5 reasons Amazon's HQ2 pick is a dud for mortgage lenders

Amazon's surprise decision to split its second headquarters between two HQ2 finalists — Long Island City in the Queens borough of New York City, and the Crystal City neighborhood of Arlington, Va. — should come as a disappointment to mortgage lenders hoping the promise of 50,000 new high-paying jobs would be a boon for business.

To be sure, the New York City and Washington, D.C., metro areas will see a flurry of housing and mortgage activity as a result of HQ2. But the direct benefits to mortgage lenders won't be as significant as they could've been in many of the other cities on Amazon's list of 20 finalists.

Here's a look at five reasons why the much-anticipated HQ2 announcement is a dud for mortgage lenders.

Split decision
When Amazon first announced HQ2 in September 2017, the online retailer expected to invest $5 billion in the city that would play host to the "full equal" second headquarters. But Amazon ultimately decided to split HQ2 across New York and Virginia, in part to ensure it could pull from strong pools of talent to fill jobs.

The move also lets Amazon tap into more than $2 billion in tax and incentive packages from the two states, and will spread the wealth of new jobs and investment across two large urban cores. Amazon's $2.5 billion investment in Arlington will spur "tens of billions of additional investment in the surrounding community," Brian Huseman, Amazon vice president of public policy, said during a Nov. 13 press conference with officials that managed Virginia's HQ2 pitch.

But the trickle-down effects of that investment will be less pronounced for local mortgage lenders and other businesses than if HQ2 had been awarded to just one city.
Small cities shut out
Amazon reviewed 238 state and local government proposals before narrowing down the list to 20 finalists. Smaller communities like Raleigh, N.C., Austin, Texas, and Nashville, Tenn., were always long shots to win HQ2. But had Amazon gone with a smaller city — or even two small cities — it would've created a much larger seismic shift in the local economy. By picking two of the largest finalists for HQ2, Amazon got less quake and more tremor.

"An Amazon HQ2 split would not have much effect on employment," Fitch Ratings said in a Nov. 7 research note, adding "even the full impact of HQ2 would represent a modest 1.5% of the labor force in the Washington, D.C., Metropolitan Statistical Area and only 0.5% in the vast New York City MSA."

Queens and Arlington are far less likely to become Amazon "company towns" in the same vein as Walmart in Bentonville, Ark., or Quicken Loans and the rest of Dan Gilbert's Rock Ventures portfolio in Detroit.

Young, college-educated, white-collar workers already flock to New York and Washington in droves. HQ2 may influence where those people work, but it doesn't create a new hub for employment in the country. For mortgage lenders, that means a missed opportunity to grow business in new housing markets.
Lopsided locations
The New York and Washington metro areas both straddle state lines. But the sites chosen for HQ2 pose challenges for neighboring states to fully benefit.

Long Island City is less than 4 miles from the New Jersey border, "as the crow flies." But take it from NMN's New York-based newsroom: few Amazon workers that move to the area will want to make the commute from Garden State suburbs.

The problem is that New York's public transportation system is designed to get people to the city's core, Manhattan. Tacking on a trip across the East River to Queens may be too much, considering the rush-hour commute to even the closest New Jersey suburbs requires at least two forms of public transportation and can take 90 minutes or longer.

New York "Amazonians" who want to own their own homes are more likely to buy a condo or co-op somewhere in the five boroughs, or look to the New York suburbs of Long Island and Westchester County. That's great for loan officers and real estate agents who specialize in those submarkets, but is a missed opportunity for lenders and employees working in New Jersey.

The situation in Arlington is not as severe. Crystal City is roughly 8 miles from the Maryland border, but the public transportation system already supports a large white-collar workforce that commutes to Virginia, and driving to work is a more feasible option.

Still, lenders and real estate agents in the Terrapin State won't enjoy as large a bump from HQ2 as their peers in the Virginia suburbs. The same goes for the District of Columbia, which has some of the highest home prices in the region.

Two other sites in the Washington metro area (Montgomery County, Md., and the District of Columbia) were among the 20 HQ2 finalists. Of the three, the Arlington proposal likely offers the best prospects for lenders because it offers easier access to a large swath of suburbs to the south. But many of the other finalist cities could've more easily drawn workers from the entire region.
Too-hot housing markets
The HQ2 cities are among the most challenging places to own a home in the U.S., with homeownership rates well below the national average and incredibly high home prices. What's more, homeowners in these markets now face higher housing costs due to the recent cap on state and local tax deductions on federal taxes.

And speculators are already driving up home prices in the immediate neighborhoods around the HQ2 sites, with reports of many buyers acquiring properties sight-unseen. In addition to further driving up home prices, that level of speculation makes it difficult for lenders and appraisers to adequately assess property values.

Plus, the Queens neighborhood where Amazon intends to open up shop is near one of the largest housing projects in the nation. That's already raising questions about whether the significant public investment made to recruit Amazon will benefit the neighborhood's current residents or wind up pushing them out.

While any city expecting an influx of tens of thousands of jobs would expect to see a spike in housing costs, that bump would've created more boon than burden in a more affordable market — particularly given a recently developing trend of consumers migrating away from large coastal cities to more affordable locations in the South and Midwest.

Soaring home prices and rents in already expensive markets may also delay homeownership for those Amazon workers who initially chose to rent when they start their new jobs, further diminishing the prospects for local lenders.
Construction constraints
Building out additional single-family housing inventory to accommodate the influx of Amazon workers will present some unique challenges in New York and Arlington. Both cities already have high density in their urban cores, and room for additional growth is constricted by their coastal locations. While Arlington offers more options inland to the South and West, suburban sprawl will likely be more constrained around New York City.

The cold winters in both locations will also slow the pace of new home construction, a consideration that wouldn't have affected alternate cities in warmer climates. Together, that may further impede consumers' ability to buy homes and lenders' ability to capitalize on HQ2.