4 Obvious Pros and 4 Disconcerting Cons for Whatever City Wins Amazon's HQ2
Free Book Preview Tax and Legal Playbook
Sometime this year, the winner of North America’s biggest economic lottery will be determined.
In 2018, Amazon is scheduled to decide where it’ll put its highly coveted second headquarters, dubbed HQ2. Twenty communities in North America are now finalists in the HQ2 lottery and are eagerly awaiting the outcome, as the project could bring billions of dollars to the chosen location.
Communities need only look at Seattle, where Amazon is based, to see how much the Pacific Northwest metropolis has reaped from the presence of Amazon. According to Amazon’s own figures, the company sank $38 billion into the Seattle economy from 2010 to 2016.
That’s the positive side of HQ2, but there negative side is the strain that such a mammoth project will place on whichever community receives Amazon’s blessing. With the ascent of Amazon, Seattle has suffered the side effects of economic growth, such as increases in housing costs and traffic congestion.
In an open letter to Amazon founder and CEO Jeff Bezos, more than 70 community organizations in the U.S. pleaded with the ecommerce retailer to be thoughtful about the HQ2 expansion. “We love jobs, we love technology and we love convenience -- but what you’re looking for will impact every part of our cities. We built these cities, and we want to make sure they remain ours,” the letter says.
Here are four pros and four cons for the community that wins the HQ2 prize.
Pro #1: Amazon would invest billions of dollars.
Amazon says it’ll invest $5 billion to build HQ2. Translation: Billions of dollars will be poured into constructing and maintaining Amazon’s second corporate headquarters, easily resulting in thousands of jobs.
Pro #2: Lots of jobs would be available.
Amazon says HQ2 will create as many as 50,000 jobs over 10 years. For a lot of cities, that would make Amazon their largest employer. Not only will thousands of jobs be produced, but those jobs will pay well. Amazon says average compensation at HQ2 will exceed $100,000 a year.
Overall, Amazon HQ would be a huge shot in the arm for a region’s workforce.
Pro #3: Other employers might be lured to the area.
The community that Amazon picks for HQ2 also is bound to attract other companies that want to do business with Amazon. Any sizeable employer -- like Dell Technologies in the Austin, Texas, area or FedEx in Memphis, Tennessee -- draws vendors that want to be near a major corporate customer.
Thus, Amazon HQ2 is likely to indirectly generate thousands more jobs in the region selected for HQ2.
Pro #4: A big, stable company will make its home in your town.
Over the years, Amazon’s revenue has skyrocketed. In the third quarter of 2017 alone, the company posted revenue of $43.7 billion, up from $10 billion from the same period a year earlier. That’s worth repeating: $43.7 billion in revenue during only a three-month span.
From the looks of it, Amazon is poised to grow even more. For instance, the company in 2017 bought natural grocer Whole Foods Market for $13.7 billion to bulk up its brick-and-mortar presence, and it’s exploring numerous other revenue-generating avenues.
Bottom line: Amazon isn’t going anywhere.
Con #1: Businesses could find it harder to hire employees.
With Amazon’s HQ2 dangling jobs offering average compensation of more than $100,000, the competition for talent could heat up -- and could break the bank for some employers.
“People will move in to take the jobs, but it will probably put pressure on other businesses in the community who have the same labor pool,” Mark Zandi, chief economist at Moody's Analytics, told NBC News. “Some businesses might not be that excited.”
Con #2: Traffic and other community woes could worsen.
Even if only one-fifth of HQ2’s employees relocated for work, that could result in 10,000 new residents in a region, plus their spouses and children. That, in turn, would lead to more cars on the roads, more public services being used, more kids being enrolled in schools and so forth. Indeed, while one Seattle resident acknowledges the upsides of HQ2 will overshadow the downsides, he complains of “appalling traffic” in the Emerald City and a “painful erosion of urban identity.”
“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,” Paul Robert writes in a piece for Politico.
Con #3: Taxpayers might be on the hook for billions.
In the frenzy to land HQ2, some communities are willing to throw millions (or even billions) of dollars in incentives at Amazon. New Jersey is promising $7 billion in tax breaks to woo Amazon, according to the Brookings Institution. Meanwhile, tax breaks being pitched by Pennsylvania exceed $1 billion, the Philadelphia Inquirer says.
In terms of incentives, many proposals aren’t in the stratosphere of New Jersey’s or Pennsylvania’s. Still, a number of communities are willing to give up plenty -- tax revenue, land and so on -- to get Amazon. At a certain point, though, incentive-loaded economic proposals are “zero-sum and even self-defeating,” according to Brookings, “as weakened government coffers cannot support the high-quality public goods that firms like Amazon demand.”
Con #4: Housing costs could climb.
In a study of 15 metro areas contending for HQ2, rental marketplace Apartment List predicted an annual rent increase of up to 2 percent with the arrival of HQ2, on top of the rent growth those metros already would experience without Amazon. The study indicates apartment renters in Raleigh, North Carolina; San Jose, California; and Pittsburgh would be burdened most by the presence of HQ2.
Ultimately, such rent hikes could force residents out of increasingly pricey neighborhoods or even could push them to lower-cost metro areas. A similar scenario could be in store for homebuyers in the land of Amazon HQ2.
In Seattle, the hometown of Amazon, critics pin some blame on the ecommerce giant for driving up housing prices in the region. According to the Seattle Times, home prices in every county in the Seattle metro area jumped by at least 10 percent from November 2016 to November 2017. The Times reported in October 2017 that Seattle had the dubious distinction of being the hottest home market in the U.S. for 12 consecutive months.