Counting Calculi

How Austin Should Think About Amazon HQ2

What Amazon's money could do for Austin

by Kevin McLaughlin

Imagine that a non-profit dedicated to urban development offered to give us in Austin $170 million a year for the foreseeable future. Our elected officials can spend this money however they see fit - on affordable housing, parks, schools, etc. The only catch to this donation is that we must solve our housing shortage by liberalizing our zoning regulation. Is there any good reason for us to say no?

Amazon, of course, is not a non-profit. But the possibility that it will place its second headquarters, called HQ2, in Austin, presents our city with the same proposition described above. As with that thought-experiment, it will generate massive new tax revenues that our city can spend however we choose. But the influx of new residents will also exacerbate our housing shortage - unless we do something about our zoning laws. Let’s explore this problem in more detail.

Before diving in, let me state clearly that I am not suggesting that the City of Austin should give Amazon any tax incentive to set up HQ2 in Austin. In this post, we will simply explore how HQ2 would affect our tax revenues and our housing supply.

First, let’s look at the tax impact. The only published analysis I could find of HQ2’s impact on the local economy and tax revenues comes from Maryland’s Montgomery County, one of Austin’s competitors for HQ2. In that analysis, the Sage Policy Group estimates that HQ2 will add 101,000 new jobs with $7.7 billion in total employee compensation, and $17 billion of increased economic activity to their region. That increased compensation and activity will add, on average, $302 million to local tax coffers every year for the next five years. 1

To estimate the tax impact on Austin and Travis County, let’s be conservative and assume we’ll only get half the tax revenues of Maryland. Still, that means our revenues would increase by $151 million for the next five years. For scale, the Austin City budget for 2018 is $3.9 billion. So the HQ2 increase would be approximately 5% of Austin’s total annual budget. 2

Now let’s look at the downside. Correctly so, the reason most often cited for hoping Amazon takes its HQ2 elsewhere is that it will exacerbate Austin’s already acute housing shortage, thus increasing rents and housing prices even faster than they are today. Curbed, a blog focused on urban policy, estimates that HQ2 would increase rent in Austin by 1% every year. More pessimistically, in Seattle housing prices increased by 10.3% from 2012 to 2017 according to the Brookings Institute as Amazon HQ1 continued to grow there. Of course, not all that increase was due to Amazon, but the tension between longtime residents of Seattle and the new Amazon tech workers was and is palpable.

Based on Seattle’s experience and Austin’s already tight housing market, it seems reasonable to tell Amazon that we already have plenty of tech workers and growth and thank them for taking their business elsewhere.

BUT our housing shortage is not inevitable. According to sources as diverse as The Obama Administration, The Reagan Administration, The University of California at Berkeley, Zillow, and pretty much every economist ever, 3 it is directly attributable to our zoning laws. If you don’t believe these sources, look at Seattle’s zoning laws during HQ1 development.

With almost providential timing, just as HQ2 would make Austin more unaffordable because of our zoning laws, we have a once-in-a-generation opportunity to reforms these laws with CodeNEXT. We can and must take advantage of this opportunity. (If you want to help, please join the AURA, FAN, or Evolve organizations)

We should try to fix our zoning laws regardless of what Amazon does. But the discussion over HQ2 highlights just how critical it is for us to fix this issue so we can build more housing. The $151 million that Amazon could bring to our region can buy us more subsidized affordable housing for those not fortunate enough to work for a tech giant. It could help us build public transit and parks and improve our schools so Austinites of the future can start their own tech giants.

And that $151 million doesn’t even account for the private investment that will come to Austin. Private investment that will help musicians and artists and nonprofit organizations like the Shoal Creek Conservancy continue to make Austin an even better place to live.

Finally, and maybe most importantly, we should consider what turning down growth like HQ2 really says about us. It means we are so helpless in the face of problems like zoning laws and housing shortages, that we have to turn down opportunities to make the lives of our fellow Austinites better. I find this dark view of our potential to be unacceptable. I think we can and must meet these challenges. We just have to take responsibility for our future.

1. And continue at $190 million per year after that. ^

2. Note that this is just for scale. Not all of the increased revenue will go to the city of Austin. Some will go to school districts, the county, and other local government organizations. ^

3. See Tyler Cowen’s The Complacent Class. ^