By Brittany Mazzurco Muscato
Last month marked the one-year anniversary of Amazon’s highly-anticipated HQ2 announcement. Although Amazon has since abandoned its plans to build in Long Island City, the construction of HQ2 is making steady progress in Arlington County, Virginia — while simultaneously throwing its housing market into a frenzy. According to realtor.com, home prices in Arlington are on track to spike 17.2% by the end of the year, and Arlington now ranks as one of the top 10 cities with steepest annual rent increases. If this trend continues, some current residents may be priced out of their rental units or from purchasing a home. Many fear that homelessness rates will skyrocket, as they did in Seattle during Amazon’s rise. While this news is concerning in its own right, the fact that the State of Virginia pledged $750 million in subsidies to bring HQ2 to Arlington County prompts an important question: Did Arlington’s taxpayers just finance their own housing crisis?
With Amazon’s promise to create 25,000 high-paying jobs over the course of 10 years, Arlington County is bracing for a roughly 10% population increase. In anticipation, the county has begun implementing infrastructure improvements to accommodate these new workers, such as updating its public transit systems and roadways. Yet, one glaring omission from its “to do” list is to construct new housing. The county will need almost 10,000 new housing units to accommodate the Amazonians, but construction has stalled – largely because Arlington is subject to restrictive zoning laws that prohibit multi-family zoning throughout most of the county. As residents are now beginning to realize, without more homes on the market, apartment rents and property values will continue to rise, putting Arlington County’s low-income renters at an increased risk of displacement. If these vulnerable households are forced to relocate, their children will likely grow up in lower-resourced neighborhoods, potentially slow overall economic growth and reduce economic mobility. If local governments continue offering tax incentives to attract large corporations, they should consider lifting the ban on increased housing density that can accommodate a growing, economically-diverse population.
The HQ2 bidding process showed that municipalities looking to revitalize their communities and spur economic growth are eager to offer tax incentives in exchange for the promise of new jobs – a practice that has become increasingly popular. In 2018, U.S. businesses were awarded a total of $80 billion in tax incentives – about three times the amount granted in 1990. Under the belief that these companies will offer much-needed jobs to their constituents, government officials are quick to offer these deals under the assumption that they are self-financing. In fact, some economists, such as Enrico Moretti of the University of California, Berkeley say that these tax breaks create “spillover” effects – such as attracting other businesses to service the needs of the newly-affluent workforce. However, other economists, such as Timothy J. Bartik of the Upjohn Institute, reveal a “race to the bottom” effect, incentivizing cities to cut corporate tax revenue to stay competitive, ultimately leaving them with less to spend on the public services community members rely on. And, as mentioned, the influx of new workers puts a strain on public resources and drive up local costs – such as housing prices, rents, and overall cost of living.
In fact, many recipients of economic development incentives are starting to grapple with the disruptive effects they have on local housing markets. In Amazon’s original home of Seattle, about 75% of land available for housing is zoned to only allow single-family homes — around three times the amount available to multi-family and mixed-use buildings, combined. As a result, apartment rents are 63 percent higher than in 2010, and home costs have doubled, pushing lower-income residents to the surrounding, less-expensive towns. Furthermore, tech giants like Google (which received a 22-year tax break) and Apple (which received a $10 million tax break) are blamed for making San Francisco one of the most expensive housing markets in the country. However, in the past few weeks, both companies have made headlines for their respective pledges to finance housing initiatives in California, with the hope of mitigating the housing shortages they themselves contributed to creating. Even Amazon announced in June that it plans to donate $3 million to the Arlington Community Foundation, a nonprofit organization that addresses affordable housing, in anticipation of their arrival. Unfortunately, if the zoning regulations that dictate how many housing units can exist in a given area don’t change, these generous donations won’t adequately address the housing shortage.
To be clear, while changing zoning codes and allowing new construction is important, these policies alone won’t be enough to fully relieve any housing crisis. Many opponents to increasing housing density believe that the expanded housing supply will make their neighborhoods less attractive, invite even more residents to the city, and will lead to the development of more high-income housing units (as opposed to creating affordable housing solutions for low-income residents). Zoning changes are just one policy tool local governments must consider, but it is a vitally important one. To effectively expand the supply of affordable housing units, more effort must be made to create and preserve dedicated affordable housing units, too. This is where Apple and Google’s charitable donations will come to good use. However, only if cities are able to facilitate the creation of more housing can they begin to create more opportunities for affordable housing.
Given the political motivation for elected officials to create jobs for the cities and states they represent, it is safe to say that we can expect more of these incentives going forward, notwithstanding the high profile breakup between Amazon and New York City. However, if politicians offer tax breaks to large corporations in hopes of spurring economic growth, they would do well to consider their current residents and their housing needs. As we have seen in Seattle, San Francisco, and now Arlington County, economic development incentives must be paired with more affordable housing solutions to prevent displacement and maintain a community’s economic diversity.
Brittany Mazzurco Muscato is in her 2nd year at NYU Wagner, specializing in Public Policy Analysis. In addition to working on the Furman Center’s Policy & Communications team, Brittany serves as a Teaching Assistant for two Wagner classes and as Co-Chair for the Wagner Policy Alliance. She is interested in using research to better inform public policies aimed at solving economic inequality and increasing access to opportunity.