Prosperity Bomb

What if Amazon dropped, to borrow a phrase gaining currency these days, a “prosperity bomb” on Washington, D.C., by selecting the District as the location of its HQ2 project?

Martha Ross with the Brookings Institution worries about the implications of creating 50,000 jobs and pumping $5 billion in investment into a city already marked by huge racial disparities in wealth and income. (D.C. has greater wealth inequality than any of the 50 states.) Amazon, she argues, would create few jobs for lower-income Washingtonians. It would push already-pricey housing costs even higher, displacing lower-income households. And it would strain the fiscal resources of the district government to the tune of $60 million to $80 million a year in direct incentives and pot sweeteners.

A project as big as HQ2 would create enormous growth-related stresses on any local government. Under ideal circumstances, growth would pay for itself through higher tax revenues. But giving tax breaks and subsidies to Amazon would shift the burden of paying for expanded infrastructure and government services to others. Even subsidizing workforce training and higher education poses moral issues for progressives. As Ross points out, such spending benefits the college educated, not the poor.

I have sympathy for some anti-Amazon arguments, little patience with others — such as the specter of thousands of Amazon-employed Yuppies buying and fixing up cheap inner-city properties, pushing up real estate prices, and displacing the poor. Ignored is the fact that 50,000 Amazon workers also would support a whole lot of tradesmen, retail clerks, landscapers, house cleaners, restaurant workers, and other service-sector occupations. By creating job opportunities for unskilled and semiskilled workers, Amazon employees would support higher wages for Washington’s urban poor.

The problem with prosperity in tech hubs like San Francisco, San Jose, and Amazon’s home town of Seattle isn’t the influx of jobs and investment, it’s the inability or unwillingness of local governments to increase the supply of housing. Homeowners fight any development project that they think, rightly or wrongly, might negatively impact their property values, and it’s oh, so easy, especially in cities dominated by progressives, to demonize and defeat the developers who want to add to the housing stock. The reason the working class can’t find housing in these cities is that no one is building enough.

It would be naive to argue that growth is always good — if a mega-project doesn’t pay its own way, it can unfairly shift costs to others. But the growth-is-bad argument is folly. If you want to see what a no-growth economy looks like, go visit Southside or Southwest Virginia. A prosperity bomb is a problem they would love to have.

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28 responses to “Prosperity Bomb

  1. Good points. I gather there are maybe a dozen possible DC area sites but there is one that I know well — Wisconsin Avenue crossing 495. I have been there off and on — first in the late 1950s when there was no beltway and then it was built in our backyard. Next came high school in the mid to late 1960s. More growth. Small town Bethesda with the cute farmer’s market was becoming a sophisticate. At the time the only fancy eateries were O’Donnell’s and Bish Thompson’s. By the 80s it was the extravaganza of White Flint and a Metro stop– lots of condos. Then White Flint went bust and traffic was impossible.
    This is going to be areal mess if they locate HQ2 there. There’s already too much traffic because of the naval hospital. What’s Hogan willing to shell out — $8 billion? Madness.

  2. Some people oppose new development because they want nothing to change or to protect open space owned by someone else. But an enormous number of people oppose development because it causes increases in traffic congestion, school overcrowding, overuse of parks and recreation facilities and, too often, tax increases.

    Despite the promises of transit-oriented development and people biking and walking, Tysons’ growth has overwhelmed major roads like the Beltway, the DTR, Routes 7 and 123 such that communities’ local streets are jammed with cut-through traffic. Many people in McLean, who are generally paying 5-figure real estate taxes annually, cannot get out of their neighborhoods and some cannot get out of their driveways because of cut-through traffic.

    • The school funding question is very legitimate. Even with Fairfax County’s sky high 1.15% tax on the assessed value of residential real estate that’s just $5,750 per year on a $500,000 residence. One school aged kid in that residence and it’s a money losing proposition. Add the torrent of money sent downstate to fiercely self-reliant neighbors in rural Virginia and it just gets worse.

      If you want urban living you have to set up urban structures. The income tax rate for people living in Tysons should be more like 8.5% (like DC). 3% should go to Tysons to set up better transportation systems (bus rapid transit around Tysons, park at the edge and don’t drive during the day, more walkable, etc). At some time they should set up a cordon toll tax scheme like London.

      As for the surrounding communities – life is tough. I am sure people living around Austin, TX in 1980 when its population was 1/3 of what it is today are disappointed at the inconvenience. However, I am also sure they are very happy with the appreciation in value of their homes.

