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AS THE NORTHERN VIRGINIA COMMUNITY begins to dissect the impact of Amazon in the region, the reality of the “Amazon Effect” is still unfolding.
On Dec. 12, one month after Amazon announced its decision to locate half of its second headquarters in Arlington, Va., presenters at a seminar titled “Amazon HQ2: Impact on Local Housing Markets” began to unpack the significance of Amazon’s arrival to the region. The live-streamed event was co-hosted by NVAR, the George Mason Center for Real Estate Entrepreneurship and the Northern Virginia Apartment Association.
HOUSING DEMAND FORECAST
Many have looked to Seattle for clues about how HQ2 will transform the region, but Seattle and D.C. are two different cities, explained Jeannette Chapman, deputy director of the Stephen S. Fuller Institute.
According to Chapman, D.C. is much larger than Seattle, with 50 to 70 percent higher job market activity, more residents and almost twice the concentration of private commercial office space. Therefore, the position of the D.C. region to absorb the incoming workforce differs significantly from Seattle.
Phase I of Amazon’s Northern Virginia presence will bring in 25,000 workers. However, according to a Memorandum of Understanding between the Commonwealth and Amazon, Phase II of Amazon’s employment schedule will bring the number of jobs up to 38,000, Chapman said.
The influx of these new workers will not change our region’s current affordable housing challenges, Chapman said.
While the addition of 2,400 jobs annually over 16 years will be an increase from current job growth in the region, the difference will be in “the realm of historic norms,” Chapman said.
At full build-out, there will be an addition of 69,604 households in the region. Most of Amazon’s workers will live and work in Arlington with commuting patterns inside the beltway, but they will also be dispersed throughout the region to accommodate their different needs and preferences.
Most of these households are likely to be homeowners because of their high incomes, Chapman said. They will be more likely to afford new construction and will generate more tax revenue compared to existing residents. However, with the impact being spread out over 16 years, demand will only increase 1 to 5 percent.
“There’s already a lot of demand here, and the incremental increase that will result from Amazon will be relatively small,” Chapman said.
Renters will have incomes that are roughly 70 percent higher than current rental households and owners will have incomes that are 50 percent higher. This indicates that the average HQ2 renter will have different preferences than the current rental market, Chapman said.
Although Chapman said she hears concerns of Amazon importing their workers from outside the region, she pointed out that the D.C. region already imports 65 percent of its workforce.
BREAKING IT DOWN: FOR-SALE, NEW-HOME, APARTMENT AND MULTIFAMILY MARKETS
Danielle Hale, chief economist at Realtor.com
, provided a backdrop of for- sale market conditions before diving into Amazon’s impact. Listing and sales prices are trending higher; inventory is low; and days on market are declining as buyers pounce on scarce inventory, she said.
Because the average Amazon workers will be making above median income, they will likely buy houses in the higher end of the market. This is good news, Hale said, because inventory is tightest and fastest moving at the entry level.
Hale said Realtor.com
has seen an increase in Amazon-related keywords in listings, such as “National Landing,” as people leverage Amazon in their marketing. Buyer interest spiked after Amazon’s announcement but has since declined and stabilized.
“I think that goes to show that the impact of Amazon creates a lot of buzz, but it will eventually normalize, and it will be spread over a very long period of time,” Hale said.
Setting the stage for the new- home market, Ben Sage, director of Metrostudy’s Mid-Atlantic region, said new-home construction is historically low due to the rising cost of land and limited labor, and the price gap between resale and new homes continues to widen.
Although Sage said he believes there will not be enough supply in the region to accommodate single-family detached demand, he said there will be enough to support single-family attached and multifamily demand.
The locations that will see the highest percent increase in new home closings are Alexandria, Arlington, Fairfax County and Prince William County. Sage noted that although there will be a bigger impact in Arlington as far as added households, the supply is more limited than in Alexandria, which is why he forecasted more new-home closings in Alexandria.
According to Randy Paul, senior managing director of national research for Newmark Knight Frank, the current population of National Landing is 14,672 with renters making up 72.8 percent of the population. Paul said Amazon’s new hires will “accelerate this already sturdy rental market that has largely recovered from sequestration.”
“We know from history . . . that Amazon does typically expect millennials to take the available positions that they’ll be bringing to National Landing, so I do think we will be seeing a robust multi-housing demand,” Paul said.
However, immediate job growth and multifamily housing demand aren’t the most important take-aways from HQ2, according to Paul. The long-term implications for the region’s workforce is what will truly transform the region, he said.
After the Amazon announcement, GMU pledged to invest $250 million in growing its programs, and Virginia Tech announced a $1 billion graduate school campus in Alexandria. As the area improves its tech talent pipeline, more graduates will come to the region and attract other economic development, Paul said.
“When you think about the long-term prospects of generating multi-housing demand in the region, a lot of that is going to come from the graduates of these programs,” Paul said. “They will not just be taking jobs at Amazon but will be taking jobs at the government contractors that are losing employees to Amazon and need to fill those jobs. They will be creating start- ups of their own over the next 5, 10, 15 years – and beyond.”
Christian Barreiro, associate partner of the Zupancic Group of Marcus & Millichap, discussed the likely impact on multifamily investment properties. According to Barreiro, there will be gradual rent increases; growth in “other income,” such as parking; a slight drop in vacancy rates; and an increase in property taxes – with the greatest effect seen in National Landing.
Sellers are riding the “hype wave” and are eager to sell, but Barreiro said it is important to examine each situation case-by-case.
“Hype can be very good for sellers,” he said. “Buyers want to get in the market and think nobody else has heard about Amazon coming. The reality is that everyone has.”
The D.C. region has an affordability problem regardless of Amazon, Michelle Winters, executive director of the Alliance for Housing Solutions, said.
In 2000, there were 19,740 affordable units in Arlington. In 2018, there were just 3,152.
Housing is considered affordable if 30 percent or less of gross income is spent on housing costs for those earning 60 percent or less of the median income.
Winters said three things are needed to increase affordable housing supply:
- Density in transit and activity centers, such as what exists in the Rosslyn-Ballston corridor;
- Zoning reforms for “missing middle” housing, which would create more village centers, duplexes and other mid-scale housing; and
- The evolution of single-family units for accessory dwelling and home-sharing.
In addition to supply, more funds are needed to accomplish affordable housing. An affordable housing project is 80 percent funded by standard sources, such as private loans and Low-Income Housing Tax Credit, but there is still a funding gap. These funding “gap fillers” include state, local and private sources, as well as occasional funds from the federal government, Winters said.
Amazon will contribute to Arlington’s Affordable Housing Investment Fund when it builds new office space, and the tax revenue created from Amazon could also be allocated for affordable housing. However, these benefits will take time to build, Winters said.
“Given that we have all of these challenges now, but we have a potential revenue source in the future, it would be great if we could figure out how to pull some of that investment,” she said.
Amazon’s workforce will add to an already constrained and unaffordable housing market, but Amazon has the potential to inspire the business community and trigger policy change to achieve housing affordability, Winters said.
Although existing challenges may persist, presenters agreed that Amazon could be the spark that ignites change and ultimately strengthens and improves the D.C. region.