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Commentary

How Cities Can Win the Fight for Amazon’s HQ2

Sep 11, 2017

Amazon—the world’s largest online retailer and fourth largest company as measured by market capitalization—is soliciting North American regions in a competitive selection process for a second corporate headquarters, or HQ2.

This is likely the most significant corporate location decision in modern U.S. history. Very few companies have the potential to reshape an North American city. But Amazon is probably one of them.

Seattle, the firm’s current global headquarters, offers the best example of its potential impact on the winning city, as CEO Jeff Bezos has intimated that HQ2 will “be a full equal to our Seattle headquarters.”

A first positive for the receiving city will be jobs and growth. Between 2010 and 2017, Amazon paid its 40,000 Seattle-based employees nearly $26 billion and invested $3.7 billion in buildings and infrastructure. All that money has ripple effects. Well-paid employees spend more locally, which creates jobs in real estate, entertainment, and hospitality. Amazon estimates that the firm has had an indirect impact of $38 billion on Seattle.

All in, a back of the envelope calculation suggests that Amazon contributed a little under 5% of the Seattle region’s economic output during this period. In the much larger New York metro area, that contribution would be less than 1%. But in Austin it would be just under 8%. The size of the receiving city really matters in this sense.

Moreover, Amazon’s presence alone has a gravitational pull on other companies, as it signals a thriving environment for business and innovation. It is no coincidence that the number of Fortune 500 companies with engineering or R&D centers has increased four-fold in Seattle during this same seven-year period. Amazon has given $10 million to the University of Washington’s computer science department, bolstering that local public good. All this helps build Seattle’s brand as an elite American technology hub. We would expect the receiving city to receive a similar “brand bump.”

The impact on the built environment in and around Amazon’s new corporate site will be even more noticeable. Amazon’s home neighborhood of South Lake Union has been strikingly transformed with 30- to 40-story office towers, restaurants, and retail. One should a similar development impact in the receiving city.

But there are potential downsides for the receiving city as well. For starters, Amazon will likely play cities off one another to extract hundreds of millions, if not billions, in tax incentives, dollars that otherwise could be invested in other local public assets.

A second consideration is workforce supply. Amazon anticipates creating as many as 50,000 new jobs. Some of those workers will be enticed away from other local firms. This could be good for workers—as firms may need to compete for workers by raising wages—but potentially challenging for existing firms if they experience worker shortfalls.

A third consideration is affordability. New Amazon in-migrants will need to live somewhere, which will put pressure on the existing housing stock. New housing development—including affordable housing—will be critical to ensure that Amazon’s arrival does not price out lower- and working-class families.

How can a city maximize the benefits and minimize the costs? Amazon’s solicitation explicitly favors skilled workers, well-connected infrastructure, vibrant places, and good communities. Market those fundamentals first.

When it comes down to incentives, cities could utilize clawbacks if Amazon doesn’t fulfill its job creation targets. They could explain their tax incentive spending as investments in shared regional assets—schools, community colleges, universities, regional infrastructure, and housing—that will benefit Amazon but also workers, communities, and other firms.

They should also demand that Amazon be a good community member and contribute to the local commons as well, such as investing in local computer science education or helping construct workforce housing.

Cities constantly compete for firms, but the potential impact of Amazon means that the scale of this competition will be historic. If done right, one U.S. city could transform its economy while setting a new model for corporate attraction.

Joseph Parilla is a fellow at the Brookings Institution’s Metropolitan Policy Program.

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