What Amazon’s HQ2 will mean for house prices

Having Amazon as a neighbor will result in very different consequences for homeowners and renters.

Amazon has held “advanced discussions” about opening its second headquarters in Arlington County, Va., the Washington Post reported, citing sources close to the discussions. Amazon has held detailed talks about the possibility of opening its HQ2 in Crystal City, south of Washington, D.C. “The discussions were more detailed than those the company has had regarding other locations in Northern Virginia and some other cities nationally,” the Post reported.

Earlier this year, Amazon released its short-list of 20 cities still in the running for HQ2, its second major headquarters in the U.S.: Atlanta; Austin; Boston; Chicago; Columbus; Dallas; Denver; Indianapolis; Los Angeles; Miami; Montgomery County, Md.; Nashville; Newark, N.J.; New York City; Northern Virginia; Philadelphia; Pittsburgh; Raleigh, NC; Toronto; and Washington, D.C.

Amazon said it would accept competing proposals from cities across the country as it decides the location of a second headquarters. The tech and retail giant set certain limitations for where it would consider: Only metro areas with at least 1 million people are eligible, and they must have an international airport with nonstop flights to Seattle.

Wherever Amazon

AMZN, -3.35%

 decides to put its second home, housing prices will likely skyrocket. Since Amazon solidified its presence in Seattle’s South Union neighborhood seven years ago, home prices in the city have jumped by 83% and rents by 47%, according to online real estate marketplace Zillow.

And because HQ2 is likely to lure other companies — from established competitors to burgeoning startups — Amazonians won’t be the only people in search of new housing. How the chosen city’s housing market reacts will depend on how flexible it is, said Danielle Hale, chief economist at Realtor.com.

Don’t miss: How winning the race to be Amazon’s second headquarters could turn out to be a curse

Arguably, cities like Indianapolis or Dallas could more easily absorb the added demand a company like Amazon would bring because they have room to expand their suburbs, as compared with somewhere like New York City. “Some of the housing markets that are already very well developed into their suburbs would have difficulty responding to a major employer coming in,” Hale said.

(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

How much Amazon’s choice will affect consumers’ housing-related expenses in the selected city will depend largely on whether they are renters or homeowners.

Here’s how it will affect people who live in the winning city:

Renters will face the most difficulty in keeping their housing affordable

Even model tenants who pay their rent on time and keep their unit in pristine condition are more exposed to rent hikes when a city suddenly becomes popular and landlords see a chance to make money. “There are few options for renters to maintain their housing costs if they live in a property where the owner has the legal right to increase rent,” said Douglas Robinson, a spokesman for NeighborWorks America, a nonprofit organization that supports community development.

For some renters, the best option they may have is to stay put and avoid broker fees (something the tenant or landlord would likely have to pay) and other costs associated with moving.

Beyond negotiating a lower price, renters can also explore a longer lease. Many renters won’t have much trouble in seeking an 18-month rental agreement. Asking for a lease that’s longer could still be feasible if the tenant and owner can agree on established annual rent increases, said Gary Malin, president of New York-based real estate agency Citi Habitats. But renters also run the risk of setting a rent hike that’s actually larger than what the landlord may have actually considered when it came time to renew.

Also see: Amazon spells out its ‘City Maker’ role in reshaping Seattle as it seeks a second headquarters site

When Amazon makes the announcement, it could be the time to buy

Amazon’s pending arrival should also make renters consider homeownership, Robinson suggested. “Prices are increasing in many markets, but mortgage rates remain low and lenders do offer a range of low down payment products,” Robinson said, adding that people who haven’t saved enough for a down payment “should look for down payment assistance grants or forgivable loans.”

Amazon has said it plans build its new headquarters in phases, with the $5 billion investment being spread out over a period of 15 to 17 years, The Wall Street Journal reported. By 2019, the company hopes to have between 500,000 square feet and 1 million square feet of office space ready.

Homeowners will be the biggest winners — for the most part

Homeowners will be able to tap into their growing home equity and could have attractive refinance options at their disposal. “It’s a pretty unambiguous win,” Hale said.

But that doesn’t mean their costs won’t go up, too. Property taxes are adjusted periodically based on the assessed value of a home.

While higher property taxes alone likely won’t force a homeowner out of their home, it can be difficult to grapple with if other costs of living such as food or gasoline also increase. Some have argued that rising property taxes in part are what have driven homeowners to move away from places like the San Francisco Bay Area or Nashville, though others have said property taxes likely don’t have such an outsized effect.

Either way, homeowners will need to account for these higher costs. But they aren’t without options. For instance, a homeowner could rent out their property through a site like Airbnb to cover these added expenses. “Older homeowners in particular may have an option in some markets to have their tax bills reduced upon request to the appropriate authority,” Robinson said.

Read more: Here are the cities that meet the criteria for Amazon’s second headquarters

Renters and homeowners should get political

One of the main driving forces for rising real estate costs across the country is the lack of new construction. In Seattle, the city’s government has been unable to keep up with developers’ demand for new housing permits. And zoning laws in cities like San Jose, Calif., have caused home prices to skyrocket — a situation that could be exacerbated if Amazon moved in, said Sydney Bennet, a research associate at real estate website Apartment List.

For renters, looser zoning laws could spur the development of additional rental properties — these newer properties would fetch a higher rent than existing units, which could keep costs lower for those in older rentals.

Meanwhile, those looking to buy a home in many of the country’s hottest housing markets (including Seattle) have come up against a low supply of properties, especially starter homes. Making permits more easily accessible could help the winning city’s housing market to meet the growing demand it would face when Amazon comes in. Plus, the influx of new people and businesses to whatever city Amazon selects would likely mitigate any losses in home values homeowners might face due to there being more new homes on the market.

Consequently, homeowners and renters alike may want to consider petitioning local government officials to examine real estate zoning laws so that they are flexible enough to handle the added demand Amazon could bring. “We’re seeing the yes-in-my-backyard movement emerge,” Bennet said. “Who you elect to city council in your city or even in the surrounding suburbs have a lot to say in permitting.”

(This story was updated on Nov. 5.)

Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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