      • The problem stems from the Fairfax County supervisors. For example, a fully built-out Tysons (100,000 residents and 200,000 workers) requires 100 fields in Tysons according to a study done before the Comp Plan was revised. The landowners wanted zero. The County adopted a 20-field requirement and has been weak-kneed in enforcing that. Instead of requiring landowners to work together to provide full fields, the County looks at proposals for U-9 and U-7 fields.

        Another major problem is the failure of Fairfax County to monitor and enforce TDM requirements. It’s self-reporting yearly and in some cases every other year. This requirement is substantially less than a local church agreed to as a part of being permitted to rent an empty building to a private grade school. The church and the school agreed to car pool obligations and to monitor and report compliance on a monthly school-year basis.

        Little by little, year by year, the quality of life in Fairfax County continues to diminish especially for communities near Tysons.

        • Tysons needs to be a city. With its own charter. A supervisor from Mt Vernon or Chantilly doesn’t give a rat’s ass about Tysons and the surrounding areas. This is one of those concepts the political elite just can’t fathom – the closer government is to the people the better the government works for the people. Of course, it’s harder to steal when your neighbors are watching you so maybe Virginia’s political elite understand this just fine.

          • TooManyTaxes

            Tysons would not make it as a city. It’s dependent on other local sources of tax revenue. For example, the County is devoting all of the revenue generated from the C&I transportation real estate tax countywide for a significant number of years to help build roads needed by Tysons. The rest of the County — nada. Also, all county taxpayers are funding all of the non-rail transit for Tysons.

            Tysons does not have a police station, library or public school. It lacks adequate parks, recreation areas and open space to serve its residents. There are no places of worship in Tysons and no sites for the same are in the Comp Plan.

            Tysons was always about enriching well-placed landowners and developers (and Bechtel too) on the backs of everyone else.

            And one of the most telling things of all is Tysons was never on Amazon’s radar for its 2nd HQ location. It should have been. It would have been if the goal had not been about just enriching a few people and companies that make big campaign contributions.

          • Not another independent city, please! Yes, Tysons should take on more responsibility for the burdens it imposes, but not as another little fiefdom carved out of Fairfax County.

        • The dye had been cast in Tysons by 1980. The Tyson’s road net was in. All the open air ground level parking possible had been built around a massive regional auto commuter suburban style office park of gargantuan proportions. All that was left to build upon was the ground under those open air parking lots. The age of infill built atop structured parking had arrived. At this critically juncture Tyson’s could have saved itself. Instead, it made all the wrong decisions driven by crony capitalism of the worst sort. The place that was all sail with no anchor, hoisted skyward ever more sail. The result was akin to public theft. A few made out like bandits. The public is still holding the bag of problems.

          • Reed Fawell 3rd

            We discussed these above matters in great depth in a August, 19, 2013 article here titled Land Use and Tax Revenue in Fairfax County. This article helps one to understand what benefits Tyson’s Corner and Fairfax County forfeited by their failure to infill Tyson’s with the proper infill uses beginning in 1980 when the need became obvious, and the proper solutions were well known.

            See below article and all commentary (80 comments):

            https://www.baconsrebellion.com/land-use-and-tax-revenue-in-fairfax-county/

  3. Dear Jim,

    “Prosperity bomb.” Good term. Peter & TMT, you are right, too.

    Sincerely,

    Andrew

  4. Jim – gotta disagree with you here: local govts like Chesapeake are letting builders build like there is land stretched across the Atlantic Ocean to England. NONE of it is affordable for the people you mentioned. Its all middle to upper $300’s and at least $400’s. People want something besides wall to wall traffic congestion, kids in portables because the schools are far behind in upkeep, smog, etc. Let me explain something, all that smaller housing? People that are in houses, especially seniors, that is more affordable aren’t leaving because they can’t afford to downsize. I have a small home and I can’t afford the townhomes that are more expensive than my new home.

    That’s BS.

    So in other words, expect more problems like all that homelessness and people living miles away (like the gardeners) who you will have to pay MORE for because of the gas driving 45 min in from cheaper housing, vs. 15 right now.

    The problem with prosperity in tech hubs like San Francisco, San Jose, and Amazon’s home town of Seattle isn’t the influx of jobs and investment, it’s the inability or unwillingness of local governments to increase the supply of housing. Homeowners fight any development project that they think, rightly or wrongly, might negatively impact their property values, and it’s oh, so easy, especially in cities dominated by progressives, to demonize and defeat the developers who want to add to the housing stock. The reason the working class can’t find housing in these cities is that no one is building enough.

