How will COVID-19 change the way we live?
A different kind of recession
While the COVID-19 lockdowns had an immediate and acute impact on our economy, the post COVID-19 recovery still presents several risks. The COVID-19 recession was principally brought on by large scale economic shutdowns-some businesses were forced to close, while others shifted to work from home arrangements. The economic impact was immediate. This recession differed from the rest insofar as there was an immediate economic collapse. Previous recessions usually built up over time as one shock spread a different kind of contagion gradually. Most recessions are brought on by tightening liquidity or credit squeezes, which bring on capital investment strikes and eventually snowball into a full scale recession. It’s important to remember that prior to the Global Financial Crisis being called the GFC, it was a sub-prime lending crisis that eventually spread and infected almost all capital markets. Hence, the COVID recession is different, however the underlying assumption that economies will be able to simply ‘spool back up’ might not be realised. After several months of lockdowns, businesses might find themselves without the working capital they need and banks might face tighter lending standards, particularly if defaults escalate. The main economic risk for 2021, is the threat of a traditional liquidity related recession following from the much more unorthodox COVID recession.
A plan of recovery
To date the bulk of COVID recovery measures have continued to focus on income support, whether for individuals or businesses. Support payments like Jobkeeper or Homebuilder have been deployed to support flagging households concerned about job security or living on a single income. Already, the COVID related stimulus package deployed by the Australian Government dwarves the package deployed to arrest the GFC in Australia. Income support payments alone represent several multiples of the total GFC Stimulus package. The focus on income support has been largely due to the different cause of the COVID recession, relative to previous recessions, as well as the severity of the recession.
The challenge for governments in 2021 will be to move beyond income support based measured and onto more traditional capital stimulus programs. These programs can be deployed in two waves. The first is a broad based package that focusses on a large number of small projects delivered as programs that in effect simulate increased capital expenditure by the household sector. An example of such a package would be solar panel rebate schemes or home insultation schemes. However, as was learned in the aftermath of the GFC such programs require close scrutiny and oversight. The second tranche is a program of larger scale and replicable capital programs that focus on building investment confidence to avoid the risk of a capital investment strike within the private sector.
A substantive package of programs and projects is yet to be revealed, and this could be a key focus for all governments in 2021.
How we live
CDM Smith has been undertaking extensive research into the changes individuals might make in their daily lives. Our research has shown that a significant proportion of workers expect to work from home at least two days per week post-COVID. This means employers will need to be more flexible, and workers will need to be able to demonstrate the potential efficiency dividend associated with such flexibility. It also means the design of our homes might change. Already, builders and developers are frantically rethinking their home designs to provide a meaningful and quality work from home space, with many researchers declaring the ‘study nook’ dead and pointing out increased consumer preference for a space that can be isolated from other living areas and can provide a clear delineation within the home between work and life.
Additionally, there is increased interest in providing design outcomes that provide more outdoor living and natural ventilation, with the ‘outside’ being perceived as being safer. The design imperative of high density developments to maximise the number of residents able to be accommodated will give way to a greater focus on ensuring public and community health in high density environments. There is significant research underway to identify new materials for use in common or high traffic spaces in apartment complexes that reduce the risk of transmission. Copper and associated alloys such as brass and bronze have been identified as having inherent antimicrobial qualities, with recent studies showing that common bacteria like E coli survive less than 90 minutes on copper surfaces at room temperature, but show no signs of degrading after 270 minutes on stainless steel. Similar research is underway to develop other antimicrobial materials for use in common areas.
Technology will also play a role with the introduction of antimicrobial lighting in common areas and booking technologies to facilitate social distancing in communal spaces.
There is emerging evidence of increasing resistance to urbanisation. While high density apartment buildings will remain a feature of modern metropolises, there is emerging evidence that the accessibility and lifestyle benefits of CBD living are being weighted against potentially more affordable options in locations near or close to the inner city that provide more outdoor engagement and lesser density. In these developments, open space is generally private or semi-private as opposed to communal areas (like those found in apartment buildings). This is not to say there will be an exodus of inner city residents to the suburbs, but rather a dialing back of some of the centralisation seen over the past decade.
The renewed interest in smaller scale near city or suburban developments is also coupled with a greater take up of working from home. People are and are likely to spend more time in their local neighbourhoods than they did pre-COVID. Already, there is emerging evidence of a renaissance in small scale neighbourhood shops as people discover what their local neighborhoods have to offer. Several local governments that CDM Smith works with have reported increases in community reporting of damaged local infrastructure, whether that be uneven foot paths or damaged sporting and play equipment. This has been attributed to an increase in the amount of engagement by residents with their local community and facilities. Similarly, real estate agents have reported increased enquiry about the availability of small scale retail and commercial tenancies in suburban locations that offer good accessibility to traditional employment nodes and CBDs.
Life has certainly changed for many of us. There remains a lot to be done to facilitate a sustained recovery in both a social and economic sense. COVID-19 challenged how we live our lives and our community has responded. While these challenges have strained our economic and social fabric, the changes necessitated by COVID-19 could yield a suite of unexpected community and economic benefits.
CDM Smith continues to keep its hand on the pulse of our community and economy, and our insights support the development on public policy across all levels of government and the private sector response to changing consumer preferences.