Beware, Philadelphia: Amazon could drive up housing prices

When Amazon announced its search for a second North American headquarters, government officials, developers, and residents in cities nationwide embraced the prospect as decidedly good news.

Including many in Seattle.

While cities began immediately plotting ways to reel in the online retail giant, Seattle, for the first time in years, was catching its breath. After years of skyrocketing real estate prices, unprecedented development, and a record-breaking number of cranes in the sky as a result of Seattle’s tech boom, Amazon’s plan to expand elsewhere offered the city, finally, a reprieve.

Granted, Amazon’s presence has been extraordinary for Seattle. Since the company began building its campus there a decade ago, Amazon has provided jobs, investment, and a reputation that Seattle never could have imagined. Today, 40,000 well-paid employees bustle around the company’s urban campus. Amazon has built and rented 8.1 million square feet of downtown office space. At least $3.7 billion has been invested in the local economy. And Amazon’s presence has persuaded other tech companies —  Uber, Airbnb, and Zillow — to locate in the city.

But with prosperity have come profound costs. By some measures, Seattle has become the fifth-most-expensive U.S. city and the ninth-priciest worldwide. The median price of a single-family home or condo in Seattle was $522,000 in August, according to real estate company Redfin, a 67 percent spike from April 2010, when Amazon opened its headquarters. Last month, the median rent for a one-bedroom jumped to $1,380, according to Apartment List. And a Seattle Times analysis found  that Amazon occupies 19 percent of Seattle’s office space — putting more pressure on office rental prices, some argue.

Camera icon Steve Ringman
As Amazon’s corporate campus in Seattle has grown, the city has grappled with a strain on the housing market. Increasingly, observers say, prices are becoming unaffordable.

To be sure, Seattle’s supercharged housing market and resulting affordability crisis were not caused solely by Amazon. Nationwide, as living preferences have changed, people have been flooding into cities, driving up home prices and rents. And Amazon was not the first or the last tech company in the region. Microsoft built its campus in Redmond — 15 miles away — in 1986. And Google and Facebook have announced plans to expand in Seattle.

Yet Amazon’s impact on Seattle’s housing market is undeniable, raising the question: Could Amazon create the same affordability crisis in its next location?

“Every city will be confronted with this if Amazon chooses it,” said Nela Richardson, Redfin’s chief economist. But, “it gives cities the opportunity to define it. … To talk [in their proposals] about how the city could manage this growth.”

“The city that does ultimately jump through [Amazon’s] hurdles, their very next step should be thinking, ‘We’ve got this gold mine now. How do we make sure that the wealth is distributed in a way that helps all the members of our city?’ ”

Camera icon Credit SHOP ARCHITECTS PC / WEST 8
Schuylkill Yards, the 14-acre project in West Philadelphia planned by Drexel University and Brandywine Realty Trust, could be a prime location for Amazon if it were to locate in Philadelphia, observers predict, given its available land and access to public transit.

Compared with other cities Amazon could pick, Philadelphia has one large advantage in residential real estate: Homes remain inexpensive. In the second quarter of 2017, the median price was $158,000, according to Drexel economist Kevin Gillen.

But costs are rising. Since 2007, citywide single-family home prices have jumped 16 percent, Gillen’s data show. Specific neighborhoods, such as South Philadelphia, have had prices rise even more: 42 percent. And that’s before potentially adding the demand of Amazon’s 50,000 employees.

“The challenge for us now becomes looking at what we can be doing for the city’s affordability, so that we are just as creative there as we are going to be for Amazon,” City Councilwoman Maria Quiñones-Sánchez said. “We are at this spilling point where we could lose our affordability if we are not deliberate.”

Seattle is not the only city to have struggled with a technology influx. According to a 2015 analysis by Redfin of six major U.S. cities, for every 1 percent increase in the number of technology workers between 2014 and 2015, there was roughly a 0.5 percent increase in home prices.

In Austin, Texas, which has emerged as a start-up hub, home prices have jumped 64 percent since 2009, Redfin’s data show. In Boston, the soon-to-be home of General Electric Co., prices are up 71 percent. And in San Francisco, the median price of a home is $1.25 million, a 123 percent increase since 2009.

“What technology companies are really bad at doing is internalizing their effect on a city,” Richardson said. “… They think, ‘I’m giving these great benefits to my workers, so that makes me a great company.’ But it increases the cost of housing.

“We need to educate corporations on the effects of their successes, and educate cities that you have to think long term — not giving Amazon every tax break in the book, but instead putting some infrastructure into the city.”

Camera icon Elaine Thompson
In downtown Seattle, Amazon’s corporate campus has swelled to 8.1 million square feet of office space.

As tech companies have received blowback for their housing market influence, some have tried to alleviate costs. In Seattle, Amazon has allowed a homeless shelter to move in — rent-free — to a former hotel on its campus. To date, it has served more than 195 families.

Facebook, meanwhile, plans to build 1,500 new housing units in Menlo Park, Calif., 15 percent of which will be priced below market rate. The housing would be open to non-employees.

Yet critics say those contributions make only a dent.

Nora Lichtash, a steering committee member of the Philadelphia Coalition for Affordable Communities, said cities need policies to ensure that as the market increases, people are not getting pushed out. “The idea of Amazon is coming … is exciting. … But it can’t be at the expense of residents who have invested so much in their communities.”

Recently, Seattle has tried to create more affordable housing — despite complaints from observers that the efforts might be too little, too late. In 2015, a task force on housing affordability issued 65 recommendations.

“If we had a crystal ball, we would have gone back and started this process a couple of years before we did,” Seattle City Council member Rob Johnson said. “… I would hazard a guess that if we had those recommendations back in 2013, we could have gotten ahead of the rapid employment growth that we have had.”

Still, Johnson said, two major initiatives are underway: In 2015, Seattle approved a commercial linkage fee, which requires all commercial developers with new projects to pay into a fund to construct affordable housing. Depending on location, developers are charged $5 to $17.50 a square foot.

And in four test neighborhoods, residential developers, like their commercial counterparts, now either have to pay into a similar affordability fund or build a certain number of affordable units. Seattle hopes to expand the program — which has had some success elsewhere — across the city, Johnson said.

Yet such inclusionary housing mandates are controversial. Because the mandate tacks on costs, some opponents say builders could opt not to build at all — creating a housing shortage that could drive up prices.

Earlier this year in Philadelphia, Quiñones-Sánchez introduced an inclusionary housing bill that would require developers to build affordable units. To cushion the blow, the bill would allow them to construct properties that are taller or denser.

Quiñones-Sánchez said she hopes to have a framework by October and a vote before the year’s end. In the meantime, she said, it’s important for Philadelphia to be thinking of alternatives.

“We’re in a better place than Seattle was at the beginning of their journey,” she said. “Because of our advocacy community and our public sector, I think we’re in the best place possible to come up with the best way of handling this.”

UPDATE: Philly one of 20 finalists for Amazon HQ2