There Are No Houses for Amazonians

Amazon is talking about 50,000 people over 10 years. Let’s assume at least 10,000 workers are relocated into the new city in the first 5 years. That means we need to find a city that can plausible create something like 10,000 housing units for Amazon’s workers over 5 years, and do so in excess of existing demand. That is, if the pre-Amazon economy of a city adds 5,000 households over 5 years we need to find a city that can add 15,000 housing units.

But let’s be charitable. Let’s assume Amazon’s entry will stimulate above-trend construction, and that there will be some displacement of current residents, and some hiring of existing households. Let’s say Amazon only needs net new housing for 5,000 worker-households.

Can any city provide a net increase in 5,000 housing units? Well, that’s a speculative question, but one thing we can do is ask if any city did produce 5,000 extra housing units beyond household formation over the last 5 years, using data from the American Community Survey. So basically, we want to look at change in the total number of housing units in a metro area minus the change in the total number of households. Has any city brought on excess supply in the last 5 years? And of course, given Amazon’s RFP, we must restrict to cities with at least 1 million residents.

Here’s a map of metro areas that have added at least 5,000 more housing units than they added households since 2010.

If they go to any other metro area, Amazon is making a bet that the metro they move to can substantially quicken its pace of housing supply expansion. That may be a reasonable bet. But the point is, the list of safe bets for sufficient housing supply is very short.

It’s also a really weird list. Charlotte is no big surprise. New York City kind of is: nobody thinks of NYC as having excess supply! But this may be catchup; NYC supply was very tight 2005–2013 when growth heated up, 2010–2015 new supply has come online, but 2013–2015 saw slower expansion in households. Plus, there’s a chicken-egg problem: slow housing supply growth can slow new household formation.

On the other hand, cities with very weak household growth make a strong showing: St. Louis, Baltimore, Philadelphia, Rochester, and Hartford all have extremely weak growth in the household population. They also have lackluster total population growth. But they have been adding new housing! Much of their housing supply may be dilapidated, but that might not be a big problem for Amazon.

Basically, this metric is a way to quantifiable demonstrating that population decline can give a metro area an advantage in absorbing a huge new investment. Now, Amazon may disagree… but Amazon’s workers may be very unhappy when the shock of 10,000 new employees cannot be absorbed by the housing market and prices shoot through the roof. And when Amazon finds that the salary differential they expected vs. Seattle vanishes within 5 years thanks to the need to compensate for the fact that their workers have to live in prefab housing tentcamps, they may be disappointed in their investment. I’m joking about Amazon tentcamps of course, but the point is that an investment in an area that is not keeping up with existing household formation may cause problems down the road.

But hold on. That chicken-egg problem about household formation seems significant. Is there some other way we can gauge housing supply?