As everyone knows now, Amazon is pulling out of New York City after facing increasing backlash from local politicians, unions, and progressive activists. It had intended to build half of its second headquarters, HQ2, in Queens, adding 25,000 new jobs over the next 10 years. The news was certainly an disconcerting Valentine for the New Yorkers who lamented the loss of economic growth that Amazon could have brought.
The abrupt withdrawal, however, has emboldened opponents of the other half of HQ2 in Arlington County, Virginia. While not all are dead-set against HQ2 coming to Arlington, most opponents agree that the $1.1 billion in subsidies offered to Amazon make a bad deal worse.
First, Amazon has already pulled out of New York City. At this point, Virginia could renegotiate the deal it’s already made because of its stronger bargaining position as the last selected HQ2 candidate.That’s doubtful at the state level, since the legislature and Governor Northam have already approved the state’s $1.05 billion subsidy, but there’s no reason to throw good money after bad. It’s unlikely that Amazon will change its mind if Arlington refuses to hand over $51 million. After all, Amazon said its exit from New York was based on the increasingly hostile local reception, never mentioning the potential loss of subsidies.
Second, Virginia never needed to offer subsidies because Amazon, by its own admission, made its HQ2 selection based on the availability of local tech talent, not government handouts. In fact, if Amazon was chasing subsidies it should have located in Montgomery County, Maryland (barely 10 miles from Arlington) whose subsidies were over eight times larger than what Virginia offered. And if Amazon had instead chosen Raleigh, North Carolina, existing economic development programs made Amazon eligible for more than $12 billion in subsidies!
Our research illustrates that this is the rule rather than the exception for economic development subsidies—they only exist so that politicians can claim credit for the jobs that would have been created anyway.
Lastly, Arlington could put that $51 million in tax money to better use. For example, it could increase the Arlington police department’s budget by 4 percent—enough to add 15 new police officers—or fund the education of 140 public school students for the next 15 years.
Arlington County is a patchwork of wealthy neighborhoods interspersed with lower-income areas. Amazon CEO Jeff Bezos has said that Amazon’s urban offices cater to employees that want commuting options other than car, such as public transit or bicycle. The National Landing site of HQ2, a combination of the neighborhoods of Pentagon City, Crystal City, and Potomac Yard, already offer good access via bus and rail systems. The multiple nearby residential neighborhoods will offer Amazon employees the option to walk or bike to work.
The primary complaint against HQ2—other than the subsidies—focuses on the expected increase in housing prices caused by adding 25,000-plus high-paying jobs in a concentrated area. Housing costs are a perennial problem in the D.C. region, which is among the nation’s most expensive places to live (2.5 times the national average). Many advocates for the working poor are concerned that existing low-income neighborhoods near the HQ2 office parks will gentrify as rising rents push out the existing population.
They have a good point—real estate development happens unevenly and tends to occur in areas with lower real-estate values. Also, wealthier neighborhoods often are more successful in preserving their current character by limiting real estate development by influencing local planning policy. Lower income neighborhoods see more change, partially because the value of real estate is less of an obstacle to new investors, but also because local residents’ voices don’t have the same political influence as their more well-heeled neighbors.
This could become the case for Amazon HQ2. The nearby affluent communities of Arlington Ridge and Aurora Highlands are very close—less than a mile—from the planned HQ2 office parks. But these neighborhoods are mostly zoned for single-family homes. Local activists are particularly worried that the lower-income, immigrant community living in Arlandria, just beyond Arlington Ridge and Aurora Highlands will be displaced by redevelopment that takes advantage of Arlandria’s high-density residential zoning.
Arlington County (and the D.C. region in general) is notorious for its restrictive zoning policies aimed at preserving its residential character. Those policies are the reason why urban density abruptly changes from single-family residential homes to twenty-story apartment and office buildings across the street. These zoning policies, if continued, will ensure that low-income communities in neighborhoods like Arlandria bear the brunt of HQ2’s economic growing pains.
Luckily, there’s a recent example of better policy. Last December Minneapolis became one of the most liberally zoned cities in the country when the city council up-zoned most of the city’s single-family areas to allow duplexes and triplexes throughout the city. Doing so reversed previous generations’ policies that institutionalized segregation by making housing more expensive.
While the change is not the same as allowing real estate development full freedom to respond to localized needs—which limits the spillover of new development into other neighborhoods—it’s a major step in the right direction. Importantly, it strikes a balance between those who would want to preserve their neighborhood’s character and the need for housing growth.
Because Amazon will now shift its intended Queens HQ2 expansion elsewhere, many local policymakers will have to confront the same issues facing New York City and Arlington County. Their best way forward—to ensure that Amazon’s expansion is beneficial for everyone in their community—is to avoid playing favorites.
Amazon has already shown that its head won’t be turned by subsidies, which our research suggests should go instead to public services and reduced taxes for all businesses. And the way to ensure that the growing pains aren’t concentrated on those who are least able to bear them is to reform zoning policies to allow the greatest flexibility in real-estate development. Doing so will allow open, affordable, and innovative communities to emerge. The best way to encourage economic growth is to evolve into a place where people want to live.
Michael Farren is a research fellow and Anne Philpot is a research assistant with the Mercatus Center at George Mason University.