After a year of anticipation, Amazon decided to split its new headquarters between Arlington County, VA and Long Island City, NY. Since Amazon picked not one but two locations for its second home, these two areas are expected to equally share the anticipated 50,000 well-paid jobs Amazon expects to add in the next 10 years. Can these areas accommodate the newcomers?

In the last 20 years, the Washington, DC metro area and New York City have created about 50,000 new jobs on average every year. Amazon expects to add 2,500 new jobs in each of these two areas annually during the next 10 years. However, in regional economics, whenever a new job is created, additional jobs may also be created via increased demand for local goods and services. This increase in jobs, over and above the new hires by Amazon, is referred to as the multiplier effect. While the multiplier varies by industry and area of the country, a back-of-the-envelope estimate is that the multiplier impact is somewhere between 2 and 4[1]. In other words, each additional hire by Amazon can be expected to add 2 to 4 additional jobs to the local economy.

Assuming the size of the multiplier effect is between 2 and 4 additional jobs for each job that Amazon creates, then 7,500 to 12,500[2] new jobs are expected to be added in each of these two markets every year. Thus, for the next 10 years, Amazon will boost employment every year about 17 to 28 percent in the Washington, DC area and 15 to 25 percent in New York City.

But in recent years, housing production has not kept up with population and employment growth pushing up home prices. New York City’s population hit a record high of 8.6 million in 2017 due to growth of 5.2 percent since 2010. Population in the Washington, DC metro area grew about 11 percent between 2010 and 2017, compared to 8 percent on average for the 20 largest metro areas. Moreover, vacancy rates are low in both areas (6 percent in the Washington, DC metro area and 10 percent in the New York metro area) compared to the national level (13 percent) as a result of housing underproduction. Thus, an additional 25,000 jobs, plus additional jobs of 50,000 to 100,000 due to the multiplier impact, in each of these two areas will add new challenges in both places.

Housing production in Washington, DC metro area

Specifically, in the last three years, permits for 42,000 single-family and 33,500 multifamily units were issued in the Washington, DC metro area. Historically, about 56,000 single-family unit permits are issued on average in a three-year timeframe. Thus, in recent years, single-family construction has been 28 percent below the historical average.

Let’s now compare employment growth with housing production. Recently[3], about 55,300 jobs on average have been added in the metro area every year. However, permits for about 25,300 total units, 13,400 single-family and 11,900 multifamily units, were issued on average each year. If the size of the multiplier effect is between 2 and 4 additional jobs for every Amazon job, this means that 7,500 to 12,500 new jobs will be actually added each year. We estimate that permits for an additional 1,800 to 3,000 single-family and 1,600 to 2,700 multifamily units will be needed each year for the next 10 years in order to keep the same ratio of employment growth to housing production in the Washington, DC metro area.

Housing production in New York City

In New York City, since 98 percent of housing units are multifamily units, we see that permits for 1,520 single-family and 93,410 multifamily units were issued in the last three years[4]. Comparing recent[5] employment growth with housing production, about 100,000 jobs on average were created every year while permits for 31,600 total units (500 single-family and 31,100 multifamily units) were issued each year. If the size of the multiplier effect is between 2 and 4 additional jobs for every Amazon job, this means that these 7,500 to 12,500 new jobs will require an additional 40 to 60 single-family and 2,300 to 3,900 multifamily units every year for the next 10 years in order to keep the same ratio of employment growth to housing production in New York City.

If home production does not rise sufficiently then home prices will be pressured to increase at a stronger pace in both the Washington, DC metro area and New York City. Additionally an influx of high-earning employees is expected to increase home prices even more. As Amazon mentioned, these additional 25,000 employees will typically earn more than $150,000 per year. By comparison, the median household income was nearly $100,000 and $60,000 in 2017 in the Washington, DC metro area and New York City, respectively. The increase in high-income households will likely make it more difficult for both low- and middle-income households to find homes they can afford.

Taking a closer look at the housing market in Seattle, where the first Amazon headquarter is located, we see that home prices rose 27 percent in the last 10 years. While many factors affect home prices, no doubt the rapid growth of Amazon has been a significant influence. By comparison, home prices declined 2 percent in the Washington, DC metro area while prices dropped 10 percent in the New York metro area in the same period. Have you wondered what would be the median home price today if Seattle’s Amazon experience was replicated in these two areas 10 years ago? The value of a typical home in Washington, DC would today be $550,000 instead of $430,000 while in the New York metro area buyers would see a median price of $600,000 instead of $430,000.

How the impact of Amazon’s expansion into Washington, DC and New York City affects local housing markets will be worth watching in the years ahead.

View the highlights infographic on the potential affect on Washington, DC

View the highlights infographic on the potential affect on New York City

 

[1] According to Enrico Moretti, highly skilled sectors such as technology have the highest multiplier effect with five non-tradable jobs for each technology job.

Moretti, Enrico. The New Geography Of Jobs.

However, under low unemployment rate conditions, we believe that the multiplier effect will be smaller. Both the Washington, DC metro area and New York metro area have an unemployment rate below 4 percent. Areas with an unemployment rate below 4 percent are considered to be under full employment.

[2] 2,500 Amazon jobs are expected to be added every year in each marketfor the next 10 years. Due to the multiplier effect, 5,000 to 10,000 additional service jobs (skilled and unskilled) will be created in each area.

[3] In the last 3 years.

[4] Source: U.S. Bureau of the Census, Manufacturing and Construction Division, Building Permits Branch

[5] Average annual job creation in the last 3 years.

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