What Amazon’s new headquarters could mean for rents

New apartments alongside an older home in the Germantown neighborhood in Nashville, where dense developments like this have become commonplace, April 19, 2018. The possibility that Amazon could locate its second headquarters in Nashville is unwelcome news to some who dread higher rents in a city where a rising share of residents were already struggling to afford a place to live.
Kyle Dean Reinford | The New York Times
New apartments alongside an older home in the Germantown neighborhood in Nashville, where dense developments like this have become commonplace, April 19, 2018. The possibility that Amazon could locate its second headquarters in Nashville is unwelcome news to some who dread higher rents in a city where a rising share of residents were already struggling to afford a place to live.

When Amazon announced in January that Nashville had made the list of 20 finalists being considered for its second North American headquarters, city leaders cheered. They saw the project as the next step in Nashville's transformation from country-music capital into a regional and even national economic force.

To some locals, Amazon represented something else: more people, more traffic and, most of all, higher rents in a city where a rising share of residents were already struggling to afford a place to live.

"With the onslaught of new people, with the onslaught of higher-income earners, I just think it's going to further exacerbate what's already a crisis situation," said Paulette Coleman, a local affordable-housing advocate.

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Ms. Coleman has reason to worry. A new analysis from the real estate site Zillow estimates that rents in Nashville would rise 3.3 percent per year if the city landed the Amazon campus, almost four times as fast as currently projected. After a decade, that could translate into Nashville residents paying $400 more per month in extra rent because of the project.

Other cities could also see big increases if Amazon picks them. Monthly rents in Boston and Los Angeles could jump by even larger amounts in dollar terms — albeit from a higher starting point — reflecting a shortfall in rental housing construction. Denver — like Nashville, a midsize city that has seen brisk population growth in recent years — could see its already rapid rate of rent increases hit nearly 6 percent per year, triple the overall rate of inflation.

Nashville, Tennessee
Davel5957 | Getty Images
Nashville, Tennessee

"I definitely think it has the possibility of pushing us over the tipping point," said Felicia Griffin, executive director of United for a New Economy, a Colorado nonprofit that has opposed the Amazon project.

Some potential locations would be less severely affected. Atlanta and Chicago, big cities that have made it relatively easy to build new housing in recent decades, would see only a small rent increase if they won the Amazon project.

And Indianapolis, where population growth has been slow and housing is plentiful, would see no effect on its rents at all, according to Zillow's model. Even in those cities, however, neighborhoods near the Amazon campus would most likely see significant rent increases. (The study did not look at the effect on prices of owner-occupied homes.)

Amazon has provided few details about what it plans for the new campus, known as HQ2, other than that it could eventually be a base for up to 50,000 employees earning an average of about $100,000. The company hasn't said whether it prefers to build downtown, as it has at its current headquarters in Seattle, or will opt instead for a suburban office park — a decision that could have significant implications for the project's effect on local housing costs. Though it mentioned the issue only in passing in its request for proposals last fall, Amazon says it will take such costs into account, and has met with affordable-housing groups in several of the finalist cities.

Zillow cautions that its estimates are rough, based on a simple model that looks at how rents in each city have responded to past influxes of workers. If the cities respond differently to Amazon's arrival — for example, by building more housing — the impact on rents could be smaller than Zillow's model estimates.

But there are also reasons to think Zillow's analysis could understate Amazon's potential impact. The model looks only at the effect of the jobs that the new campus is expected to create directly. If Amazon's presence draws other businesses to the area, rents could rise even faster.

That's what has happened in Seattle, where a mini-Silicon Valley has sprung up around Amazon's downtown campus. Facebook, Google and other internet giants have opened satellite offices nearby, and start-ups — including Zillow itself — have their headquarters there.

The boom has been good for Seattle's economy, which has experienced years of steady job growth, low unemployment and, unlike much of the country, strong wage gains. But it has also become a far less affordable place to live. Rents in Seattle now rival those in Boston and New York, and home prices are rising faster there than in any other big city. Amazon says it has contributed more than $40 million to affordable-housing projects in the city, as part of obtaining approval for its plans.

Whichever city wins the HQ2 sweepstakes will enjoy one big advantage over Seattle: advance warning. Aaron Terrazas, a Zillow economist who led the rent analysis, said Amazon's growth caught Seattle by surprise, and the city struggled to build enough housing to accommodate the influx of young, affluent tech workers. Whichever city is chosen, Mr. Terrazas said, needs to move quickly to build.

"What's so important is once a city is selected that they start to get ahead of the curve," Mr. Terrazas said.

So far, however, cities have been focused mostly on attracting Amazon in the first place. City and state governments have rolled out the red carpet for the company, offering tax incentives and other inducements. But the public response has been more lukewarm, particularly in cities where rising housing costs have already led to concerns about affordability and gentrification.

A recent Elon University poll of residents in the finalist cities found that while relatively few residents outright oppose Amazon moving to their city, only 43 percent strongly supported such a move. Residents in many cities said they were concerned that Amazon's arrival would increase the cost of living and opposed offering special incentives to attract the company.

In Nashville, the debate over HQ2 has gotten caught up in a broader discussion of gentrification, race and the consequences of growth. Residents long described Nashville as a small town disguised as a big city. But over the last decade, the city's tourism industry has taken off, and some of those tourists liked Nashville enough to stay. For years, the Nashville metropolitan area grew by more than 100 residents per day, with many of them moving into newly built downtown apartment complexes.

Jeff Bezos
Peter Foley | Bloomberg | Getty Images
Jeff Bezos

As in other cities that have experienced such booms, the growth has led to tensions. Longtime residents, many of them African-American, have been displaced, and the city's homeless population has grown. A recent study commissioned by the mayor's office found that the city had lost 18,000 affordable housing units since 2000. That gap could grow to 31,000 units by 2025 if current trends continue — without taking Amazon into account.

"There are many neighborhoods in Nashville where the fight is lost," said James Fraser, a Vanderbilt University professor who has been active in the city's affordable-housing movement.

Adriane Harris, who leads housing policy for the Nashville mayor's office, said concerns about gentrification were legitimate. But she said there were two sides to the affordability equation: housing costs and income. Nashville's tourism economy depends heavily on low-wage service workers. The promise of HQ2 is that it could be the foundation of a new, more lucrative industry.

"If we're only addressing housing, then I don't think we're getting to the root of the issue," Ms. Harris said. "Wage growth is critical in this conversation."

Affordable-housing groups, however, worry that current Nashville residents won't be, for the most part, the beneficiaries of the high-paying jobs that Amazon promises. Fabian Bedne, a Nashville City Council member, said the city should ask the company to help mitigate its impact, perhaps by financing affordable-housing programs.

"We welcome technology, we welcome great jobs to the city, and I think people would even welcome Amazon, but it would have to be a trade-off there," Mr. Bedne said. "People don't want to sign a suicide pact."

Jenny Schuetz, a Brookings Institution economist who has studied housing policy, said cities would be wise to start planning for HQ2 even before Amazon announced its decision, which is expected this year. The good news, Ms. Schuetz said, is that the steps cities should be taking to prepare for Amazon are largely the steps they should be taking anyway, like improving transit systems and easing regulations that make it hard to build in the places people want to live.

Amazon, Ms. Schuetz added, should also take housing costs, traffic congestion and related issues into account. After all, she said, Amazon won't benefit if its workers can't find places to live, or if they are viewed by existing residents as a hostile force.

"It's going to be a long-term relationship," Ms. Schuetz said. "To retain good workers over the long haul, you should care about what housing costs could be."

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