Amazon’s HQ2: Financial Bonanza For Winning City Or Problematic Nightmare?


Amazon's HQ2: Financial Bonanza For Winning City Or Problematic Nightmare?

Crossing your fingers and saying a nightly prayer that your city will be the winner in the Amazon HQ2 sweepstakes? Given all the hype about new jobs and an influx of money pouring into the chosen city, that’s not surprising. But is having an Amazon headquarters in your city all it’s cracked up to be? The 238 original participants in the race for HQ2 and remaining 20 suitors seem to think so. We’re using Seattle, home to Amazon’s first headquarters, as a litmus test to see what it might be like in Dallas, Los Angeles, Boston, Atlanta or the 16 other potential sites.

“Many city leaders are optimistic about the thousands of jobs Amazon claims HQ2 would create,” said Business Insider. “But some residents worry that it would also spur the same problems that Seattle has seen since Amazon arrived: increased traffic, soaring housing prices, and prolonged construction.”

Judging by the impact Amazon has had on Seattle, it’s hard to know if all the fuss is worth it. “As one City Council member put it, HQ2 may give Seattle ‘a little breathing room’ to cope with a decade of raging, Amazon-fueled growth,” said Politico.

So, is it worth it? “Most economists say the answer is a qualified yes – that an Amazon headquarters is a rare case in which a package of at least modest enticements could repay a city over time,” said CNBC. “That’s particularly true compared with other projects that often receive public financial aid, from sports stadiums to the Olympics to manufacturing plants, which generally return lesser, if any, benefits over the long run.”

The good: Jobs and financial impact

No one can deny the impact 50,000 new jobs can have on a city and its economy. And that’s only the beginning; some studies double it when considering ancillary positions, not to mention other tech companies that will follow Amazon once the chosen city develops a strong tech-savvy workforce. “’s decision to build a second North American headquarters sets up the most consequential U.S. economic-development contest in recent memory,” said USA Today.

There is also no question that Amazon will transform the economic reality for its new host. While generous tax credits to the company from the city are a given to even be in consideration, Amazon’s economic investment in construction spending for HQ2 is said to be $5 billion, with the possibility of “tens of billions of dollars” in investment in the surrounding communities,” said USA Today.

The economic impact obvious can’t be denied. “Seattle has been home to Amazon’s original headquarters for 22 years. The company has unquestionably made its mark on the metro area,” said newsy. “In Seattle, about 1 in 4 jobs is directly or indirectly created by Amazon. That includes both people who work for the company and people who benefit from its presence, like contractors who work on Amazon’s buildings, for example. That’s a considerable chunk of the workforce. And Amazon proudly illustrates its economic impact, from paying its employees’ salaries to more complicated concepts like reinvestment.”

Having HQ2 in your city also has the potential to create cache, which has its own benefits, said CNBC. “For the right city, winning Amazon’s second headquarters could help it attain the rarefied status of ‘tech hub,’ with the prospect of highly skilled, well-paid workers by the thousands spending freely, upgrading a city’s urban core and fueling job growth beyond Amazon itself.”

According to the Washington Technology Industry Association, there are approximately 250,000 tech workers in Washington state – “a number that’s growing at about 10% annually,” said Business Insider. “Nearly 90% of those jobs are in King County, Seattle, the home of Amazon’s campus. Seattle is also now the second-highest-paying city in tech, with an average salary of $99,400, according to the tech recruiting company Dice Holdings.”

The bad: Rising population, rising costs

But, there’s a downside to those high-paying jobs. “What was once a quirkily mellow, solidly middle-class city now feels like a stressed-out, two-tier town with a thin layer of wealthy young techies atop a base of anxious wage workers,” said Politico.

With the arrival of Amazon and the inevitable influx of new residents to take over at least some of those 50k jobs, expect housing prices to rise. That could put the city out of reach for many employees who aren’t nearing that six-figure level. And then there is the impact on existing residents of the city.

“Somewhat unsurprisingly, the growth has made Seattle’s housing less affordable for some longtime residents, who have accused Amazon of perpetuating income inequality in the city,” said Business Insider. “From 2005 to 2015, Seattle’s median rent went from $1,008 to $1,286, an increase nearly three times the national median. Recent data shows Seattle’s median home price hit $730,000 in mid-2017, up nearly 17% from a year ago.”

The ugly: The infrastructure changes

Perhaps most troubling for finalists is the potential for unmitigated growth and the problems that brings. “Some residents worry that the new headquarters would increase traffic, spur gentrification, and lead to prolonged construction similar to ‘Amazonia’ in Seattle, the location of Amazon’s original headquarters,” said Business Insider. “As Bloomberg notes, the expansion of the city’s tech industry (most notably Amazon) has clogged roadways. Seattle drivers spent an average of 55 hours in traffic in 2016, placing it among the top 10 worst US cities for congestion, according to the most recent analysis by Inrix. In June 2017, King County Metro even added more buses to accommodate Amazon’s summer interns.”

Amazon specified an effective transit system as a key decider when it sent out its request for proposals – “new state-of-the-art transit systems” are among the prizes cities have waved in front of Amazon for what USA Today called its “economic golden ticket.” Those cities that already have good public transit would presumably be leading contenders.

And then we return to the tremendous potential impact on the real estate market – another huge concern. An Apartment List study, titled “Prime Markup: How Much Would Amazon HQ2 Drive Up Rents?” leveraged data from the U.S. Census and Bureau of Labor Statistics “to determine how much new housing a metro can build, the amount of slack in the housing market and the impact of an influx of high-wage workers.” In Seattle, “the influx of high-paid Amazon employees has coincided with rent increases that outpace almost all other U.S. cities and the fastest growth rate in home prices nationwide,” they said. “Based on current job growth rates plus the additional 50,000 Amazon workers and 66,250 supplementary workers to be added over the next ten years, we project that many metros will add more jobs than new housing.”