Universal basic income could decimate cities next year, one bank says in its ‘outlandish forecasts’

LONDON — Saxo Bank says universal basic income could become a permanent reality next year, triggering a “seismic rebalancing” of society as workers wave “bye-bye” to big city life.

In a report entitled “Outrageous Predictions,” the Danish bank on Tuesday outlined 10 “outlandish forecasts” for 2021, although it did stress these are not its “official” views.

Among the predictions, the bank said that measures implemented by governments to support lost wages in response to the coronavirus pandemic could become permanent, and this new era of free money would crush commercial real estate.

“The risk that societies are entirely torn apart results in the realisation that the Covid-19 measures weren’t a mere panic response, but the start of a permanent new universal basic income (UBI) reality,” Saxo global macro strategist Kay Van-Petersen said in the report.

“UBI leads to a seismic rebalancing of the forces and structures within society, and how they apply geographically.”

He said the Covid-19 pandemic has “only accelerated the K-shaped recovery that was driving inequality and tearing at the social fabric before the outbreak.”

A K-shaped recovery refers to one in which the performance of the economy sharply diverges like the arms of the letter K, with some parts of the economy benefiting from strong growth while others lag.

Van-Petersen also said the younger generation had come to realize that “even a solid education and the right attitude” were not enough to move up the socio-economic ladder as was possible through most of the 20th century. And the growing wage deflationary forces of software, artificial intelligence and automation were “eroding a widening swath of jobs across industries.”

Universal basic income is not a new idea. But it has gained traction in the wake of the pandemic, with advocates of the policy suggesting it could help financially support those affected by the global health crisis and future-proof against any further society-wide event.

The IMF describes universal basic income as an income-support mechanism, in which regular cash payments are intended to reach a large portion of the population with minimal conditions.

In short, it would see everyone receive a flat rate payment on a regular basis, regardless of their employment status.

In April, as many countries moved to adopt lockdown measures to curb the spread of Covid-19, Pope Francis came out in support of such a move, saying: “This may be the time to consider a universal basic wage.”

“Big cities have been the chief drivers of job growth for generations. But in the new era of UBI, tech-driven job redundancies, and frequent work from home jaunts made more normal by Covid-19, city office real estate is suddenly faced with 100% or worse overcapacity,” Van-Petersen said.

“Commercial office property values are crushed, together with the commercial real estate containing restaurants and shops aimed at servicing commuting worker drones.”

As a result, Saxo Bank said investors might consider adopting a short position in big city real estate investment trusts. It cited SL Realty Trust, saying it exclusively invests in New York office buildings, or Vornado Realty Trust, since it invests in Chicago, San Francisco and New York.

A short position refers to a trading technique in which a market participant sells a security on the assumption it will fall in the short term.

“The new UBI also drives changes in the attitude toward work and life balance, allowing many young people to stay in the communities where they grew up,” Van-Petersen said.

“Meanwhile, the professionals and the marginal workers in big cities also begin to leave, as job opportunities dry up and the quality of life in small, over-priced apartments in higher crime neighborhoods loses its appeal.”