  5. First, I think 50,000 jobs in the secondary headquarters is just Bezos being Bezos. I’ll be amazed if there are 15,000 jobs after 5 years.

    Second, even if there were 50,000 jobs on day one, at $100,000 per job on average … that adds $5b in salaries. That’s $425m in additional income taxes in DC, $212m in additional real estate taxes (making a lot of high level assumptions like all the employees own homes in DC), $94.875m in additional sales taxes. Even allowing for the velocity of money it’s hard to see the AHQ2 deal generating more than a 10% addition to the DC budget intake.

    Good news for DC – the schools are so bad you can expect most of the kids to go to private schools. I’m guess that the additional employees will add very little to the level of violent crime. Etc.

    The real benefit comes if the 50,000 people start leaving Amazon to form their own start-ups in the area. Think Silicon Valley, Austin, Cambridge, Ma – etc.

    My guess is still Atlanta.

  6. Everybody keeps ignoring the political impact of adding a new 5,000 pound gorilla with a strong Left Coast POV to a state political and legislative process already dominated by a few 500 and 1,000 pound gorillas. Trust me, it would be a major change. You ain’t seen nuttin’ yet.

    • Roger that!

      That 5,ooo pound gorilla will be running for President. That’s why that gorilla wants so bad to bring his 2nd HQ to DC, to position himself for a last step to a massive run for President.

      Trump’s already got his evil eye fixed on that interloper. Watch out, big time! The wars are a coming across many many fronts.

      • I should add that this so called “2nd HQ site search” has long since assumed grotesque proportions. Why? Because in the main it has now obviously become a publicity stunt and political gambit. And crass display of obscene narcissism.

  7. I’m always intrigued with the argument that cities are “blue” and run mostly by progressives who restrict developers from meeting the market demand for affordable housing or some variant.

    Since most cities are “blue” and “affordability” is a widespread problem – it just proves that “leftist” are no good at governance… or allowing the market to work or … heck… bad breath and herpes!

    I guess when I see a rank list of cities outlining their “restrictive” policies – compared to the price of housing… a correlation… I’m a skeptic.

    The other thing is that “affordable” housing has two very different meanings. One means the cost of a place to live – in the city in an apartment or similar and the other is the cost of a single family detached with a yard. The latter, combined with beltways and connecting hub/spoke interstates is what has supercharged “congestion”. It’s not the schmuck living in a studio apt in the core city – it’s the guy who works in the city and commutes 50 miles to the exurbs that is causing a LOT of the congestion.

    It’s the same issue whether it’s NoVa or Charlotte or Atlanta, or Houston, or Austin or San Francisco , Seattle, etc…etc.. nationwide – it’s the same issue – peak hour commuter congestion.

    So what is Amazon looking for – in that regard? Do they want to be just like the other companies that locate in or around a beltway that provides parking for commuters who live 50 miles away in exurbia ?

    serious question.

    “restrictive” policies don’t reduce the availability of single family detached homes in the city – land availability does. What’s a city supposed to do to increase the supply of single family detached homes – create land?

  8. ” SB 827 sparked a spirited debate about how the state should address its housing crisis. Its lead sponsor, State Senator Scott Wiener, argued that wresting zoning decisions away from local municipalities and forcing communities to build more densely near transit was the best way to both ease housing affordability in cities like San Francisco and help the state hit its ambitious environmental goals. Supporters of the bill—dubbed YIMBYs, for “Yes In My Backyard”—took on residents from wealthier, single-family home neighborhoods, who deployed the traditional NIMBY argument that the bill imperiled neighborhood character and would lead to traffic and parking woes.”

    so this sounds like the DJR-hated top-down State-imposed idea (Dillon) – right?

    also: ” … elected officials and members of the public on both sides of the issue frequently referenced the state’s severe housing crisis. ”

    so… is it true – that across the state in all localities – there is a “severe housing crisis”? So all across the state – all of the places have a “severe” housing crisis and not a single place has come up with a better approach?

    That’s my basic question. It appears that this problem is almost universal no matter the urban area named and out of dozens/hundreds of such areas – apparently not a single one has figured out a solution to the problem….???

    and yet it’s a CAUSED problem as a result of bad policies? universally so?

    No place in the US has succeeded – policy-wise to incentivize enough development to provide “affordable” housing for most or at least at a higher percentage than other places?

    Let’s see some real data – not generic broad-brush… surely a rank list of urban areas in terms of “affordability” is available and it can be attributed to less restrictive rules for development?

    Otherwise – all we seem to have is a generalized subjective argument without real evidence.

