On June 11, Amazon announced that it would be contributing another $1.4 billion to its Housing Equity Fund. Amazon created the fund back in 2021, initially giving $2.2 billion “with a commitment to create or preserve 20,000 affordable homes in the Puget Sound, National Capital, and Nashville regions—three communities that Amazon calls home,” according to a report by the company.
The three areas are all places where Amazon has major corporate hubs. The new pledge will have a substantial focus on Arlington, Virginia, where Amazon has its HQ2. Amazon says it exceeded its target and delivered 21,000 affordable homes instead of the promised 20,000. The new funds will deliver a further 14,000 affordable homes for low-to-middle-income people in the target regions, according to the internet giant.
Unsurprisingly, Amazon’s involvement in affordable housing has attracted as much criticism as praise. Critics say that while Amazon’s efforts are better than nothing, they don’t negate the fact that the retailer is problematic for the communities it purports to serve.
As is usually the case with corporations’ philanthropic ventures, the truth lies somewhere in the middle. Amazon cannot solve all the systemic problems affecting U.S. housing markets. But is it part of the problem? And could it fine-tune its strategy to deliver more impactful change?
Let’s take a more in-depth look at what Amazon has done in affordable housing so far—and where it could improve.
What Has Amazon’s Housing Fund Achieved So Far?
First, the good. As mentioned, Amazon has delivered 21,000 affordable homes in its target regions since setting up the Housing Fund in 2021.
One of the true achievements of Amazon’s approach is that it didn’t just build new units. According to its Housing Equity Fund Impact Report, 59% of Amazon’s funding so far has supported the preservation of existing affordable housing, as well as “the conversion of existing prevailing-rate housing to dedicated affordable homes.” This supports renters “at risk of displacement from rising rents.”
Amazon is on the right track here. The main criticism leveraged against affordable housing by local groups and independent researchers is that it’s actually not very affordable. According to the Urban Institute, “there is a huge gap between what these buildings cost to construct and maintain and the rents most people can pay.” From a developer’s perspective, affordable housing often simply is not worth it, so typically, affordable housing projects end up needing government subsidies to make them viable.
Even then,“affordable” housing often ends up being unaffordable for an area’s lowest-income residents because the metric used to determine what counts as affordable is in itself problematic. The U.S. Department of Housing and Urban Development (HUD) defines a home as affordable if a household spends no more than 30% of its income on housing-related costs.
Obviously, this is a somewhat arbitrary figure, especially in areas where local income can vary drastically, from, say, $40,000 to over $100,000 a year. Definitions of “low income” also present a lot of variation because low income can be anything under 80% of the Area Median Income (AMI). Affordable housing often ends up benefiting people at the higher end of that spectrum.
All this means converting existing housing into affordable housing, or preserving what’s already been built, is more sustainable for local communities. Amazon has gone one step further in securing that affordability by guaranteeing that 95% of its affordable housing will stay affordable for 99 years. That is unusual: Most affordable homes are only kept at affordable rates for 15 to 30 years, at which point they revert to market rates.
The other thing Amazon got right is that it has correctly identified a strength in its ability to make an immediate difference to smaller-scale, local affordable housing projects that need extra funding to succeed.
A much-covered case in point is Crystal House Apartments in Arlington, Virginia. The iconic apartment building went on sale in 2020, presenting a rare opportunity to convert existing high-quality housing into affordable housing for the Washington Housing Conservancy (WHC).
The trouble was that the WHC did not have enough to buy the property. Amazon stepped in with a $378 million loan, and the WHC was able to close on the property within two months. Crystal House Apartments will be affordable to below-AMI residents by 2026.
WHC director Kimberly Driggings recently reiterated her support of Amazon’s housing efforts to Bloomberg: “We actually need the corporate sector to dial in….We rely on the government so solve housing affordability, and we’re never going to solve it only looking at that one area.”
The fact is that Amazon’s strategy of jumping in fast works. Piecing together funding for affordable housing projects can take many months—sometimes years. Some forms of funding have a lot of restrictions. Local housing advocacy groups simply would miss out on these projects without Amazon’s help.
Finally, Amazon’s housing efforts so far got another thing right: The company hired local staff who know the housing markets they’re operating in and, especially in its Washington state branch, “eschewed using a fund managed by an outside entity; instead, its leaders made deals directly with local developers,” according to an article in the Guardian.
The Limitations and Controversies
Here is where things get a bit more controversial. While Amazon has made a considerable effort to become part of the local housing landscape, critics are arguing that it’s done this in part as a damage control strategy.
There is an important fact that positive assessments of Amazon’s affordable housing venture do not point out. Amazon only got involved in affordable housing following complaints from local residents that its hubs were bringing in too many corporate workers, who were driving up local housing prices and exacerbating gentrification.
The “Amazon effect” is real. According to Realtor.com, home prices in Arlington, Virginia, spiked 17% between Amazon’s announcement of its HQ2 in 2018 and the first quarter of 2020. The increase in the national median at that time was 5.5%.
The other lesser-known fact about Amazon’s involvement in its three main areas is that they’ve never been purely altruistic. The corporate giant receives substantial amounts in tax breaks and incentives from these areas. According to Good Jobs First, Amazon got almost $1 billion from Virginia, about $609 million from Washington, and $166 million from Tennessee. The $2 billion it committed to its Housing Fund definitely begins to look a bit less meaningful when offset by these figures.
In fact, some of the company’s harsher critics say that the Housing Fund is little more than good PR for an organization that has the resources to do a lot more if it really wanted to. As Pat Garofalo has pointed out: “Positive press is something elected officials can point to the next time a corporation comes asking for tax breaks or other favors. Anything portraying the firms as partners in the community that are giving something back rather than purely extractive entities greases the skids for the next round of handouts.”
So, it’s a case of publicity and legitimization in favor of a true long-term vision. Let’s also not forget that the majority of Amazon’s funding comes in the form of loans, not grants, which means it gets substantial returns on its involvement in affordable housing.
Finally, the question of just how affordable is “affordable” housing hasn’t really been resolved. Critics continue to point out that, despite Amazon’s commitment to the missing middle—workers who don’t qualify for government subsidies, but earn between 30% and 80% of their AMI—people on the lower end of that spectrum are often left out.
For example, an impact analysis report from Stand Up Nashville concluded that “if Amazon’s past practices around affordability continue in Nashville, nearly 90% of units would only be affordable to four-person households that earn between $42,150 and $67,450. Many workers in Amazon’s warehouses would themselves not be able to afford these homes.”
The Bottom Line
So, here it is: the good, the bad, and the somewhat ugly in Amazon’s affordable housing activities to date.
Will the $1.4 billion extra solve the housing affordability crisis in the company’s target regions? Not even remotely. As Daniel Herriges insightfully pointed out, although Amazon’s investments seem like “gargantuan sums of money…when you actually start doing the math, the most surprising thing is how far they don’t go.”
To give an idea, the total value of all housing in Seattle in 2019 was $776 billion. That does give one pause for thought.
The fundamental issue that Amazon cannot fix is not affordable housing but housing affordability. The U.S. is in the midst of a housing affordability crisis, and it cannot be solved on any meaningful scale by injecting a bit of funding into a few housing projects, valuable as those are. “We need to stop prices from rising out of proportion to people’s ability to pay,” Herriges says. This can partly be achieved by restoring housing supply across the country to sustainable levels. But then, Amazon never said that it could or would do that.
Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
from Investment – My Blog https://ift.tt/VnscpQC
via IFTTT
0 Comments