The Amazon Effect on the U.S. Residential Market


By Adam Frisch, Managing Principal, Lee & Associates Residential NYC

Although it’s a great misfortune for the city of New York, the fact that Amazon pulled out of the HQ2 deal in Queens can teach us some valuable lessons. Although many argued that the tax breaks that the city was offering to Amazon were excessive, the deal still would have worked greatly in favor of New York City and its residents. It would have brought 25,000 jobs to the area which would have caused housing costs to drop. This may be a surprising suggestion, as some government officials who helped to block Amazon were arguing the opposite. Granted, they would be correct at least in the initial stages of jobs arriving in an area. When an announcement of the arrival of a large number of jobs is made, rents increase. However, over the long term, more jobs decrease the cost of housing. Once it’s clear than an area has potential, developers move in, which creates new units and subsequently causes prices to drop. 

Unfortunately, I believe that many of the younger generations don’t understand this as they haven’t lived through a time in which municipal politics went too far to the left. During the 1970s and 1980s, many major cities in the United States went into debt in order to satisfy the monetary requests from labor unions. I fear that we’re entering a time in which municipal politics is again experiencing a significant shift to the left. Many people don’t realize that gentrification is not to blame for housing staying as expensive as it does. Rather, it is the excessive rent control and rent stabilization that creates hyperinflation at the other end coupled with too few incentives for developers to build new units.

Even if the Amazon HQ2 project had received $3 million in tax breaks, the tax revenue from its presence in New York City would have encouraged residential, retail and office development that would have more than made up for the $3 million in breaks. In addition, the cost of housing would have decreased over the long term. My hope is that we can all learn from this failed experiment, allowing for residential housing costs to eventually decrease across the country. 



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