    • Land near rail stations is incredibly expensive. It’s too expensive to sustain 5 story buildings. And once a builder constructs true high-rise buildings, construction costs skyrocket. Ergo, housing near rail stations is very expensive. It’s my understanding that TOD-area studio apartments in Tysons rent for more than $2000 per month. And when you charge that much your buildings and grounds need to be high-class and with lots of amenities, which, in turn, pushes costs and prices higher.

      And as one moves further away from rail stations to find land that is less-expensive people don’t live within easy walking distance of transit so they drive more. Buildings need to be smaller and less density can be achieved. But still more people drive already contested roads.

      Adding density at rail stations makes sense as it gives people more choices for housing. But it’s expensive housing. I don’t think urbanizing suburban areas will produce more less expensive housing. Less expensive housing, absent major subsidies, will always be in less desirable locations.

      • To the extent that you are right, and this is often the case, salable expensive mid and high-rise housing is a very good thing. It attracts wealth the spins off wealth, and it creates new wealth that makes more wealth, often incredible amounts of wealth that otherwise would not occur locally. And typically it does so at a cost that is substantially less than the benefits and profits earned. Another words, done right, these are very good places for most everyone.

        In addition, good zoning laws and land use planning and their execution, can not only transfer great additional value to land, they can also limit the value of land so as to make it salable within a market most advantageous to an entire community. Market realities also regulate and control value.

        The problem often is that zoning and land uses laws in Fairfax have been very poor or too often abused as as to twist and distort markets, and urban places, creating monster type communities that breed dysfunction within themselves that spin out across adjoining communities near and far, so they do not work for all but for only a few. The problem that created this mess was never a lack for talented land use lawyers, the place was full of them. The problem was a system of governance that gave dominance of a few special interests over everyone else in community. Now the results that did not have to happen happened and are plain to see. And do great harm far and wide every day.

        • In addition in Fairfax, the difficulties in fixing these as built problems are greatly compounded by the natural constrictions imposed immovable geography, and by the equally nearly immovable major thoroughfares (I -66, I-495, I-95, Dulles access and toll Roads, particularly), and by hostile politics, both local and regional.

          And if I am reading you correctly, these first two complications are compounded further by local special interests and politics (local and regional) that are equally hostile to solutions. These last two problems are particularly unfortunate. Fairfax and all northern Virginia can surely, as a real estate play, work its way out of this mess if those latter two problems are solved.

        • Another problem with post 1960’s Fairfax’s development was a myopic focus on each individual project (how to maximize its value to the owner) without regard to how its use worked for the good or for ill of its immediate neighbors, its community generally, and also for the “folks down the road,” here all the people who had paid for and had a right to be served by the Interstates and state highways running through Fairfax.

          This myopic approach to land development, often driven by overly powerful special interests, will fail the community and region every time. All real estate is at the end of the day holistic. All real estate is inter-related, a living organism serving and/abusing all those living in it or near it, or who pass through it. In America we long ago lost sight of this simple and obvious fact. We had too much open land, too much money, too much freedom, too many cars, and too much of much else new, and we got it all far too quick. And the list goes on. But our wastage of land, and our building of no where places that feed upon themselves, ruining themselves, while they also infect whole neighborhoods and regions, ruining them too, are now all around us, jamming us up daily.

          One key threat of this today is the explosion to bike lanes without due consideration of their cost benefit ratios, their impact on their surroundings, and up and down nearby roads, and on other neighborhoods, how such bike lanes, and their bad sequencing, can easily shut down whole neighborhoods and cities over time. This is a major threat disguised as a wonderful idea that needs to be everywhere in our cities, urban place and suburbs, Right NOW, and you are horrible if you disagree.

          How easily this can happen even though (indeed because) these projects are typically done one by one as a fad or as a special favor or at the wish or ideology of a few locals, whether home owners or local bureaucrats. Watch out? These lanes can quickly take over city like alien fish can take over a pond, shutting out everything else that use to thrive there. What often make these bike lanes so insidious is that the overall sponsors now are national groups whose agenda and plan is to shut down car transit in a city. This is their strategy, building bike lanes while outlawing or making impossible parking in fact or in practice, these are two of their joint tactics. It akin to shutting down a community’s nerves one at a time, until the patient finally can’t move at all, and slowly dies.

          A word to the wise: Never Believe in DATA POINTS.

          The entire Northern Virginia Traffic Gridlock Mess was build on somebody’s “traffic experts” DATA POINTS. Those experts serve only the interests of those who pay them. Otherwise they go out of business very very fast. It’s the biggest most unreliable racket in town.

