Well, the almost unimaginable has happened. Opposition by a determined minority of residents and politicians in Queens has ended the potential Amazon HQ2 in Long Island City. While substantial majorities of Queens and New York City residents wanted the deal, as did the majority of politicians; Amazon wanted an environment where they were welcome and the determined minority certainly did not make them feel that. While the minority celebrates and the majority wonders how dumb they could be (that seems to be the collective view), what does that mean for LIC? What does this mean in the bigger picture?
More apartments have been built in LIC in the last 10 years, nearly 30,000, than in any other community in the entire US, with thousands more to open this year alone. Such a large influx of housing (plus any additional development of existing industrial or low-rise housing sites) created a place where the large addition of jobs could be absorbed without creating a large scale housing crisis, like the one in Seattle that Amazon is being blamed for now. Now, in order to fill the apartments of sell all of the condos, LIC will have to compete with Manhattan and other parts of NYC. That’s what they were doing before Amazon came along, and they still have the easy Manhattan commute, newness, great amenities and more going for them. Just maybe a bit too many apartments and condos for the demand now.
Some pretty surprising statistics about LIC rentals, from Streeteasy:
The majority of the apartments in LIC aren’t what you would call ‘affordable housing” now. The pricing is more like Manhattan than the rest of Queens and significantly more than nearby communities of Astoria (median $2,195), Sunnyside ($1,950), Woodside ($1,862) or Jackson Heights ($1,788). That formula won’t change but prices could drop a bit if landlords start giving a month or two of free rent to fill their buildings.
What you won’t see, now that Amazon is spreading out their HQ2 jobs, is a significant rise in rental pricing or quick appreciation of condo prices in LIC. And it is safe to say that the market is in a bit of a shock; plans were being made and speculations were rampant. In the short term, some confusion and perhaps a pull-back of premature price increases. Over the longer period, development is likely to slow down until demand meets or exceeds supply. Demand could also increase based on the increased awareness the entire Amazon process brought to LIC; way more exposure was given to the area than the developers could have ever paid for. The future for LIC is by no means dim.
For the bigger picture, it is unclear what this means. I am not trying to turn this newsletter political, but this event does seem require thinking about how real estate is affected by issues like these. It could be a watershed moment the debate that has been brewing about corporate subsidies, the proper use of the newly-created Opportunity Zones, affordable housing and “living” wages. New York State has been giving tax breaks for new businesses and businesses relocating to NY State for many years and has been advertising them with multi-million dollar ad budgets in the region. Just about every state does it, giving tax breaks to organizations, irregardless of the organization’s’ finances, to lure them to their state. The more recent debate on the topic has been how to make sure that the organizations create as many jobs as they claim in order to get the subsidies, as well as measuring the effectiveness of the tax breaks. New York is one state that is considering stopping the practice which many label as “the race to the bottom” as states outbid each other with relocation giveaways, perhaps shifting jobs around but not creating many new ones. And recently several organizations have had to give back some of their tax breaks for not meeting their obligations for job creation.
In my opinion, Amazon was not getting unreasonable subsidies, and these were not low-wage warehouse jobs, these jobs really were “multipliers”; meaning each new job would like create additional jobs through the purchases and taxes paid by the new jobholder. The $150k average wage Amazon claimed may have been overstated, but the incomes certainly would have been well above average.
It is also true that many large organizations like Amazon pay certain jobs poorly, minimum wage or just barely, while they are wildly successful. It would seem inappropriate to offer subsidies (designed to bring investment to disadvantaged areas) for jobs that in many cases end up being held by people who end up requiring state assistance based on their low incomes—it is well documented that Walmart employees receive billions in government assistance. This wasn’t case with the LIC/Amazon move. Some pieces of evidence—the main real estate firms in LIC and most of the small businesses were all solidly for the Amazon move.
From a real estate perspective, there is some reason to be concerned about the level of influence large organizations have, and how much more effective they are at getting what they want from governments who are less sophisticated and whose leaders need issues to run on. Several states are considering some version of the “End Corporate Welfare Act”, which would end subsidies for organizations to relocate. The Amazon HQ2 selection and de-selection of LIC may just be the start of a real debate and real reform. The real estate market could probably do better with less artificial stimulus and more reliance on intrinsic value.