Don’t Hold Your Breath on Amazon

Recently, Amazon announced plans to build “HQ2,” a second headquarters for their growing business. Amazon is soliciting various municipal and state governments with a request for proposals outlining the strengths of their particular region (unique and valuable business intel in and of itself, but that’s a whole ‘nother post) and what kind of tax breaks Amazon can expect to receive. Through Greater MSP and the Minnesota Department of Employment and Economic Development (DEED), the Twin Cities are working on some sort of proposal to lure Amazon to the Twin Cities.

There are two schools of thought on this: any company promising significant economic growth should have the red carpet rolled out; and tax breaks and other economic incentives are paramount if we want new jobs, right?

To many others, this looks like the fairly standard “race to the bottom” scenario, which has worked well for sports franchises and other large employers. Dangle a big prize (jobs), which pits various metropolitan areas against each other, and demand large subsidies in return. But the high stakes of Amazon’s RFP (“up to 50,000 high-paying jobs”) makes this an even more interesting proposition.

Geodesic Domes outside of Amazon's Seattle HQ

Given enough tax breaks, Amazon could soon plop their geodesic domes down near the Twin Cities.

While the question of “should we subsidize large corporations” is fairly cut-and-dry for me (no thanks!), let’s focus on a what-if: what if Minneapolis, or the region, added 50,000 jobs almost overnight? Setting aside that it’s Amazon (and there are many criticisms of their business model), what would happen if some local company created this many jobs? No corporate giveaways, just 50,000 new jobs paying $70,000 per year, which is slightly above the current household median income.

Where Will They Live?

Great question! Who knows? We do know people with these new jobs could choose to live just about anywhere in the metro area, and people are increasingly choosing urban areas like Minneapolis over suburban counterparts. If these new employees don’t want to be “cost-burdened” by rent, they will spend less than 30 percent of their $70,000 salary ($1750 per month) on housing, meaning that almost every apartment in the city is within financial reach.

Obviously there’s a problem. We don’t have tens of thousands of vacant homes just waiting to be occupied. Whether those homes are older “naturally occurring affordable housing” (NOAH) apartment buildings (which were severely restricted by downzoning across the city 40 years ago) or newer upscale housing, those buildings already have tenants.

Currently, the Twin Cities metro has a vacancy rate of 2.7 percent. This is a long term problem; the rate has been under 3 percent for the last five years. This low vacancy rate means that landlords can continually raise rents, knowing that competition among tenants means they’ll surely find someone willing to pay what is asked. Now assume we’re adding 50,000 new high-paying jobs! Existing tenants will certainly be displaced, as new employees will be able to outbid existing tenants for a place to live.

Alatus Tower

This 42-story Alatus project would add roughly 200 new homes to Minneapolis. If we add 50,000 more high-paying jobs, we’ll need at least 100 more projects like this.

Under such a tight housing market, the economic power held by landlords (not bogeyman developers who seek to build “more” housing) puts more and more tenants at risk of displacement. Widening economic disparities and an overall increase in population ensure that during a housing shortage, the wealthy will always find housing.

Every high-paying job created in the region is bound to worsen our housing shortage, and will directly lead to displacement. For every high-paying job created, “new” housing must be created, whether in the form of new apartments or renovated older ones. This dynamic of apartment renovation, upscaling, and displacement plays out right now on a much smaller scale, even without 50,000 Amazon jobs; a lack of housing across the income spectrum means landlords are eager to meet the demand of those higher income tenants.

What Can We Do?

It’s worth asking whether it’s really ethical to add any new jobs considering our lack of affordable housing. How can we ethically add jobs when new jobs will lead to displacement for current residents? Ideally, we would have a large cushion of excess housing—a healthy vacancy rate—already in place to prepare for an economic boom that would bring more people to the region.

A recent New York Times opinion piece puts the problem more directly:

Today, this locomotive of prosperity has broken down. Finance and high-tech companies in cities like New York, Boston, Seattle and San Francisco find it difficult to hire because of the high cost of housing. When an unemployed worker in Detroit today finds a well-paying job in San Francisco, she often cannot afford the cost of housing there.

