Nov 19, 2018

Housing Trends

Alexa: Help Me Find A Home

The creation of 50,000 jobs by Amazon in Long Island City, NY and Arlington County, VA (25,000 each) will undoubtedly impact the dynamics in both cities. Amazon will help fund some infrastructure projects, including investing in existing public transportation, but the concentration of individuals working at the new headquarters will need access to schools, restaurants, emergency services, and, of course, housing.  Our Ali Wolf, Director of Economic Research, explores possible impacts on Arlington County and the surrounding area.

Elevating An Already Prime Economy

Crystal City in Northern Virginia, now part of the rebranded National Landing, will give $550M as an incentive to Amazon over 12 years contingent on Amazon creating 25,000 jobs with an average wage of over $150,000. Hiring is expected to start in 2019. The new opportunities add to the 1,500 employees at the Amazon Web Services corporate office near Herndon announced last year.

  • The new jobs will strain an already tight labor market, particularly in Northern Virginia; of all the Fortune 500 companies located in the greater DC metro, 75% of them are in the area.
  • The sub-3.0% unemployment rate is met with three of the top five highest median household incomes in the country (Loudoun, Fairfax, and Arlington).
  • With the economy at full employment, managers of highly skilled workers will need to adjust compensation to retain the talent.

Of the new roles, Amazon will likely be targeting sales, solution architects, software developers, project managers, and operations*. Amazon’s commitment to 25,000 jobs doesn’t capture indirect employment, ranging from lobbyists to lawyers, teachers, and real estate specialists. A study looking at Seattle shows that for every one technology job hired, another seven jobs were created.

It should be mentioned that the jobs are not without a cost. Both Virginia and New York offered up an unprecedented amount of incentives ($550M for Virginia, mentioned above, and $1.5B in New York) to Amazon. The cost per job in Virginia paid by the tax-funded incentives is $22,000, far below the $48,000 in New York. The money is looked at as an investment in the economy and is predicted to largely pay for itself through new tax revenue, but only time will tell if the economics will play out as planned.

Alexa: Help Find Me A Home

Both Northern Virginia housing permits and contracts were down year-over-year ahead of Amazon’s announcement. That trend will reverse in the coming months given the anticipated growth in the labor pool and speculative buying of land and homes.

  • On the resale side, the increased demand will drive prices up in Arlington County considering the area is largely built out and supply for homes priced under $1.1M stands at two months (four to six is considered equilibrium).
  • The rental market will see a fairly substantial short-term boost. As the metro experiences an influx of relocating workers, their first move will likely be into rental accommodation. Expect to see a spike in occupancy and rental rates along transit lines connecting to Crystal City.
  • New for-sale developments are scarce around Crystal City creating an opportunity for growth in nearby counties. Of the closest actively selling projects, the average square footage is between 2,500 and 3,000 and 75% of them are attached. The Zonda map below shows Crystal City (green pin) and the aforementioned actively selling projects (hammers).

Amazon Map

Source: Zonda by Meyers Research

With the new opportunity, let’s consider those best positioned for the increase of demand in Fairfax, Loudoun, and Prince George’s counties, three relatively big production markets that are fairly accessible to the Metro from the Crystal City station. From the list below, 60% are publicly traded builders who will likely have a competitive advantage given their knowledge of the local market. These builders already comprise 50% of the best-selling communities across the three counties year-to-date. Note that we’ve excluded Arlington County due to very low single-family permit activity (270) over the last twelve months.

Active Builders

Lessons Learned From Seattle

Seattle is the perfect case study of Amazon’s ability to transform a city’s housing market. Here are some key learnings from what happened in Seattle:

  • Build for different lifestages. Amazon’s workforce in Seattle grew 800% from 2010 to 2018, which put pressure on local housing supply. The struggle in Seattle was that builders and developers catered their product to affluent, childless, and often single people. As that demographic aged, the existing housing stock was unable to match the current lifestage of these individuals. Builders and developers will be tempted to create solely luxury product as development picks up, but use Seattle as your cautionary tale. Product variety for different age groups, incomes, lifestages, and lifestyle is crucial.   
  • Allow space for roommates. Millennials are more likely than any other age group to live with roommates. In fact, Arlington, Alexandria, and Washington, DC all landed on the best cities for Millennials even before Amazon’s announcement. As with Seattle, some of the new jobs will attract more Millennials to the market. Consider dual masters, multiple bathrooms, and roommate-friendly marketing for new projects.
  • Trends in transportation. Transit-oriented development is an obvious strategy, but finding land will be the challenge. Smaller infill opportunities may allow builders to provide product close to transport hubs. These communities could be structured in a way that parking is rented on-demand instead of standard.
  • Don’t expect everything to be urban. While the preference is to be closer to work and downtown in Seattle, the reality for some Amazon workers (and the indirect employment) is a location further away despite high wages. Seattle is the nation’s third fastest growing mega-commuter city, meaning some workers are commuting 90+ minutes to work. The new home affordability across Fairfax, Loudoun, and Prince George’s counties is already relatively low (averaging 32% of households that can afford the median priced home) making it not far fetched to think a similar trend could occur in DC.

32%

New Home Affordability Ratio

*Based on the categories that have over 1,000 job openings across their footprint

Contact us to discuss how your business can capitalize on Amazon's shift east.

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We cover topics around housing, policy, markets, and technology.

Ali Wolf

Director, Economic Research

Ali Wolf

Director, Economic Research


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