A major business setting up shop in your city sounds like a positive thing. But be careful what you wish for.
The Amazon Effect: HQ2
The logo of e-commerce giant, Amazon, is a stylized smile. But not everyone is smiling at the thought of Amazon’s second headquarters (known as HQ2) opening in their city.
More than 200 North American cities submitted proposals to become the home of the online retailer’s second headquarters, and the field has since been narrowed to 20, including Austin, Boston, L.A., New York, Dallas, Miami, Philadelphia and Chicago. Toronto stands out on the shortlist as the only Canadian city to be included.
In January, when Amazon announced Toronto as a potential site for HQ2, Ontario Premier Kathleen Wynne and Minister of Economic Development and Growth Steven Del Duca released a statement talking up Amazon’s promise of as many as 50,000 full-time, high-paying jobs. Amazon also pledged to spend $5 billion in the area where it builds its second headquarters.
What’s not to like? On the surface, Amazon’s entry into a city sounds like a win-win. But there is still a cost to be considered.
Boom and Bust
One problem with a region being home to so many high-paying jobs is that it tends to dramatically drive up home prices. Silicon Valley, the heart of America’s booming tech industry, is the most expensive housing region in the US.
California’s high-tech mecca is facing a severe housing shortage caused by the drastic market imbalance between jobs created and homes being built. From 2010 to 2015, 400,000 jobs were created, against only 60,000 housing units built. This gap has driven home prices far out of the range of production workers.
As of 2016, a two-bedroom apartment in Silicon Valley rented for about $2,500, while the median home price was about $1 million. With little shelter space, and housing beyond the reach of middle-income residents, the region is becoming too expensive for “average” workers to live, and homelessness is becoming a problem.
Silicon Valley is just one of several cities and regions to deal with the potentially disruptive effect that a big business can have on the local economy.
- GOOGLE – Mountain View, California: Google’s 24,000 employees make up approximately 9.7% of Mountain View’s workforce, and the company owns over 10% of the city’s taxable property. With soaring property values and added congestion on commuter streets, Google has since developed a tense relationship with the Mountain View city council over the issue of housing.
- BOEING – Washington state: In 2013, aerospace giant Boeing threatened to relocate production of its 777X aircraft program from Washington. State officials offered the company the biggest state subsidy package in history, costing taxpayers an estimated $8.7 billion – and landing the multinational company in hot water with the European Union (though the World Trade Organization eventually approved the deal). Despite the subsidies, Boeing’s Washington workforce still shrank from 86,397 to 65,829.
- AMAZON – Seattle: From 2005 to 2015, Seattle’s median rent went from $1,008 to $1,286, and the city has the fastest-rising housing prices in America. “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,” journalist and Seattle resident Paul Roberts writes in Politico.
A backlash is even beginning among other cities on the HQ2 list, with some economists questioning whether tax breaks yield promised jobs, while skeptics are concerned about crowded trains, increased traffic, and limited housing. As of bid day, 73 community organizations across 21 states have signed an open letter listing concerns about the effect HQ2 could have in their cities, including lack of investment in transportation infrastructure, gentrification, unaffordable housing, and bringing in workers from outside the region.
Wherever Amazon ends up putting HQ2, it’s likely to be a good thing for that city in many regards. But it’s also worth remembering that the growth of Silicon Valley also started out as a good thing for its residents.
Peter Campbell | Contributing Writer