The impact of Amazon and the Housing Market in Northern Virginia
According to the Washington Post, on November 13, 2018, Amazon announced a massive plan to establish a second headquarters in Virginia. This announcement suddenly caused people’s eyes to turn green with envy as they began looking at the parts of the state of Virginia that will be directly impacted by this plan. The headquarters will be located in “National Landing,” which is the name given to the group of cities in northern Virginia where the headquarters will be located. For this easy, Amazon’s second headquarters will be referred to as national landing. This paper will explore the impact, if any, that the location of this second headquarters will have on real estate or the housing market in northern Virginia. The paper will also look at how national landing may affect residents.
Problem Statement/Research Question
After announcing the establishment of the second headquarters at ‘National Landing,’ Amazon has raised questions on whether the action will have any impact on housing. The question that lingers is, “Will Amazon’s second headquarters in northern Virginia impact the housing market in that northern Virginia?”
According to a report by Shelly Hagan in Bloomberg, the impact of Amazon locating its headquarters in Northern Virginia is imminent. The prices of homes were expected to peak by July, with most of the sales ranging at the median of $645,640. Up to date, the approximate cost of housing in the region continues to soar, with the median prices rising to 17% before the end of the year 2019. Similarly, the ‘Amazon Effect’ is expected to cause a sudden drop in housing inventory in areas surrounding the place. This drop explains a sudden surge in demand for housing in the domain, as well as increased prices of housing. The demand will lead to a sudden drop in the available homes by approximately 19% towards the end of 2019. Alexandria forecasts a 37.5% drop in its housing inventory, explaining an increase in housing sales. The rise in price and demand for homes in Arlington goes against the recent trends of home prices in most of the West Coast areas, especially in the last one year.
In his article ‘Amazon Turns Northern Virginia Into Country’s Most Competitive Home Market,’ Gopal (2019) acknowledges that Amazon has played a crucial role in improving the competitiveness of the housing market by building a hub in Northern Virginia. The impact is visible in the recent customer demands for housing in the last few weeks, where houses in the market were snapped by users in an average of 11 days since the first day of advertisement. This is a big difference when compared to homes in Washington DC and other parts of the United States, which are in the market for an average of 27 days and 38 days, respectively. According to the author, almost 57% of houses around the proposed Amazon’s site sold in less than two weeks. Even as the company continues to grow, it is being blamed for championing the increase of housing affordability crisis. The effect has placed home investors at stake because they can’t get returns for their investments in less than a decade. This is when the economy is expected to have grown. Following the establishment of the second headquarter in Northern Virginia, Amazon has ignited a permanent increase in housing prices in Alexandria and Arlington. Since the prices have suddenly surged, some sellers are reserving their homes for sale in the future as they expect prices to go higher. For instance, the last year has seen a 50% decrease in the number of homes available for sale. This has caused more desperate actions from the home investors as more have placed offers with waived contingencies on homes around the area.
Following the impact of its investment in the housing market in Northern Virginia, Amazon has started its initiative to make homeownership in the area affordable. Recently, the company made several proceeds to the issue of surging home prices, by donating $3 Million to George Mason University and Northern Virginia Community College. According to Amazon, this donation would help the colleges “build high-tech bachelor’s degrees to help meet its future workforce needs” . The company’s initiative came after different companies in the housing market complained that its move would lead to increased prices. Similarly, they complained that they did not have enough supply of skilled workers. In the next 10 to 12 years, the giant online retailer aims to address the problem of affordable housing by employing over 25,000 workers whose income will increase from the current $70,000 to $150,000 per annum. The donation will also help in reducing the cost of housing by subsidizing the available houses. In September 2019, the company also matched its employees’ contributions up to $5 Million, which was used to help the Arlington and Alexandria communities cope with the problem. Amazon’s move to help in reducing the problem of housing in Arlington and Alexandria has received many critics. However, the company claims that collaboration with the federal government will make the initiatives more achievable.
Telford, Sullivan, Denham, & Harden (2019) acknowledge that the announcement of Amazon’s HQ2 at Arlington, Virginia, has caused an increase in home prices in Arlington County. Since its report. The prices of homes have risen from $713,000 to over $742,000 between May 2018 and April 2019. This marked an 11% increase in the price within one year. In areas like Fairfax County, the cost of houses gained 6%, while those in Alexandria increased by 7%. The executive accepts that the building of the HQ2 at Northern Virginia will “aggravate housing problems less in Arlington than the first headquarters did in Seattle because of the company.” In an attempt to forecast the housing prices in the region, Clower suggested that the housing prices would see a year-on-year increase in the housing cost by over 17% before December 2018. However, the activity slowed during the predicted period as a result of realtors withholding the houses in anticipation of more price increases in the future.
Clower also predicted a 19% fall in housing inventory at Arlington, and 10% at Fairfax by the end of the year. The authors of this article also reiterate that the speculation of higher prices in the future have caused sellers to withhold houses, causing scarcity of homes available for sale. “While the number of potential buyers entering the housing market in the Northern Virginia region is rising, the ripple impact of low inventory and high demand has caused a tough market for them.”. This effect is also forcing people living around these areas to move further from the regions. Since most of the people in the community around the area earn approximately $25 to $30 per hour, they cannot afford the new house rates.
