For the past year, Amazon has artfully whipped cities all over the country into a frenzy as they vied for a prize: home to the online retailing giant’s second corporate headquarters and up to 50,000 high-paying jobs. And now it appears there’s not one, but two winners. Ooh, last-minute plot twists!
The tech giant is reportedly close to deals to split HQ2, as it’s known, between Long Island City, a burgeoning Queens neighborhood in New York City, and Crystal City, an Arlington, VA, area just across the river from Washington, DC. (Amazon officials have declined to comment.) The addition of up to 25,000 jobs with average salaries topping $100,000 is something local politicians will brag about for years.
But these cities, and the folks who live in them, may not want to pop open the Champagne just yet. The new headquarters are likely to worsen some of the problems both of these uber-pricey metros are grappling with: namely the lack of affordable housing, and traffic and public transit woes.
For clues on what may be in store for these markets, experts are looking westward to Seattle, Amazon’s birthplace and current home.
Over the course of its two-decade existence, the online behemoth has utterly transformed this coastal city, creating a turbocharged economy and a go-go housing market to match. Seattle rebounded more quickly from the past recession than most other places. But home prices rose rapidly as more well-paid workers flocked to the area and many longtime residents were priced out. Median list prices shot up 12.1% just in the past year, to a median $550,050 in the Seattle metro area as of Oct. 1, according to the most recent realtor.com® data available. That’s much higher price growth than the 7.3% rise nationally.
“They created a big problem with a lack of affordable housing in Seattle,” says KC Conway, chief economist at CCIM Institute, a Chicago-based commercial real estate professional group. “And now they’re dragging it with them to the East Coast.”
Even with only 25,000 workers apiece, each of the two new sites will still be among the largest corporate relocations or expansions ever, says Andrew Scott, a Chicago-based attorney who specializes in corporate site selections at Dykema. That means there’s no point of comparison for how this will shake out for the winning cities in the long term.
“You just don’t know what the ripple effects are going to be on a particular location,” he says.
(In separate news, it appears that Google is looking for additional space to accommodate up to 12,000 additional workers to Manhattan’s chic West Village neighborhood in New York City, according to The Wall Street Journal.)
Jonathan Miller of Miller Samuel, a New York City–based real estate appraiser, believes rents and home prices will go up 5% to 10% as a result of Amazon moving into these cities.
Real estate prices poised to soar in Long Island City
Long Island City has already gone through a dramatic reinvention in recent years.
Located directly across the East River from Manhattan, it was once a desolate hellscape of abandoned warehouses and high crime. But developers transformed the area, putting up a spate of luxury high-rises along the waterfront, many of them expensive rentals.
Over the past year or so, developers have been forced to offer concessions to lure tenants and buyers who have their choice of recently opened buildings in the neighborhood. But since the news leaked this week that Amazon is likely moving in, those same developers have been emailing local real estate broker Eric Benaim of Modern Spaces to say they need to raise prices.
“It’s going to turn Long Island City into the new Silicon Valley,” Benaim says.
Not long ago the area seemed in danger of becoming overdeveloped. But that same building boom may become its saving grace if Amazon comes into town: 6,000 new rentals are in the pipeline to come on the market over the next three years, Benaim says. The mix of predominantly studio, one-bedroom, and two-bedroom apartments is in addition to the roughly 650 to 750 apartments already on the market.
In addition, about 2,100 new condo units are projected to go up for sale over the next 15 months. These are mostly one- and two-bedroom units with a smaller percentage of studios and three- and four-bedrooms units mixed in. Currently, there are around 350 condos for sale.
But even this much housing won’t be enough if all 25,000 workers come to town. With a limited supply and increased demand, Benaim expects incentives will disappear and then prices will go up—at least a few hundred dollars a month for renters. Monthly rents averaged nearly $3,500 for a one-bedroom apartment and $4,700 for a two-bedroom apartment in the third quarter of the year, according to Modern Spaces.
Meanwhile, condo prices could rise 10% to 15% over the next few years, he predicts. They averaged just over $800,000 for one-bedroom units and nearly $1.3 million for two-bedroom units in the third quarter of 2018, according to Modern Spaces.
And the neighborhoods adjacent to Long Island City would likely absorb some of the new residents. The surrounding Queens neighborhoods of Astoria and Sunnyside, middle-class enclaves of single- and multi-family brick and row homes, have already been rapidly gentrifying in recent years. Trendy Brooklyn neighborhoods such as Williamsburg are also nearby. Even the tony Upper East Side of Manhattan, which sits just across the river, is likely to be affected.