        • Here’s a way to consider how zoning laws “contend” with the natural tendencies of human behaviors including primal and tribal instincts.

          1. I will never forget the goings on at the half-times of the annual UVA / Virginia Tech football games at Scott Stadium in the early and mid 1960s. It was the most popular half time event of entire football season. Here is how it went.

          First, there appeared a farmer on a small tractor driving erratically around the football field, an obviously tall gangling figure in floppy straw hat and dungarees, his knees hiked high, exposing his sockless skinny white shins above his heavy black work boots. On his inevitable appearance, the home crowd when wild, hooting and laughing.

          Next, out galloped a white dappled gray high stepping stallion, whose gay Cavalier rider and master rode complete with jodhpurs clad in high riding boots, scarlet cape and grey white plumed hat. Now the crowd roared. And then they clapped, hooted, hollered, and laughed as our Gay Cavalier chased the now highly erratic dungareed hick who, increasingly desperate to escape, finally got herded off the field by the Gay Cavalier atop in his noble high stepping white gray dappled stead.

          Next, as too happenings at UVA some 45 years later:

          2/ Also I will never forget Uva’s communications department under the Imperial Reign of Teresa Sullivan.

          For example, now google “Virginia Sports,” and then, after that, and better yet, google this: “Video: Graduation Memories Aplenty for UVA’s Class of 2018” or go directly to the video found at:

          https://news.virginia.edu/content/video-graduation-memories-aplenty-uvas-class-2018

          Do you see any differences between what was happening at UVA in the early and middle 1960s and what is happening at UVA in 2018?

          If you do see differences, what are the differences?

          For example, who, according to this 2018 video would you expect to have “Graduation Memories Aplenty from the Class of 2018”, and who, what group of people appear to have none at all? How about with Sports at UVA too?

          Pondering all this, not avoiding it, but looking at the images and communications, have things at UVa. really not changed at all?

          What does this have to do with zoning?

          I suggest a lot. Zoning, like all regulations or systems of control by those in power with biases, can be used offensively, or defensively, and/or for good purposes and/or for bad purposes. In the end, how this power is wielded, who is benefited and who is hurt and abused, all depends on who wields the power, and the culture, and who has the ethics, morals, character, and courage to stand up to that power, or who lacks those qualities that as allow a out of control culture or group to run amuck over every one else.

      • Agree with you, RF; isn’t that exactly what makes Manhatten work? On the other hand, Brooklyn (and moreso the Bronx) illustrate what can happen when the mass transit web gets out beyond the wealth and induces gentrification rather than responds to it.

  9. As an addendum to the above – there are hundreds, thousands of small towns and cities in the US where housing is dirt cheap. Of course there are no jobs and those places provide wonderful “affordable” housing for those who do live there!!!

    In our trip west – we have basically avoided the larger urban areas when we can – because the congestion on their beltways is terrible… but we have been to dozens of smaller towns where the housing stock is varied and looks to be more than sufficient for demand.

    Prescott is a place that comes to mind….. Flagstaff…. not so much..

  10. Amazon is going to build its HQ2 somewhere. The old model was to plop a corporate headquarters out in a field somewhere and let the urban services come to surround it. Kudos to Amazon for going to where the services already are (even if they will have to be expanded substantially). But there are few past examples to judge by for such a massive, sudden influx to any single location (other than, perhaps, driven by the military in wartime).

    So why not scatter these 50,000 relatively-wealthy newcomers among dozens of smaller communities, like Larry implies? Well, Amazon for its own reasons doesn’t want to do that. That does beg the question whether everyone else should play the relocation game on Amazon’s terms. Clearly the current judgment of our politicians is, we should.

  11. I’d like to see a list of things that are considered “good” zoning in terms of making housing affordable – AND a list of places that PRACTICE that “good” zoning AND the price of housing in those places – compared to other places with “bad” zoning and unaffordable housing.

    Such a list might convince me that this is not a universal problem with most all urban areas… no matter the zoning ….

    The other thing… need a good metric for “affordable”. What is “affordable” to an office worker who commutes to the exurbs may not be the same thing as what is affordable to an Amazon techie… and certainly different form your average service worker.

    Finally – is it up to the “market” to provide what is demanded or is it the responsibility to do it?

    Triple Bonus question – Would Libertarians support the concept of “zoning” or would they just want every urban area to be Cairo or Mogadishu or some such?

    Seems like “zoning” is the perceived evil, but is it?

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