Cities hoping to win Amazon’s HQ2 should watch what they wish for

Cities across the country have been aggressively courting Amazon’s proposed HQ2 facility — a massive office development that promises to bring thousands of good-paying jobs to the winner — with an array of tax breaks and other subsidies that have, naturally, attracted their share of critics.

But over and above the question of whether the price of the carrots being offered is worth the benefits, city leader should ask themselves some tough questions about whether an influx of new high-paying jobs is going to be beneficial at all.

After all, a new company coming to town and hiring people is only directly beneficial to your city’s existing residents if they’re qualified for the jobs on offer. Amazon appears to be proposing to hire a lot of relatively well-paid white-collar professionals, rather than creating jobs that would be available to the kinds of people who are really in need of help. And while one might hope that a rising tide would lift all boats, the evidence suggests that’s probably not the case in many of the candidate cities.

Instead, what Janna Matlack and Jacob Vigdor found in 2008 is that in metro areas with a tight supply of houses, “the poor do worse when the rich get richer.”

Everyone’s nominal incomes tend to rise when a city’s affluent population becomes even more affluent, but the price of housing rises faster than poor people’s incomes, which leaves them worse off overall. This is similar to the mechanism through which working-class people have generally stopped moving to the highest-income states — you could get a raise by moving from the suburbs of Cleveland or Phoenix to the suburbs of Boston or San Francisco, but for less skilled workers, you’d have to pay so much more for your house that you’d be worse off overall.

Most of the finalist cities, including the three DC-area locations, fit this basic model. In both the District itself and its northern, western, and southern suburbs, the sale price of an existing house is two to five times the cost of building a new one because high land prices and restrictive land use practices prevent enough new construction from coming online to meet demand. Regions are talking about handing out tax subsidies to attract a corporate headquarters whose presence will likely end up further immiserating lower-income people rather than helping them. That’s nuts.

The larger conundrum is that so many American cities have regulated themselves into this corner where an influx of good-paying jobs is actually a bad thing because the well-paid newcomers will bid up the price of houses.

But the problem is fixable. Matlack and Vigdor find that regions where higher incomes lead to more house-building do a better job of ensuring inclusive prosperity for everyone. Cities interested in courting Amazon (or other future high-end employers) should make sure to reform their zoning codes (and mass transit investments) to make sure there’s ample scope for constructing new apartments, rowhouses, and other denser structures.

That helps moderate the impact of house price increases and directly creates a lot of blue-collar jobs in the building trades. Beyond that, they probably want to directly inject some funds not just into trying to lure Amazon but also into providing subsidized housing for their neediest residents.

Without big steps on subsidies and especially zoning, the big prize everyone is fighting for here could turn out to be a trap.