Fellows in Focus: Exploring the New Economics of Downtown

The Lincoln Institute provides a variety of early- and mid-career opportunities for researchers. In this series, we follow up with our fellows to learn more about their work.

After earning her PhD in applied economics from the University of Pennsylvania’s Wharton School in 2018, Lindsay Relihan was invited to join the Lincoln Institute Scholars program, an opportunity for recent PhDs focused on public finance or urban economics to work with senior academics and journal editors. Now an assistant professor of economics at Purdue University, Relihan has lately focused her work on the question of how remote work is reshaping downtown retail—with many stores following their customers to the suburbs or smaller cities. In this interview, which has been edited and condensed for clarity, Relihan shares what intrigues her about the retail industry and why she’s still bullish on the future of cities. 

JON GOREY: What is the focus of your research and the work you presented at the Lincoln Scholars program? 

LINDSAY RELIHAN: Broadly speaking, my research agenda is about trying to understand how technology is reshaping cities.

The job market paper I presented at the Lincoln Institute is all about the rise of online retail, and how online retail was reshaping consumer shopping patterns. The big lesson there is that we often tell this ‘retail apocalypse’ story about online retail, where Amazon opens up and all the bookstores and other kinds of goods stores close. And that’s actually true—but it’s a very limited view of what online retail is doing to the economy, and to the retail economy specifically.

What I find in my work is that when people become online grocery shoppers, they go to the grocery store less, which is that classic substitution effect that we always talk about. But one thing they can do is turn around and use all that time savings from going to the grocery store to go somewhere else instead. And that’s what I find they do: they go to the grocery store less, but they go out to restaurants more. So restaurants can win from the rise of online retail, being something you can do with that extra time that you can’t replicate online. It’s not just restaurants . . . they go out to more salons, and they go out to more entertainment venues, like theaters or bowling alleys, those kinds of things that you can’t do online.

JG: What are you working on now, and what do you have planned next?

LR: Most of the story about work-from-home has focused initially on what it’s doing to things like office real estate. But retail is a big part of the economy, and it’s tied to both where you live and where you work. So if you go into the downtown office less, well, maybe you don’t go to Chipotle for lunch, and maybe you don’t go to happy hour after work, or you don’t go out for coffee—that’s a big part of downtown commerce.

If you’re instead having lunch at home, the question is: Do you go to Chipotle in the suburbs? In which case, Chipotles might just change where they locate. Or, because it’s a lot easier just to make a sandwich, do you just stay home, and that restaurant visit just disappears entirely? We find that people are leaving downtowns for the suburbs, and sometimes we also see people leaving big cities for smaller cities. That’s happening. But these retail establishments are also following the people, in a way that intuition would suggest.

In that original paper, I ignored the supply side as if stores were not changing anything about their strategies, but we have good intuition and our everyday experience to expect that grocery stores should do something else to compete. And so we’re going to try and figure out what does that response look like? Are they going to change their product offerings, are they going to change their prices, are they going to change where their stores are? So we’re going to try and really trace out that supply side response.

JG: What sparked your interest in studying retail?

LR: It was recognizing that retail is this large, less explored aspect of commercial real estate. And I feel like it speaks to the way that people live their everyday lives, and that’s why I really like it.

I actually came to studying real estate and urban economics through an interest in the residential housing market. I worked with Chip Case at Wellesley, who developed one of the canonical models of house price indices, and I went to work at the Federal Reserve after undergrad and worked in their housing and real estate finance section, and then I went to Wharton to work on housing. And one day, my dissertation chair called me into his office, and—in his French accent—he was like, ‘Lindsay, you cannot be Miss Mortgage, you have to branch out.’ And I was like, okay, fair, but this other thing I’m interested in is still about the everyday of people’s lives, but how space shapes people's consumption decisions, and the distributional consequences of that.

JG: What do you wish more people knew about economics?

LR: What I say to my undergrads when I’m teaching is the most beautiful economics is something that was obvious in retrospect—that says something true about the way the world works, and illuminates something new to you about the way that the world works in a very intuitive way . . . I think the best example from my work is when you shop online, you get more time, then you can do something else. Good economics makes concrete a lot of our really strong intuitions that will help us to understand how the world is really working so we can make better policy.

Something else I wish people knew is that economics is extremely nonpartisan, when it feels like everything else in the world is super partisan. It’s really about trying to understand people’s incentives and how we should distribute resources to achieve some kind of policy goal, and I think it's very powerful in uniting people who maybe have very different personal opinions about a lot of things to speak a common language about tools and objectives.

JG: When it comes to your work, what keeps you up at night? And what gives you hope?

LR: During the housing boom of the 2000s, there was a big move away from the traditional 30-year, fixed-rate mortgage, toward mortgages that had teaser rates, or interest-only periods, or that could negatively amortize—they just had very exotic, nontraditional features that could allow you to have a cheaper mortgage payment every month than you could get on a standard contract. And what my research on that time period says is that a lot of that was really driven by this need by private banks and lenders who were packaging mortgage-backed securities to continue originating mortgages despite increasing interest rates after about 2003.

I’ve been thinking a lot about that in the current economic climate. We were puzzled back in the mid-2000s—interest rates are rising, why aren’t house prices falling?—and we actually have a very similar situation and discussion today. I think a lot about where in the system we are allowing mortgages to continue to get made, and whether those new mortgages being made today are risky in ways that are reminiscent of what happened in the 2000s.

[What gives me hope is that] every time we’ve had a technology shock, cities as a whole have come out on top. I mean, that’s not to say that individual cities can’t rise and fall . . . but I have hope overall. Every time we invent a new technology that allows easier communication across space, people predict the death of cities. They invented the telegraph, and people were like, ‘Distance doesn’t matter, so cities will disappear,’ or they invented the telephone, and they were like, ‘Cities don’t matter, we can just call each other, why would we ever need to be in person?’ The internet was the same way. And through all of those episodes, cities did the exact opposite, they got denser and became more valuable places to live; what changed was why people wanted to live there, and why cities were super valuable. I think both online retail and work from home have a good chance of following that path. So I am definitely part of the faction that bets long on cities.

JG: What’s the best book you’ve read lately?

LR: Something I’ve been really into lately is trying to revisit lessons in philosophy. And one book that I read recently that really spoke to me as an urban economist was The Just City by Jo Walton. It’s a science fiction novel that imagines what would happen if you actually tried to set up Plato’s Republic by stealing people from across time that ever wished aloud to live there, and trying to run it in accordance with the way that Plato set down as being the way that cities should be run. So they put up a city that’s just like Plato’s prescription, and then of course, things get very interesting and run amok in ways that I thought were great.

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Jon Gorey is a staff writer at the Lincoln Institute of Land Policy.

Lead image: Lindsay Relihan. Credit: Courtesy photo.