Amazon’s HQ2 may increase rent in 15 cities

As cities scramble to complete their bids for Amazon’s HQ2, which are due today, mayors and state leaders from around the country have been doing seemingly everything they can to land the massive development opportunity, from offering billions in subsidies to reviewing hundreds of Amazon products in a humorous PR campaign.

But the experience of Seattle, home of Amazon’s original headquarters and the company’s stratospheric growth—as well as a number of affordability and city planning challenges due to the retailer’s massive footprint—should offer caution to any city that thinks adding upwards of 50,000 employees and $5 billion in investment over the next few years is going to be easy.

Recently, Apartment List crunched the numbers to see how Amazon’s potential arrival might impact rent prices in a number of U.S. cities. At a time of rising affordability and housing shortages in metros across the country, any large influx of new residents, especially those with high salaries, would strain and impact the housing market.

To make their predictions, Apartment List analyzed data for 15 cities from the U.S. Census and the Bureau of Labor Statistics, as well as historical home-building statistics, to determine both how much housing each market could build, the slack in the market in terms of how much housing could be added, and the overall impact of an influx of high-wage workers.

The predictions also factored in additional job growth from supplementary workers in industries that would support all the new Amazonians, estimated to add another 66,250 residents over the next decade.

While the study found that different cities would respond with different rates of construction and rent growth, one impact was consistent across most markets: cities will likely add more jobs than they do housing. One of the main reasons for varying impacts across metro areas was median salaries. In areas where Amazon would pay a lot more than the average, the study predicted more severe impacts on the rental market.

Apartment List

Apartment List broke down the 15 metros in three main groups, with different estimates about how much Amazon’s arrival would impact median rents for the next decade. These additional rent increases would be on top of currently estimated increases in rent.

Those with severe rent increases include Raleigh (1.5 to 2 percent annual increase), San Jose (1 to 1.6 percent), Baltimore (1 to 1.3 percent), and Pittsburgh (1.2 to 1.6 percent). Mostly smaller metros, with between 1.3 and 2.8 million residents, these areas would struggle to have construction keep pace with job growth.

While Raleigh, located in the Research Triangle, and Pittsburgh, with its booming tech scene, have very low housing costs, which would meet one of Amazon’s stated criteria, the influx of workers would lead to the creation of lots of luxury rentals and drive up rent. San Jose might actually have the toughest time adapting: Bay Area housing costs are already through the roof (jumping 57 percent between 2005 and 2015), and the slow pace of building in California would present a big challenge to affordability if Amazon came to town.

The second group of cities would see more moderate impact on rental growth, below 1 percent annually: Denver (0.8 to 1.1 percent), Austin (0.8 to 1 percent), Minneapolis (0.7 to 1 percent), Philadelphia (0.6 to 0.8 percent), Detroit (0.8 to 1.2 percent), Boston (0.5 to 0.8 percent), and Atlanta (0.5 to 0.7 percent). Researchers felt these larger metros has more slack in the housing market, and in the case of Austin and Denver, increasingly larger tech hubs that may make it easier to add and attract certain types of employees. Philadelphia and Detroit, on the other hand, offer much more vacancy and lower costs than many cities, offering plenty of room to grow, and enough rental units to absorb some of the shock of more than 100,00 new jobs over the next decade.

Finally, the third group of potential HQ2 cities would see a much more moderate impact on rent. These include Washington, D.C. (0.3 to 0.5 percent), Chicago (0.4 to 0.6 percent), Dallas (0.2 to 0.4 percent), and Los Angeles (0.3 to 0.5 percent). Chicago, due to “existing vacant units and relative ease of building,” is well-positioned, as is Dallas, which due to the state’s lax regulations and cheap labor pool, could scale up quickly (don’t forget the lack of an income tax in Texas). We’ll find out the winner in a few months, after Amazon presumably does its own data-crunching. But it would be wise for any city considering a bid to think long and hard about the additional affordability challenges that may await.