Tarkazikis (2018) acknowledges that the HQ2 location in Northern Virginia could contribute to a positive economic breakthrough. However, the author also admits that it could pose serious social problems to the people of Arlington and Alexandria. Basing his facts from a historical perspective, Tarkazikis outlines the trends in the home market since the company began its operations. Since Amazon’s establishment in 1996, the cost of rent in Seattle has risen by half, while the value of homes have nearly doubled. These trends predict a gloomy future for tenants in Arlington, where the HQ2 will be located. Most of the contributors to this topic feel that the cities must “carefully weigh the social risks and costs that could accompany their HQ2 commitment”.
Lee (2018) acknowledges that before its announcement, Amazon had received bids from over four cities that wanted the company to locate its HQ2 at their place. The company had to weigh the options available based on the effect the location would have on its operations and the locals. Among the bidders were Los Angeles, Newark and New York, Northern Virginia, and Atlanta. Atlanta is considered as one of the cities with the most affordable housing. On the other hand, Northern Virginia is close to Washington DC, which harbors some of the highly educated workforces in the United States, and is connected to a well-developed public transit. Cities such as Los Angeles, Newark, New York, and Miami, were least likely to be chosen as they already have high costs of housing, and unfavorable tax environment. Currently, New York has a home value of a median of $636,500, with the median rent going close to $2,736. These rates gave Northen Virginia an advantage of hosting Amazon’s HQ2, but the trends in home values have continued to increase since then.
According to Lerner (2019), Amazon’s choice of Crystal City in Northern Virginia was primarily as a result of its abundant availability of workforce. Initially, Amazon was looking for around 25,000 workers from Crystal City and Long Island. Its initial plan was to hire from either of the two places. The company considers that its presence is likely to cause changes in the housing market. Since most of the workers would be affected by the surge in the cost of housing, the company chose Northern Virginia because of its proximity to public transit. The location would allow workers to smoothly transit from work to their affordable residences further from the area. The company’s choice of operation has received much opposition from critics. They argue that its establishment of tech campus and availability of tech jobs at crystal city will sway people from Silicon Valley. A high influx of workers at Arlington will result in a high demand for housing, hence increased prices.
Patricia Sullivan highlights the effect of Amazon’s HQ2 on the people of Northen Virginia through a narrated experience of a resident. In his encounter, the narrator accepts that since the HQ2 was established in the areas, life has suddenly turned out to be expensive and economically frustrating. While the average annual sales of homes in Northern Virginia remained stable at approximately $565,000, “Northern Virginia Association of Realtors, the number of homes under contract rose by 70 percent compared with January 2018, and the number of homes for sale fell by 20 percent year-over-year”. The resident claims that since the company announced the establishment of its headquarters at ‘Northen Landing’ the price of all homes under contract rose in the three consecutive months that followed. According to the author, the impact of Amazon coming to Northern Landing may not be as severe as most of the investors think. Amazon’s choice of Northern Virginia is primarily linked to the presence of amenities such as transit and apartments. As a result, the place is likely going to attract renters and buyers from the Rosslyn-Ballston-Clarendon corridor.
In a different article at The Washington Post, Sullivan tries to paint the state of affairs in the housing Market around the HQ2 location. Following Amazon’s announcement, the housing market started behaving as if the 25,000 that the company was planning to hire, had already stormed the town. According to the author, the competitiveness of the homes in Virginia topped at the areas around the headquarters. This sudden change means that nearly all homes around the area sold faster than those in Washington DC. Similarly, over 57% of the houses around the city were pulled out of the market as real estate investors anticipated higher prices in the future. The homes that sold were bought at a rate higher than listings, indicating the level of demand that the company had caused on the housing market. In 2018, the homes in Arlington and Alexandria were fewer than a month’s worth. Despite the home inventory decreasing, the number of homes selling in Arlington and Alexandria remains stable. However, selling the houses in both cities means sellers will need to use almost the same amount for a new home
Joe Parilla tries to assess the history of Amazon, which is trying to outgrow its home city, Seattle. According to the author, the Northern Virginia However, its new location could spell a substantial economic effect on the residents. To make this possible, “City officials should establish a mechanism to connect Amazon to local suppliers as the company considers procurement and vendor decisions at the new headquarters.” Parilla (2018). They can do this by preparing the locals for job opportunities and boosting housing supply. According to this article, the locals are living in pain with the increased cost of living, and if Amazon offers them jobs, they will be able to cope with the problem. Similarly, boosting the supply of houses in the area will help in addressing the issue that has been caused by the shortage of homes for sale and increased rental rates in the area.
Answer to Research Question
Amazon’s plan to house the second headquarters in northern Virginia will impact the housing market in the north of Virginia. As indicated in the literature review of this paper, its announcement of locating its HQ2 at Arlington has sparked a ripple effect on the housing market in the northern region of Virginia. The increased demand has sparked a hike in home prices and rent, and some house owners have pulled down their houses from the listings in anticipation of higher prices in the future. Hence, Northern Virginia faces a shortage of homes.
Conclusion and Future Agenda
The announcement of national landing alone caused prices of houses to increase in northern Virginia, and the evidence shows that prices have been robust since Amazon made this big announcement. It may be safe to say from the trend of market prices that prices may continue to rise until national landing becomes and reality and beyond. National landing is a future agenda, and it to become beneficial to residents as well versus a handful of “those who can afford,” it is essential that amazon forms key partnerships with major organizations in northern Virginia to support the growth and development for all residents, such that not only the plentiful benefits in terms their ability to buy expensive homes. The growth and development of any city, region, or state lies not only in the real estate but also in the well-being of all citizens, including those in need.