Amazon’s HQ2 would have the biggest impact on real estate in these U.S. cities

This neighborhood near Raleigh, North Carolina, could become much more expensive if Amazon moves next door.

Amazon has narrowed the contenders for its new headquarters down to 20 cities — but the property markets in some cities could do with a boost more than others.

From a field of 238 entries, Amazon has winnowed the competition to 20 finalists: Atlanta; Austin; Boston; Chicago; Columbus; Dallas; Denver; Indianapolis; Los Angeles; Miami; Montgomery County, Md.; Nashville; Newark, N.J.; New York City; Northern Virginia; Philadelphia; Pittsburgh; Raleigh, NC; Toronto; and Washington, D.C.

The cities generally share a lot in common. Most are near international airports. Nine of the candidates are among the top 10 metropolitan areas by population in the U.S., with Houston being the only one of those major cities not to make the cut. Toronto, meanwhile, is Canada’s largest city.

Austin and Miami have seen home prices rebound markedly over the past five years, while Chicago and Pittsburgh have had a more muted recovery.

But for all that these cities share in common, they have had rather divergent trajectories from a real estate perspective since the nadir of the recession. Some, such as Austin and Miami, have seen home prices rebound markedly over the past five years, while places like Chicago and Pittsburgh have had a more muted recovery.

Where will Amazon AMZN, +1.49% have the biggest impact? Here are some of the factors to consider:

Smaller cities will see a bigger impact outright

Amazon has said that the new headquarters will employ 50,000 people — but the full impact on the site selected will be much larger when taking into account other companies that may follow in Amazon’s footsteps.

For New York City or Los Angeles, that would be a drop in the bucket. Not so for Raleigh, which is the smallest finalist with just 1.2 million residents across its greater metropolitan area, said Joe Kirchner, senior economist at Realtor.com. Such an argument would also extend to other finalists such as Columbus and Indianapolis.

Don’t miss: What Amazon’s HQ2 means for homeowners, home buyers and renters in the chosen city

“If you’re bringing in that many new workers and constructing that many new homes, it’s going to have a bigger impact,” he said. (Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

Renters could feel the pinch in some cities

Renters living in the smaller candidate cities would be particularly hard hit if Amazon were to move in. People who rent their homes in Raleigh could see rents grow up to an additional 2% because of Amazon workers moving in, according to real estate website Apartment List. That could add up to an additional $15,356 spent on rent over 10 years. Renters in Columbus, Indianapolis, Pittsburgh and Nashville could also expect to see rent hikes of more than 1% on top of the average expected rent growth if they became home to Amazon’s HQ2.

Rank Metro Average Annual Rent Growth (2005-2015) Additional Annual Rent Growth from Amazon HQ2 Cost to Renter Households Over 10 Years 1 Raleigh, NC 3.20% 1.5% – 2.0% $11,756 – $15,356 2 Columbus, OH 2.80% 1.3% – 1.7% $8,414 – $11,297 3 Indianapolis, IN 2.40% 1.2% – 1.6% $7,208 – $9,479 4 Pittsburgh, PA 3.00% 1.2% – 1.6% $6,970 – $9,533 5 Nashville, TN 3.70% 1.2% – 1.5% $8,847 – $11,932 6 Denver, CO 4.80% 0.8% – 1.1% $7,751 – $11,452 7 Austin, TX 4.70% 0.8% – 1.0% $7,441 – $9,706 8 Miami, FL 3.60% 0.6% – 0.8% $5,919 – $7,294 9 Philadelphia, PA 3.10% 0.6% – 0.8% $5,057 – $6,506 10 Boston, MA 2.80% 0.5% – 0.8% $6,608 – $10,539

Some contenders will have more capacity than others

Who has room to grow? New York and Boston have comparatively much less space to build new housing to accommodate the influx of residents. Those cities, therefore, might expect higher home price and rental appreciation than places where expanding the housing supply is easier.

However, an equally important factor here is zoning laws. Seattle’s housing boom isn’t simply a reflection of people’s excitement about Amazon and the tech sector more broadly — though that certainly contributed. The city’s zoning officials were not prepared to handle the onslaught of interest in new construction. As a result, building starts have seriously lagged housing demand, thus fueling more competition and driving prices sky-high.

Seattle was not prepared to handle the onslaught of interest in new construction. Building seriously lagged housing demand, driving prices sky-high

And from that perspective, Amazon could be a bigger burden in some of the finalists located in the Northeast than their Southern counterparts. “Some cities are just better suited to expanding housing supply,” said Tendayi Kapfidze, chief economist at LendingTree, pointing to Dallas, Nashville, Raleigh, and Austin as candidates with laxer zoning laws.

Capacity isn’t just a question of homes for sales, but also units for rent. Rents are already extremely unaffordable in some of the 20 cities. In Spotsylvania County in Northern Virginia, for instance, the average worker would need to devote 75.5% of their wages to rent, according to figures from Attom Data Solutions. But renters there won’t necessarily be able to buy ahead of Amazon’s entrance to avoid rent hikes, as rents and home prices alike are rising faster than salaries.

Some cities are already used to rapid change

Many of the cities on Amazon’s short list have undergone serious change in recent years, and that has made them into more competitive housing markets, said Kapfidze.

Take Austin: The Texas capital was rated as the most-changed city in the U.S. by personal finance website MagnifyMoney for a host factors including population, income, and, yes, home price growth.

Meanwhile, it ranked No. 17 on LendingTree’s list of most competitive housing markets, which took into account the share of buyers who get financing lined up before choosing a home, the size of the down payments and the percentage of borrowers with high credit scores.

Also read: How winning the race to be Amazon’s second headquarters could turn out to be a curse

Many of the cities on the short list appear high up on both lists, including Denver, which is the third-most competitive market nationwide. But having endured substantial, recent change doesn’t mean that Amazon HQ2 will be the straw that breaks the camel’s back, Kapfidze argued.

“Cities like Columbus, Indianapolis and Pittsburgh would benefit more from Amazon coming into the area,” he said. “The cities that have changed the most are more nimble and better prepared to absorb and accommodate a huge influx of new residents and a different mix of business.”

The question of Toronto…

Like many of the American cities on the short list, Toronto has seen real-estate prices climb over the past 5 years. The median price of a home in the Toronto metropolitan area in December was 743,500 Canadian dollars (equivalent to $597,811 in the U.S.). That’s up 7% from a year and 63.6% from 2012, according to data from the Toronto Real Estate Board.

And the city’s rental market recently earned the dubious distinction of becoming the priciest in all of Canada, surpassing Vancouver, which had long been more expensive, based on data from real-estate website Padmapper.

So it seems like Amazon’s entrance there would result in very similar drawbacks for local residents. But for Americans moving north of the border to work for the e-commerce giant, the favorable exchange rate to Canadian currency could offset the otherwise painful blow, Canada’s National Post argued.

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