expected to weigh on tax revenue collections from property rentals for cities. Also, revenue from transportation services and restaurant businesses would decline. Hence, local governments would have to redesign their fiscal policies and invest in new opportunities, such as creating recreational facilities and converting old office structures into residential buildings. This paper uses available literature, media references, and industry and government reports to identify the potential impact of changing work arrangements on the office market in Hong Kong, New York, and London. We further attempt to understand the impact of this transition on the fiscal base of cities and the actions that policymakers can take to mitigate and adapt to this new economic situation.