(Gregory Scruggs is a senior correspondent for Citiscope. The opinions expressed here are his own.)
By Gregory Scruggs
Sept 15 (Reuters) - Amazon, the world’s largest e-commerce retailer by sales and market cap, announced last Thursday a request for proposals for a large North American city to host a second headquarters equal in stature to its downtown Seattle campus. This unexpected move sparked an Olympics-style competition by the likes of Chicago, Dallas, Denver, Philadelphia, Pittsburgh, San Diego and Toronto to seduce the company.
Mayors and civic leaders are prepared to offer tax breaks, development-ready sites, new aviation connections, and fiber optic lines to lure up to 50,000 highly-paid employees for the $5 billion campus. But they should be careful what they wish for: winning the Amazon beauty pageant might be the ultimate Pyrrhic victory, especially if the winner offers too many subsidies. As The Brookings Institution argues, “State and local governments… have proven over and over that they are all too willing to give up their tax base for growth that would have occurred somewhere anyway.”
Although plenty of ailing metropolitan economies could use a shot in the arm, bringing in Amazon is like a heroin injection; it’s a sharp spike that can balloon housing prices and flip entire neighborhoods in the blink of an eye. While a handful of local business owners and real estate developers profit handsomely, the city as a whole can suffer. Some of the challenges, like the skyrocketing cost of housing in Seattle, can be measured. Others, like a loss of local character, are intangible but no less important to many current residents. Seattle’s experience as the country’s leading company town - 19 percent of the prime office space in Seattle is occupied by Amazon, the highest ratio for one company in any American city - offers several warnings for why cities shouldn’t be desperately seeking Amazon.
Seattle, where I live, is undergoing its biggest boom since the Yukon Gold Rush. It’s currently the fastest growing city in the United States. That influx of people, including me, has put a lot of strain on the Emerald City.
House prices routinely climb an average of 10 percent annually. As rents have plateaued nationally, they continue to rise here, again as much as 10 percent per year in popular neighborhoods. This trend persists despite an unprecedented building boom. New apartment buildings keep materializing and single-family homes are regularly replaced by clusters of townhouses, but supply can’t seem to catch up with demand. More and more families making average wages find themselves struggling to afford a home within the city limits, the rates of mega-commuters have soared and rent hikes force more people into homelessness.
The increasing cost of living has followed Amazon’s growth. Over the same period in which rents have skyrocketed – up 57 percent since 2011 – Amazon’s global workforce has grown from 50,000 to 350,000. The largest concentration of Amazonians, over 25,000, is in Seattle. These highly educated tech workers are well-paid, with an average income starting above $100,000. Fast Company put it bluntly in a headline: “How Amazon’s Non-Stop Growth is Creating a Brand-New Seattle.”
In fairness, there are other factors driving Seattle’s housing prices: low-density zoning that sets aside most of the city for only single-family housing, foreign real estate investment, the growth of other tech companies, and the current popularity of the Pacific Northwest. (Home prices have also shot up in Amazon-less neighbors Vancouver, British Columbia and Portland, Oregon.)
But Portland remains the hippie Mecca lovingly ridiculed on the TV show “Portlandia.” Seattle, the city that birthed grunge rock, finds itself turning into something quite different. The Amazon-led influx has dramatically changed the culture in many parts of the city. Neighborhoods increasingly feel dominated by a white, male cohort of recent college graduates making six-figure salaries. The level of angst among people who have lived here for much of their lives is palpable and infectious.
Long-time residents of once-bohemian neighborhoods find their favorite bars overrun by loud groups of Amazon “brogrammers.” In Capitol Hill, Seattle’s famed “gayborhood,” there has been an uptick in anti-LGBT hate crimes on weekend streets increasingly crowded by drunken frat bros and sorority girls.
Amazon isn’t the only company offering highly paid jobs to young people, splitting the local economy between tech haves and non-tech have-nots. (Some speculate that the recent landmark municipal income tax is driving Amazon’s decision to create a second headquarters instead of just expanding in Seattle.)
And some of Seattle’s growth-related issues, like horrible and ever-worsening traffic stemming from a lack of investment in a reliable public transportation system, can be squarely blamed on Seattle’s past myopia.
But Amazon plays an outsized role in the city’s recent transformation. It occupies as much prime commercial real estate as the next 43 Seattle companies combined. With 8.1 million square feet growing to 12 million in the next few years, Amazon’s Seattle footprint dwarfs the size of any one company in another large city. Citi is the next largest big-city corporate tenant by square footage in the U.S. Its 3.7 million square feet in New York City account for only 3 percent of the Big Apple’s Class A office space.
The Amazon effect has generated tremendous resentment. In a region famous for its reserved, sometimes passive-aggressive attitude. Amazonians aren’t harassed on the street. But they are pilloried in other forms, like a dystopian love letter from future Seattle, a bevy of hilarious comics depicting I-survived-to-tell-the-tale stories of working for the behemoth, and a satirical anti-Amazon newsletter that periodically appears pasted on light poles around Capitol Hill. Street protests against the Bay Area tech giants demonstrate that these feelings are shared by the residents of other crunchy, formerly funky cities being economically divided and culturally destroyed by the fast growth of tech. That’s why Oakland Mayor Libby Schaaf expressed tepid interest in Amazon, saying, “we would need to address all outcomes a project of this magnitude would create.”
The eventual home of HQ2 may not experience the same shocks as Seattle did. Many poorer or depopulated older cities would gladly trade their problems for Seattle’s. A much bigger city might absorb 50,000 new employees without a change to the local vibe. A city that is already boring might not find its character under assault. A city with more robust mass transit may not find Amazon’s arrival generating so much more traffic and a city with a lot of vacant housing might not see prices reach astronomical levels. But like Cassandra, I must share the warning: Beware of tech CEOs bearing gifts. (Reporting by Gregory Scruggs)