This article is part one of a four-part series about Amazon's effect on housing and rental markets in Seattle, and its potential impact on each of the proposed cities for its second U.S. headquarters.
Twenty major metro areas are in the running to be selected as the location for Amazon’s second corporate headquarters. The stakes are high for every city on the short list; planners and elected officials in those cities are doing everything they can to lure the online retailer, such as offering billions of dollars in tax breaks and transportation improvements. The decision is expected sometime this year.
The company says the $5 billion project—dubbed HQ2—will rival its Seattle campus in size and scope, and bring as many as 50,000 jobs to the selected region. Since 2010, the company has created an estimated $38 billion, over 40,000 direct jobs, and 53,000 ancillary jobs for the Seattle area.
The economic impact to the chosen city can’t be overestimated, says Ben Sage, director of the Mid-Atlantic region for Metrostudy, which has three markets under consideration for HQ2 by Amazon—Washington, D.C., suburban Maryland, and Northern Virginia.
“If this campus grows to over 50,000 employees and 8 million square feet of office space, it would be larger in size than the combined headquarter campuses of Apple, Google/Alphabet, and Facebook,” he says. Its size would rival two major hubs in Sage’s markets: HQ2 “would exceed the Pentagon’s 6.5 million square feet of office space, and employ almost as many people as Fort Meade," which has approximately 52,000 employees.
Current homeowners in the selected city will reap the benefit of HQ2's impact on home values, and home builders and apartment developers will have plenty of work churning out housing. While HQ2 will be a boom for the chosen city’s economy and its builders and developers, it's likely to be a bust for residents seeking affordable housing.
The data shows that Amazon has contributed to Seattle's soaring housing costs and limited inventory over the past seven years. From 2010 to 2017, the average price of a new single-family home in Seattle increased by 83.4%, nearly two times the rate of growth seen in new-home prices nationally, which increased by 46.3% during the same period.
This type of price appreciation isn’t good news for prospective buyers or renters in HQ2’s city—particularly those that already push the boundaries of affordability, including Washington, D.C., New York, Los Angeles, Denver, Boston, and Miami.
In fact, the average new-home price in eight of the markets under consideration is already above the national average, which reached $392,908 in 2017. The “Amazon Effect” will drive that price much higher—after applying Seattle’s 83.4% increase in the average price of a new-home from 2010 to 2017, the price of a new home would exceed $800,000 in all eight of those markets, with five of them averaging a new-home price of over $1 million.
Existing home prices are on the high side for some of the candidate cities as well: Eight of the markets on Amazon’s short list exceeded the national average price of $307,079 last year. With the Amazon Effect, the average price of a resale home in five of those eight markets would be more than $650,000.
Todd Britsch, Metrostudy regional director for the Seattle market, finds it unlikely Amazon will be attracted to markets that already boast high prices. “When companies look at coming into a new geographical area, they want someplace more affordable, where the cost of employment is significantly less to provide a better quality of life—this why a number of tech companies came to Seattle in the first place out of Silicon Valley,” he says.
Middle Ground
Price appreciation is less likely to become a burden for residents in less-competitive cities like Philadelphia; Raleigh, N.C.; Columbus, Ohio; Pittsburgh; or Indianapolis. The average price of new and existing homes in these markets leaves room for affordability even after applying the Amazon Effect’s growth rates, but a less-competitive market may also be less capable of absorbing the need for new housing.
Quita Syhapanya, Metrostudy’s regional director serving markets in Philadelphia, Northern New Jersey, and the New York suburbs—Philadelphia and Newark are both on the HQ2 short list—believes Philadelphia could have this problem if it wins the bid for HQ2.
“The impact on Amazon's HQ2 on any local market would be significant with the influx of new jobs, as well as the need for housing—both for sale and rentals,” he says. “Obviously it would be a big get for the city of Philadelphia if it were to land Amazon as an employer, but the lack of supply of housing in this region would be a real concern, especially if you look at it from the new construction perspective. The lack of supply has already pushed up the premium to purchase a new home over a resale.”
According to Syhapanya, Philadelphians don't seem particularly supportive of the idea of HQ2 coming to the City of Brotherly Love, but the city is “smitten” with the idea that securing HQ2 would build Philadelphia’s tax base, spur significant in-migration, and expose the city as a region other potential employers should consider.
A project of HQ2's scale would likely draw other big companies to the city Amazon ultimately selects. While Mike Pattison, the Snohomish County manager of the Master Builders Association of King and Snohomish Counties in Washington state, doesn't believe Amazon alone will drive an affordability crisis, "jurisdictions that are looking to host Amazon really need to consider whether they want to become a magnet for other tech industries—then they could really have an affordability issue on their hands."
It would be imprudent for Amazon to accept a bid from a city where new and existing home supply is already lagging behind demand, unless extensive plans for the development of new housing inventory is already underway.
Philadelphia “locals are flattered to be in the running, but would rather not see the impact it would have on the local market,” Syhapanya says of HQ2. Residents in Philadelphia County and surrounding neighborhoods are most concerned that further gentrification of neighborhoods will spur greater price gains and largely impact rental rates. “They would rather see Amazon land in Trenton [so they can] benefit from its positive impact indirectly, and from a distance.”
Cities like Atlanta, Austin, Texas, and Nashville, Tenn., represent the middle ground between expensive and less-expensive markets on the list. All three markets have a projected new-home price in the $600s after calculating the Amazon Effect, and each of them would be able to endure the price growth that comes with the significant influx of wealth and in-migration. These markets are also better equipped to support regional growth as a whole.
Britsch predicts that Amazon will select Atlanta for HQ2, due to the fact that it has a better chance at long-term affordability, is the largest airport hub in the U.S., and has accommodating weather. Meanwhile, Pattison thinks that Texas markets—especially Austin—and Nashville are the best equipped.
"Another major consideration for Amazon is a region's willingness to make large investments in infrastructure," Pattison says. "There's a political component to that, and I think Texas markets could be considered growth-friendly in that realm.”
Part two of the series examines multifamily housing and rental rates in Seattle. Read on >>