New housing construction in America’s most dynamic cities faces growing regulatory costs, delays and enormous opposition from neighboring homeowners. Since the 1970s, a property-rights revolution — what critics call Nimbyism, from “not in my back yard” — has significantly reduced the development of new housing stock, especially in cities where the economy is strongest.

President Obama’s White House also directly addressed the housing problem in American cities:

Over the past three decades, local barriers to housing development have intensified, particularly in the high-growth metropolitan areas increasingly fueling the national economy. The accumulation of such barriers – including zoning, other land use regulations, and lengthy development approval processes – has reduced the ability of many housing markets to respond to growing demand. The growing severity of undersupplied housing markets is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions. By modernizing their approaches to housing development regulation, states and localities can restrain unchecked housing cost growth, protect homeowners, and strengthen their economies.

Locally-constructed barriers to new housing development include beneficial environmental protections, but also laws plainly designed to exclude multifamily or affordable housing. Local policies acting as barriers to housing supply include land use restrictions that make developable land much more costly than it is inherently, zoning restrictions, off-street parking requirements, arbitrary or antiquated preservation regulations, residential conversion restrictions, and unnecessarily slow permitting processes. The accumulation of these barriers has reduced the ability of many housing markets to respond to growing demand.

We know we need to address the barriers that are preventing more and cheaper housing from being built across the city. We know there are businesses struggling to expand due to a lack of housing for their employees. We know what the problem is; the question is whether we’re willing to do anything about it.

Planning for Long-Term Growth

There are plenty of reasons to not want Amazon downtown, and plenty of reasons to oppose large subsidies for private companies. But if there’s a more practical reason to oppose Amazon, it’s that we simply aren’t prepared for equitable economic growth.

Minneapolis, and the metro region, needs to increase the available housing options if we want to compete for high-paying jobs. We can’t continue to have one of the lowest rental vacancy rates in the country and expect to create a city that is both thriving and equitable. There are a number of ways to do this (many of which don’t involve giving subsidies to Amazon or developers).

We can end the exclusionary zoning practices which are rooted in racist lending practices of the 1930s. We can upzone desirable areas to allow for more density. We can re-legalize missing-middle housing, which has been prevented by ordinances such as high mandatory parking minimums and low Floor Area Ratio maximums. We can invest in building more affordable housing. We can fund better transit.

What we can’t do is expect an economic miracle (delivered in two days with Prime!) without laying the groundwork first. Housing is quite literally the foundation of any major city. Unless we take steps to build it for future generations, whether they’re tech workers or climate refugees, any increase in population for this region will be painful for our least powerful neighbors. Any local candidate jumping at the chance to capitalize on the economic opportunity of Amazon, should be making abundant housing a top priority in the Twin Cities’ long-term planning.

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9 Responses to Don’t Hold Your Breath on Amazon

  1. Eric Anondson
    Eric Anondson September 18, 2017 at 10:04 am #

    Exactly this has been on my mind since day 1 of Amazon’s announcement.

  2. Kris September 18, 2017 at 10:15 am #

    This does not directly address Amazon, so maybe too peripheral:
    I like the idea of accessory or additional dwelling units on existing properties. Of course we need rules, zoning, etc., but I think that people living alone, say in large homes, all over the cities could move to (basically) other people’s backyards. This is not a ‘solution’ to the housing problem, but it provides options. Could also build community. And chances for generations to mingle in neighborhoods.
    When we start (essentially) whistling for a car to come get us, I think a lot of garages could be converted. Maybe?

    • Adam Miller
      Adam Miller September 18, 2017 at 10:59 am #

      Minneapolis adopted new rules to allow more ADUs not too long ago.

  3. Dan September 18, 2017 at 12:39 pm #

    The solution to the zoning problem is to attack this problem politically in the legislature. Find a group of pro-housing senators and representatives from relatively urban areas. Then, go to the anti-transit Republicans from farmland and propose a bill that pre-empts local zoning ordinances within 1 mile (or some distance) of a light rail station and tags a flat rate per group area state property tax on all new development to fund the rail. New development will be discouraged by the flat rate unless your are building high, lots of commercial or residential units. Upstate Republicans can say they stuck it to those uppity city folk, fiscal responsibility Repubs can say they helped mitigate the state’s waste of money on the light rail, and YIMBY urbanists secretly get the only tool they need (i.e. no height or FAR or whatever restrictions on development) to increase density to the point that the rail is actually useful.

