DC Needs Amazon, But Amazon Can Do Better
(Bloomberg View) -- Last week, Amazon announced that it was looking for a site for a new headquarters. Cue a dating contest to rival "The Bachelor," as adoring cities figuratively hurled themselves at the feet of CEO Jeff Bezos, lauding their own best features and squealing how excited they were by the thought of having the tech giant for their very own.
This resulted in a string of emails between another policy journalist and me: Was DC really going to welcome Amazon? Washington is a very odd place, demographically. We’re the most educated city in America, and we have the high housing prices to match: As the returns to a college education have risen, much of that extra income has been poured into securing elderly row houses and single-family fixer-uppers in the greater metropolitan area. (Aka the DMV, for those who wish to pass themselves off as Washingtonians in the know.)
But DC’s income distribution is oddly flat. People are paid well, yes, but they’re largely paid by the government or some flavor of nonprofit, neither of which generate fantastic bonuses or unexpected capital windfalls. More than any other city in America, it is an upper-middle-class kind of place: Almost anyone with a college diploma can get a job, but few of them are going to be retiring to their own private island.
This has resulted in an odd housing pattern that I’ve remarked upon in the past. When a neighborhood starts to gentrify, it rapidly zooms up to around $750,000 for a three-bedroom home, and then stalls as the willing buyers hit their income limits. At that point the gentrification moves on to the next neighborhood, while the already gentrified precincts grow much more slowly.
Dump 50,000 Amazon employees into this housing market, and the federal service's GS-13s will find themselves in even more frenzied bidding wars for the area’s tight housing stock. Won’t they revolt? These are, after all, folks who know how to work the government. They already spend quite a bit of time working to tame Amazon; Jeff Bezos might not want them to spend more.
Maybe. But Washington’s metro area is half again the size of Seattle’s; our housing market is tight, but it’s not going to be as distorted by tech wealth as Seattle was. And there are reasons that those folks might want Amazon here. Washington is fundamentally a company town, its economy ringed in concentric circles around the federal government. That can be rather cozy (everyone understands what it is you do at work), but it can also be rather dull. Most Washingtonians of this class would love to see the city diversify into real industries that think about problems other than what’s going on with the Federal Register.
And by the same token, the District of Columbia city government would probably be all a-quiver to get their hands on an Amazon headquarters, to the tune of many gorgeous tax concessions for the company. That’s because so many of Washington’s major employers don’t pay much in the way of taxes: the federal government pays none, and nonprofits may generate only a little ancillary revenue. From the city’s standpoint, a real, live large business that pays any taxes at all would be an improvement over almost any other potential use for the space.
That said, I’m skeptical that Bezos is going to bring Amazon here. Yes, he just bought a house (and newspaper) in the area, which would make it awfully convenient. Yes, the city’s going to be a very attractive location for your creative class employees. In a lot of ways, Washington’s culture is as close as you can get to Seattle’s tech culture, and it’s eminently walkable, with a burgeoning food scene. And yes, it’s cheaper than New York or San Francisco.
But it’s still not so cheap. Assembling the kind of real estate that you’d need for a tech campus, within reasonable walking distance of a metro stop, will be challenging and pricey. And because of the city’s archaic Height Act, you can’t just flip your campus vertical and stack everyone on top of each other; functionally, buildings can only go to around 12 or 13 stories, a rule that the city council does not have the power to amend because ultimately Congress controls the city. And if you go out to where the land is cheap, you lose most of the amenities that make the place attractive.
Moreover, the city’s infrastructure is under desperate strain. Metro is (ahem) a train wreck, the bridges into the city cannot physically carry more commuters at rush hour, and most streets don’t have space for bus lanes unless we get rid of all the parking, which would create a lot of problems, and huge political outcry. Large swathes of the city government are badly run, though improving, and that includes the interstate board that runs our transit system. I would be surprised if Bezos looks at all those issues, and decides to plop his headquarters down here anyway.
If I were him, I’d choose Philadelphia: It makes the company bicoastal, rather than plopping it down in a Midwestern or Western location that will continue to be isolated from the coastal economic hubs no matter how close you are to the airport. (It doesn’t take me any longer to get to Chicago than it does to New York, but as I discovered when I did a three-month stint in Chicago, it feels far in a way that Washington does not.) It has the usual run of local governance problems you find in the old coastal cities, but it has three big universities and a number of smaller colleges to provide skilled workers, along with relatively cheap real estate, relatively good infrastructure, and an easy commute to Washington or New York. It also has a splendid food culture with lots of walkable amenities to keep your employees happy. And the city government would probably jump on a big for-profit employer with both feet.
But then if I were Bezos, I would be running my fabulously successful company, rather than writing a column. Bezos may well already know where he is going to locate his headquarters, and he's simply trying to sweeten the package he gets from his lucky city. If he really is still choosing, my guess is that his due diligence will point him away from my city. But in the end, only Bezos can decide who's going to get the red rose.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
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