Housing USA: Amazon Enters An Opportunity Zone

6 min read

The idea behind Opportunity Zones has been to encourage development in poor areas. Inspired by the Enterprise Zone concept championed in the 1980s by congressman Jack Kemp, the Trump Administration law is, according to the IRS website, “Designed to spur economic development and job creation in distressed communities…by providing tax benefits to investors who invest eligible capital into these communities.”

So far, it hasn’t always worked out that way. Many qualified OZones, which originate from the 2017 Tax Cuts and Jobs Act, have been put in wealthy areas like Manhattan’s Hell’s Kitchen or Napa, CA. Another example is some of the areas throughout Northern Virginia where Amazon has located its data centers and second headquarters. The Virginia state government designated them as OZones, meaning tax breaks are being applied across the nation’s richest area, for a company owned by the world’s richest man.

The question, from an affordable housing perspective, is how much Amazon’s move will affect an area already dealing with an affordable housing problem. It could be significant, although the company is partnering with local organizations to help address things.

It is a problem indeed. For example, in Arlington County—where much of HQ2 is going—home prices have skyrocketed due to the area’s advantages. The county has large public and private employers linked with the federal government, a major airport, and ample road and rail access into Washington, DC. This makes it, like many of the counties surrounding the nation’s capital, one of America’s richest. According to the American Community Survey, Arlington County has the nation’s 5th-highest median household income ($112,000), beat only by nearby counties in northern Virginia and Maryland. Its median home prices are a whopping $729,000, higher even than Washington, DC, and about three times the national average. Home price medians there have jumped $171,000 since the 2012 low point caused by the recession.

The reason for the price inflation, says Jennifer Owens, executive director of the Arlington Community Foundation (ACF), is that “the community has been in a supply deficit.” The county, which is only 26 square miles, is largely built out, meaning that adding housing must involve redeveloping single-family neighborhoods. But there has been, she explains, resistance to this from homeowners, similar to the NIMBY resistance in many growing areas. This is reflected in the zoning: once you go beyond the linear, high-density commercial section that stretches along Clarendon Boulevard, much of Arlington County’s zoning changes to one-family dwelling districts.

If this aspect of land use in Arlington—and surrounding areas—doesn’t change, then Amazon’s further entry into the market will only worsen matters. A MarketWatch analysis last June found that in the seven months since Amazon announced its move, Arlington’s median home prices jumped 17.3 percent, and its home inventory dropped 48.2 percent, as speculators invaded the market. One economist predicted that the move, which is expected to add 25,000 jobs to northern Virginia by 2030, would make 14 additional people homeless each year.

This has caused Amazon to add homeless prevention into its larger political and philanthropic strategy. The company has donated over $40 million for such services in its home city of Seattle, including $5 million to Plymouth Housing, a local nonprofit builder of supportive homeless units. In Arlington, Amazon committed $20 million to the county’s affordable housing trust fund, in a trade-off for the right to add 585,000 square feet of office space. This will help fund an estimated 235 affordable units.

Amazon also announced a $3 million gift to ACF, an organization that raises and distributes philanthropic money to address community needs in Arlington. This money, too, will have a housing focus, looking to create deeply-affordable units for local residents making $36,000 or less. One million of that money will be distributed by ACF to the Arlington Partnership for Affordable Housing, and will be used to improve the affordability for ten new apartment units being developed at a local American Legion site. There will be $1.7 million in capital that can be used for multiple affordable housing projects around Arlington, and mixed with larger financing stacks, such as State and Federal Low Income Housing Tax Credits (LIHTC). The final $300,000 will be used internally by ACF to test creative and rarely-used alternative financing mechanisms that produce affordable housing.

While this $3 million will be short-lived, and do relatively little to address the affordable housing needs in Arlington and northern Virginia, Owens says ACF’s long-term goal is to raise $50 million. This may be doable, given Arlington’s strong corporate presence, and the willingness those corporations have shown towards giving to charitable causes. For example Boeing, which has a regional HQ in Crystal City, gave the county $10 million to build Long Bridge Park. Nestle, which moved its U.S. headquarters to Arlington, gave $200,000 to ACF’s child-care scholarship. This is another initiative ACF pursues to help low-income families. JBG Smith, a prominent developer across greater Washington, has donated money for affordable housing regionwide. And in 2012 developer John Shooshan, of Shooshan Company, donated $500,000 to build homeless housing in Arlington. That too was in collaboration with ACF and the county government, as part of an effort to end homelessness in ten years.

But Amazon has become the most high-profile philanthropist in Arlington, especially since their move is what got people discussing the housing issue.

“Amazon didn’t cause the housing crisis,” explained Owens. “But they galvanized the need to have a conversation about an issue that was already a problem in this community.”

These sorts of conversations on housing will likely surface in other OZones. Whether the OZone boundary encompasses rich or poor areas, the anticipated growth will bring the benefits of investment and job creation, but also the pressure of more people and higher prices.

Corporate philanthropy, like Amazon’s, will not fully solve these problems. But it will be one way to save at least some households from displacement and homelessness.

Story Contacts:
Jennifer Owens
President, Arlington Community Foundation

Michelle Winters
Executive Director, The Alliance for Housing Solutions