How Rent Burdenship May Affect the HQ2 Decision

As part of our series on Amazon HQ2, we discuss how the Top 20 candidates vary in terms of their current income and affordable housing conditions

Source: Joint Center For Housing Studies 2017, Seattle and San Francisco included for comparison. All numbers are aggregated by MSA.

As recently reported in Bisnow, major tech companies such as Google and Facebook have begun to draw up plans to construct housing for their employees — as well as contribute to local affordable housing funds. As Amazon ponders the location of its second headquarters, the current situation of rental and housing affordability in its candidate cities should not be ignored.

While rent burdenship among the larger population has been at historically high levels, it has begun to plateau in recent years — a result of more and more residents choosing to downsize or migrate to cheaper markets. Contrarily, among high-income earners the opposite is true. Over the past 12 months, the number of high-income renters ($75,000+ income) paying over 30% of their income on rent has increased by 27%.

This is emblematic of the concentration of high rent in a select set of markets (San Francisco, New York, Los Angeles, etc.) that have seen employment growth in the high-income tech sector. From this surge in rent burdenship, it is clear that the rate of rent growth over the past couple years has outpaced the average wage growth in these markets — even for tech workers.

Should Amazon select one of these cities for HQ2, it will not only have to pay a premium for salaries but also be expected to address affordability issues within that market. Additionally, while cities that have released plans for HQ2 have outlined plenty of office space, these plans often lack details on the proximal multifamily developments that are so prevalent in South Lake Union.

Conversely, Amazon could select one of the smaller cities on its shortlist (Indianapolis, Pittsburgh, Columbus, etc.) that have smaller rates of rent burdenship. Even if rental prices began to rise with the arrival of HQ2 in these markets, there would be significantly more runway to handle rent fluctuations. However, with these smaller markets infrastructure becomes a serious question.

Twenty years ago, South Lake Union in Seattle was a seedy warehouse district — since then it has become a bustling nexus of gleaming new office buildings and multifamily developments designed to cater to the Amazon employee. The key to South Lake Union’s success was its proximity between offices and multifamily as well as the efficient public transportation that enabled fast access to any part of the Seattle.

Many of these smaller cities have placed minimal investment in public transportation and would likely take decades to put in place a network of sufficient size to support HQ2 (just as transit construction costs in the U.S. have reached new highs).

Perhaps Amazon should consider cities that are not as susceptible to either of these issues. Cities like Chicago, Philadephia and Dallas boast both a deep bed of existing and potential transit infrastructure and contain populations that are not as heavily rent burdened.

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