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Michael Scott

Michael Scott

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Michael Scott majored in International Business at San Francisco State University and University of Economics, Prague. He is now working as a news editor for…

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The Amazon Effect On Housing Markets

Amazon

Having hit major sweepstake proportions, the competition to play host to Amazon’s second headquarters is down to 20 finalists, but it might end up being an expensive economic transformation for the citizens of the lucky city.

Real estate site Zillow is now cautioning that rents in the chosen city will rise exponentially as a result of hosting Amazon, which is due to makes its decision later this year--and in some places it will hurt more than others.

(Click to enlarge)

Source: USAToday

Nashville, for instance, might be really looking forward to the chance to become a major economic force and branch out beyond country music, but at the end of the day, playing host to Amazon will be more people, traffic and higher rents. Ten years on, that could me $400 more per month for rent.

So, not everyone’s bristling with optimism, and some may even be planning an out-of-state move in advance—just in case.

According to Zillow, if chosen, Nashville would see rents rise 3.3 percent per year—or, from another perspective—four times faster than would without Amazon.

So much for affordable housing. This form of prestige will come with a hefty price tag for some.

And Nashville might not be the worst-case scenario. Zillow’s data predicts that Denver would see rent increases at a rate of nearly 6 percent a year.

Los Angeles could be hit hard in terms of Amazon’s rents effect.

If Amazon wants to avoid the backlash from its effect on rents, it might look instead to Atlanta, Chicago, Northern Virginia, or Toronto, where increases would be minimal, according to Zillow.

Or, perhaps Indianapolis, which is an exception to the rule because owner-occupied homes are readily available, affordable and “historically responsive to new demand”, says Zillow. Related: Markets Rebound As Trump Plays Down Trade War

The final Zillow verdict, though, is that all but two of the HQ2 finalist markets should expect a smaller impact on rents than Seattle—home of Amazon’s HQ 1--has experienced.

(Click to enlarge)

(Click to enlarge)

Source: Zillow

The Seattle Times notes that the Zillow may have been overly cautious with its estimates, not taking into account the add-on effect of having Amazon in your back yard. Amazon tends to draw other businesses in on its coattails, causing rents to rise even faster. In terms of housing, Amazon has turned Seattle into another New York City.

Related: PayPal On Edge As FinTech Startups Gain Momentum

Just like it went down in Seattle, sparking the emergence of a scaled-down version of Silicon Valley, with lots of startup headquarters, and with Facebook, Google and other tech behemoths putting up satellite offices.

Clearly, what’s good for a city’s economy, can’t be good for rents. It’s something struggling citizens are going to have to weigh as they decide whether there’s more opportunity as a new economic force, or whether the rent will just be too high. 

And for local governments, the trick will be to get out in front of this before it’s too late, and that means building enough housing to accommodate the flood of new residents before the housing market spikes due to lack of supply.

At lot is a stake and getting rents under control will allow the chosen one to bask fully in the rest of the largesse. After all, Amazon says it has invested $3.7 billion in Seattle, and paid over $25 billion in salaries. For HQ2, 50,000 people would be hired and $5 billion in capital investments made.

By Michael Scott for Safehaven.com

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