Major cities the world over are in a tough position. A trend of increased income inequality has created bifurcated cities characterized by intractable housing crises and gentrification. The matching political trend has been for local politicians to try to attract new industries with the goal of using that prosperity to bridge the growing divide — or so they say.
Amazon’s recent announcement that it’s looking to build a second headquarters (which it calls HQ2) to rival its sprawling footprint in Seattle plays right into the hands of these mayors who are hoping to boost their cities’ economic growth. Yet by trying to attract a company like Amazon, they’re not taking in account the good chance that the problems faced by their cities will only multiply.
Pitting cities against each other . . . for profit
In its Request for Proposal, Amazon lists a number of demands for cities looking to host its HQ2, including a population of more than one million, a development-ready urban location, on-site connections to mass transit and proximity to major highways and an international airport. However, there’s another very important requirement that will trump the others in the end.
Despite the fact that Amazon is the fourth-largest company in the world by market cap, its choice of where it locates its offices and warehouses depends largely on the incentives that states and municipalities are willing to dish out—and the competition for HQ2 will be no different. Mega-deals in recent years have granted massive tech firms an average of $658,000 per job created, and there are serious questions about whether these large subsidies are justified.
Why is it that Amazon, Google, Apple and other big tech firms so doggedly pursue tax breaks and subsidies when they’re already some of the largest companies in the world, often with plenty of money in the bank? It’s not like they really need it, though their desire to reduce their overall tax burden seems to fall more in the realm of ideology than necessity, as illustrated by the convoluted tax-evasion schemes they helped pioneer.
And it’s not even that they already have plenty of money. Governments on all levels need to consider the kind of incentives they’re creating by giving so much to companies that are increasingly (and rightfully) perceived to be quasi-monopolies and may find themselves in the crosshairs of antitrust regulators under a future Democratic administration in the US (and possibly much sooner in Europe). Does it make sense to subsidize the growth of such large firms when small businesses increasingly struggle to survive in an economy with such high levels of consolidation?
One only needs to look at the cities in which these massive tech companies are currently headquartered to see the effects they’ve had on the urban environment — and they’re not positive. Any mayor looking to win Amazon’s HQ2 really needs to consider the serious social implications that will come with it, but their statements suggest that they’re focused only on winning the prize, and that doesn’t bode well.
Crises in the tech heartlands
All major cities are experiencing a series of issues related to affordability, displacement and inequality, but these crises are most acute in the cities that have become hubs for the tech industry. There’s little reason to believe that the same won’t also happen in whichever city Amazon gets the biggest tax break in exchange for building HQ2.
San Francisco has become the poster child not only for this wave of technological development but also for the housing crises that are sweeping major cities. The city boasts the highest median income in the country, at $96,677, thanks to the high wages of those who work at the major tech companies; yet that doesn’t mean that everyone’s doing great simply because incomes are higher. Those incomes are necessary because the prices in the Bay Area have climbed to outrageous levels — the average house costs $1.25 million — and astronomical housing prices are pushing out not only service workers and teachers who can no longer afford to live in the city but also some of the tech workers who are earning those high salaries and are struggling to get by.
And that’s all without the presence of Amazon, which hires more workers than most tech companies, and thus takes up a lot more space. In Seattle, Amazon occupies 8.1 million square feet of office space across 33 buildings, taking up almost 20 percent of the city’s prime office space, and it expects to cover more than 12 million square feet in more than 40 buildings by 2022. Its footprint has brought a lot of talented people to Seattle, but like in San Francisco, that has also meant a shortage of housing and skyrocketing prices.
Even though Seattle’s median income is approaching $80,000, it has the largest homeless population of any major American city. Its housing market is the hottest in the country, with prices rising faster than anywhere else, and despite another 9,000 apartments being put on the market, rent increases continue to outpace those in most other metro areas. And it’s not just housing that’s experiencing steep increases — Amazon’s endless pursuit of office space, even though it already uses more than the next 43 companies combined, is causing those prices to soar as well.
In many ways, Seattle is following close behind San Francisco thanks to tech’s growing presence in the city. All the major cities across North America that are presumed to be in serious consideration for HQ2 are already experiencing high levels of inequality and unaffordable housing costs, but whichever Amazon chooses will see those problems become more acute. Incentives aside, that will be the true human cost of attracting Amazon.
Mayors looking to bid for Amazon’s HQ2 need to think long and hard about the kind of city they’re trying to create. Amazon’s presence will benefit some skilled workers, but it will make many more worse off as HQ2 places strong upward pressure on housing prices, rents and even office space for other businesses trying to establish themselves. And as Amazon widens the divide and worsens the social crisis, it will be paying less tax toward abating them than other businesses due to its demands for subsidies and tax rebates. Attracting Amazon will come with a social sacrifice, and mayors need to put more thought into whether they’re ready to make it.
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