  4. Eric Anondson
    Eric Anondson September 18, 2017 at 12:59 pm #

    Having affordable housing in metro areas with great job opportunities not only is an issue preventing people from Detroit to move to the Bay Area. It affects people moving around in Minnesota. Housing in the Twin Cities is already past the point for people who live in rural Minnesota towns that are beyond the commute-shed of the Twin Cities.

    We can either try to get today’s housing costs in the Twin Cities balanced with housing costs in the rest of the state or we can build a higher-speed commuter rail network to a string of rural towns where housing is affordable today. I don’t see how upgrading the highway network could sustainably help because of the additional second and third order congestion effects that get inflicted upon the prohibitively expensive to maintain inner-ring metro highway network.

  5. Kasia McMahon
    Kasia September 18, 2017 at 6:35 pm #

    “Let’s discourage economic growth until we can solve the affordable housing crisis” ???? First of all, adding 50,000 high paying jobs to the metro does not mean we are adding 50,000 more residents to the area. Of course it may encourage people to relocate here, but more than likely, the majority of the employees of a new Amazon HQ would be locals. Adding 50k high quality, high paying jobs will only increase the competition among employers for the existing labor force. I live here—and as a web developer, would be interested in working for Amazon. It’s a simple supply and demand issue—if there are more jobs than people, the cost of labor goes up. If the cost of labor goes up, labor benefits.

    An opportunity like the one Amazon has the potential to bring could change the course of our city forever in a positive way. Opportunities could open up to people that may never have had them before and the benefits of those opportunities could last generations. To scoff at an opportunity of this magnitude does a disservice to the people that are trapped in a low wage/low opportunity cycle.

    • Anton Schieffer
      Anton Schieffer September 18, 2017 at 8:51 pm #

      I’m not saying that we should discourage economic growth. I’m saying that we have not laid the foundation for economic growth to be equitable. I’m less worried about the labor market and much more concerned about the housing market. Competition for homes will rise and those with high-paying jobs will continue to pay more for housing than those without them. With enough homes, we could take advantage of this opportunity.

      We should have been focused on building more housing for the last several decades (or at least the last 10 years) in order to prepare for growth. Building housing and getting the vacancy rate back up into a healthy range ensures fewer people get left behind when high-paying jobs come to town and rents inevitably rise.

  6. Monte Castleman
    Monte Castleman September 18, 2017 at 7:31 pm #

    Saying we need exactly 20,000 more high rise units seems extremely specific considering how many unanswered questions there are.

    How many of these new jobs are new people moving into the area from South Dakota and Detroit or wherever, and how many are people already living in the area that are unemployed, unemployed but not counted because they’ve given up hope of ever finding a job, or are underemployed flipping burgers?

    How many of these people are going to want to live in high rise units in Minneapolis compared to hobby farms in Hudson? Or somewhere in between? How many of these people are going to affect the rental market rather than buying a house or condo?

    How do we know Amazon wants downtown? They might want someplace that’s still by a light rail line but less expensive and gives them more distinctiveness rather than being a couple of high rises next to a bunch of other ones? St. Paul Sears Store? Kelley Farm? Some of the decaying industrial land in Midway?

  7. Renee Spillum September 21, 2017 at 10:08 pm #

    Alatus has been proposed to add 325 units, not 200. Nonetheless, my idea is to tell Amazon we’ll give them tons of great subsidy, millions of dollars in TIF, for example, or free land, or both. The condition is they have to guarantee that they will provide cash equity at 4% cash on cash return to build enough housing to get the Twin Cities vacancy rate of 5%, in perpetuity. Problem solved!! (Kidding, of course, but I like the idea of responding formally to a request for gov’t money by asking THEM for money instead!)

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