The increase in highly paid jobs will be a boon to the area, says Rob MacKay, spokesman for the Queens Economic Development Corp. But some fear that Queens, one of the most ethnically diverse corners of the nation, may lose some of the character that it’s known for. Its middle-class and immigrant residents are already being pushed out by increasingly higher prices. Amazon is likely to only exacerbate the flight as more luxury buildings go up well out of the price ranges of existing residents.
And not every resident is thrilled at the prospect of an influx of new neighbors. Wayne Chiarella, 42, has been renting in the neighborhood for 14 years. He shares a two-bedroom apartment with his girlfriend, and he says that the rush-hour trains at his stop are already unbearably packed.
“I just can’t imagine how much worse it’s going to be when there’s an additional 25,000 people commuting in and out of the neighborhood every day,” he says.
Where will Crystal City workers live?
Crystal City, a neighborhood of mostly bland concrete office and government buildings, may not seem like a top pick for one of the world’s most exciting companies.
But located right outside DC proper and sandwiched between the Pentagon and Ronald Reagan Washington National Airport, the area would make an ideal base for lobbying and meetings on Capitol Hill (as well as drop-ins by Amazon CEO Jeff Bezos, who owns a house in DC). And it has easy access to a diverse, highly skilled workforce.
Still, it’s not all roses. Northern Virginia is already struggling with heavy traffic and a lack of housing across the price spectrum. To accommodate the potential new workers, the area will need to undergo something of a housing boom of high-rise rental buildings and townhomes, says Robert Dietz, chief economist for the National Association of Home Builders.
Now, that could be eased a little by the roughly 9,500 new apartment units expected to go online in the Washington, DC, metro area by the end of the year, according to apartment listings website RENTCafé.
But that’s a 19% decline from 2017, and about 88% are expected to be pricier units. And as in Queens, the rumors of Amazon’s likely arrival is already pushing up costs.
After getting wind of the Amazon move, real estate agent Jordan Stuart increased the price of a two-bedroom condo in an older building in Crystal City by $20,000, to $580,000, with his client’s permission. The home has been on the market for two months.
“Crystal City doesn’t have many residential opportunities,” says Stuart, of Keller Williams Capital Properties. There isn’t much land nearby to build new homes, either.
What’s available is mostly rentals, with a few condos sprinkled in. The neighborhood of Aurora Highlands, which offers older, single-family homes, is just next door. But as of Wednesday, there were only six homes there for sale on realtor.com. They range from $850,000 to $1.4 million, Stuart says.
“The midtier inventory [between $450,000 and $700,000] right now is stable. You can definitely find product,” Stuart says. But that’s not likely to last if Amazon workers start descending. “Those are the first homes that are going to get shorted.”
Amazon HQ2 losers may turn out to be the biggest winners
While New York City and Washington, DC–area officials are salivating over what all of those good-paying Amazon gigs will mean for their economies and tax revenues, the biggest winners, surprisingly, may be the losers: the lower-cost cities that got bypassed in Amazon’s national beauty contest.
“The cities that didn’t get [the headquarters] dodged a bullet,” says Conway, of CCIM and the Alabama Center for Real Estate.
The six-figure salaries Amazon promises won’t go too far in either New York or the DC metro area, and might not be enough to lure highly skilled workers. Those with families, in particular, may not look kindly on pricey single-family homes that require long commutes.
“You can’t attract the skilled workforce in New York or Northern Virginia without the affordable housing,” says Conway.
The median home price is $559,000 in Crystal City, part of Arlington (where prices are $599,000), and $437,050 in the DC metro area, according to realtor.com. They’re a whopping $997,000 in Long Island City and $529,545 in the New York City metro area.
Many financially savvy workers may still prefer cheaper cities that still offer good jobs. For example, Pittsburgh offers a median home price of $180,000 within the city limits. It’s $285,000 in Charlotte, NC; $289,900 in Raleigh, NC; $325,000 in Chicago; $389,000 in Dallas; and $419,900 in Austin, TX. With those housing prices, workers can live like tech titans off their healthy paychecks.
And here’s the thing: Even in New York City and DC, there aren’t enough skilled workers to fulfill Amazon’s needs. So this could lead to bidding wars for the most in-demand talent—and, of course, poaching from other companies. With unemployment already so low, this could make it harder for some tech companies to compete. So if Amazon moves in, they may ultimately decide to move out.
Amazon “picked two of the most expensive housing markets in the country,” says Conway. “That could be a big factor in [whether they] succeed.”
Source: Housing Trends Feed