Amazon HQ2: Gains or Strains?
Few opportunities can rival the impact of Amazon's search for an HQ2 location. This is an economic development opportunity with huge estimated effects: the winning city will rake in around 50,000 new jobs and generate $5 billion in real estate and capital investment. In today’s fast-paced and interconnected world, companies like Amazon are looking for the foundations necessary to build a sustainable and successful business. Especially for the home of its second headquarters, Amazon is looking for “a metropolitan area with more than one million people”, “a stable and business-friendly environment”, “the potential to attract and retain strong technical talent”, and “communities that think big and creatively when considering locations and real estate options”. From housing prices, availability and cost of living to crime statistics, transit options and university systems, by taking these into account Amazon’s search process highlights the pros and cons of each city and can even provide direction as to how cities should approach economic and urban development.
With stakes this high, cities across North America have been vying for Amazon’s favor with generous promises of incentives including offers of billions in tax breaks. These incentives, many of them taxpayer-financed, range from building a monorail for Amazon to extending cash grants and property tax abatements. Newark offered as much as $7 billion worth of incentives, Maryland offered around $8.5 billion, Columbus offered a 15-year 100% property tax abatement and Chicago offered to give payroll taxes back to Amazon. This race for Amazon’s HQ2 in part demonstrates how cities and politicians are desperate for economic development, some after years of neglecting investment in infrastructure and local programs, and others dealing with stagnant real wages and the steady disappearance of traditional middle-class jobs in manufacturing.
After a year of speculation and heated competition, Amazon has finally announced the winners and new locations for its second headquarters. Instead of one new Amazon headquarter, there will be two: one in Queens, New York and the other in Arlington, Virginia. Therefore, the promise of 50,000 new jobs and $5 billion in investment will be divvyed up between New York and Virginia. In the end, Amazon is the biggest winner. It came out of this hunt with more than just two locations for its HQ2; it will receive more than $1.5 billion in direct subsidies from New York and $573 million in direct subsidies from Virginia. These incentives that NY and VA used to attract Amazon are conditional on its promise to bring 25,000 high paying jobs to each state. Moreover, if Amazon brings more than the anticipated number of jobs, then there are additional subsidies for it on the line. To add on, both states have also pledged to invest a combined total of $223 million for transportation improvements to accommodate new Amazon workers. As the race to land the Amazon HQ2 project has come to an end, it is important to examine the strains as well as the gains of its effects on the cities it will reside in.
First, we need to look back at Amazon’s first headquarter in order to anticipate what its new headquarters will have to face. Seattle, Washington, the location of Amazon’s first headquarter, has been completely transformed by this trillion-dollar tech firm. While Amazon has fueled remarkable economic growth and prosperity in Seattle, it has also led to a population boom, increased housing costs, upward rents for local small businesses and eventually led to long-term transportation challenges. As seen through Seattle’s example, a new Amazon headquarter will cause a spike in commercial development and a rise in prices of multi-family condos, apartments and houses in the area. While this is excellent news for existing homeowners who expect an increase in property values, an influx of 25,000 high paying workers and their families to each state will inflate the housing costs and severely reduce housing inventories. Local businesses will also find it more difficult to keep up with the rising lease rates for office and retail space. Moreover, those who cannot afford the rising costs of housing and rents will have to face displacement and gentrification. Additionally, the arrival of Amazon HQ2 will put a strain on transportation infrastructure, especially in these already congested cities. Hence, these cities will have to find a way to accommodate the flow of an exponentially growing population and absorb the traffic of thousands more workers and families commuting to and from work. Despite their promised investments in the transportation system, Queens and Arlington will nevertheless face increased traffic and local angst from the massive inflow of employees.
Without a doubt, Amazon HQ2 will have a momentous effect on its new cities. It will vastly change the physical, societal and economic landscapes for decades to come. It is important to consider the opportunity costs of attracting a company like Amazon. A city could possibly better utilize its funds on necessary improvements like affordable housing or education instead of having its taxpayers subsidize one of the country’s biggest and most prosperous companies whose CEO is the richest man in the world. So, for the losing candidates of Amazon’s search for HQ2, this might not be bad news. Not every city can handle a project of this extent. In the long-term, the winning city may become the losing one if the price it pays Amazon exceeds the benefits that it can glean. Even though there are many upsides, there are also many downsides to take into consideration. Therefore, now that Queens, New York and Arlington, Virginia has attracted an e-commerce giant like Amazon, they will need to focus on mitigating these strains in order to reap the most gains from this massive economic development opportunity.
Edited by: Urvi Agrawal
Sources:
https://qz.com/1071832/amazons-hq2-what-it-wants-for-its-massive-new-north-american-headquarters/
https://www.seattletimes.com/business/lessons-to-be-learned-for-losers-in-hq2-contest/
https://www.brookings.edu/research/amazon-hq2-how-did-we-get-here-what-comes-next/
https://www.curbed.com/2018/9/28/17914542/amazon-jobs-hq2-economic-devleopment
