Amazon, Housing, and the Limits of Philanthropy

Image via Unsplash.

This week in Eye-Popping Numbers, news broke that Amazon is pledging 2 billion dollars toward affordable housing in the three regions where it has headquarters operations: Seattle, Nashville, and Northern Virginia. Amazon's announcement of its Housing Equity Fund follows similar announcements in the past by such tech titans as Apple ($2.5 billion in a fund launched in late 2019) and Google (which pledged $1 billion in 2019, most of it in the form of land the company owns which it would make available for housing development).

These strike the ear as gargantuan sums of money, but when you actually start doing the math, the most surprising thing is how far they don't go. It's not because the money is inadequate, necessarily. It's because of the kind of problem that housing affordability is. 

And if you don't understand that—that is, if you don't have a decent working theory of why there's an affordability crisis in the first place—then the best you're going to do, no matter how many resources you can throw at it, is treat the symptoms, not the disease.

Granted, we need people treating the symptoms. Big Tech philanthropy around housing affordability, I've argued before, is a lot like buying carbon offsets for your international flight. It's not bad. Just don't mistake it—or its public-sector equivalent of housing trust funds, tax credits and grant programs—for anything that can scale up to the dimensions of the underlying problem.

Amazon is doing some things right (or at least approaching them reasonably).

The Amazon spheres at the company’s Seattle headquarters. Image source.

Amazon says that its "Housing Equity Fund will help preserve existing housing and help create inclusive housing developments through below-market loans and grants to housing partners, traditional and non-traditional public agencies, and minority-led organizations." 

There are some heartening aspects to the details of Amazon's proposal. One is that preservation of existing housing is a big emphasis here: a lot of the money will be spent to take existing homes and get them out of the speculative market, with long-term covenants to ensure their rents remain affordable in perpetuity.

Preservation is much, much cheaper than new construction, so this is welcome. It is effectively impossible to build new homes cheaply enough that they can be made affordable to low-income residents without heavy subsidy. This is especially true in high-cost, high-wage markets like Seattle where the cost of labor has pushed up construction costs themselves. The best affordable home, in terms of bang for your buck, is the one that's already been built.

I've seen Amazon already taking some flak for offering loans rather than grants, and I find this to be a superficial criticism as well. The cost of financing is a significant factor in both housing development and housing acquisition, and it directly influences the rents you are able to charge. Below-market-rate loans for specifically affordable investment might go a long way. (As Amazon's announcement itself points out, "A typical affordable housing acquisition would be financed with a combination of loans and private investment, with interest rates as high as 15% for certain portions of the financing.")

And because Amazon is leveraging its resources toward the existing efforts of nonprofits and housing authorities, it can provide just enough financing to fill the gaps and make possible the acquisition of many more homes (the company says 20,000) than if it were paying the full cost of each one. 

Making housing affordable is not the same thing as creating affordable housing.

The bigger limitation to the kind of thing Amazon is doing (which, again, is ultimately the same category of thing that a Housing Authority or Housing Trust Fund does, so this isn't about private versus public sector) is that it cannot scale up. When you buy a home and subsidize its rents below market rate, then what you've done is buy that home. All there is to do then is buy the next home. And so on, and so on.

A 2018 rendering of Amazon’s Nashville tower plan. Image source.

This kind of direct investment in homes can create affordable homes. What it can't do is make housing affordable. These two are fundamentally different problems that require different solutions.

That may seem obvious to you, but I write about it because it is a massive source of confusion, even when I talk to planners who deal with housing policy and whose job it is to understand how the housing market works. A lot of policy people seem to view it as self-evident that the bigger-picture solution to unaffordable housing is to create enough affordable homes (whether through construction, preservation, or both). It's not. Here's why: 

What does most lower-case-a affordable housing look like? 

Think of the people you know who live in homes that are affordable on a modest income. I mean "affordable" with a lower case "a": not subsidized, not income-restricted in who can live there, but simply the literal meaning of "able to be afforded" without undue burden on one's finances or life.

How many of the people you know who pay a modest amount for housing live in housing that is capital-A "Affordable," with subsidized rents and/or reserved specifically for low-income residents? Probably not that many.

How many of those people live in brand new housing, built in the past few years? Probably quite few if any.

The overwhelming majority of the inexpensive housing in America is not "Affordable Housing." It's market-rate housing that is older, smaller, less desirable and situated in less desirable locations. "Less desirable" is relative: in lower-cost cities, these might be very nice homes indeed; in, say, coastal California, even a cramped 2-bedroom bungalow might be out of a middle-class person's price range.  

The overwhelming majority of housing in our cities is market-rate housing. The fundamental reason there's an affordability crisis isn't that there aren't enough below-market homes. It's that the market rate itself is not affordable: the market rate is out of proportion to the buying power of people who need to buy or rent homes. (Why that itself is the case is a huge and open question, one that more has been written about than you could ever hope to read. Here are a couple responses worth considering.)

I am not opposed to proposals to expand subsidized nonprofit ownership or even direct public-sector ownership of housing. I think public housing has an unfairly bad reputation in America for problems that aren't intrinsic to the fact that it's publicly owned. I think taking housing off the speculative market is a good thing, an important piece of the puzzle, and we should do more of it.

But a lot of people whose hopes for this whole issue rely on making an end run around the market altogether simply haven't done the math.

It's hard to appreciate just how big the housing market is.

Relative to the size of the housing market in any of the target cities, Amazon's $2 billion investment—though larger than any city's Housing Trust Fund (that I'm aware of) or any housing nonprofit's budget—is a drop in the bucket. This is not obvious to many people, because it's not intuitive just how big the market is.

City Observatory has crunched numbers on the "market cap of cities:" that is, if you treat a city like a private corporation, and its housing stock as its assets, and you add up the total dollar value of that housing stock, what do you get? It turns out that "the value of housing in the nation’s 50 largest metropolitan areas ($25.7 trillion) is more than double the value of the stock of the nation’s 50 largest publicly listed corporations ($11 trillion)."

All the housing in Seattle was worth a combined $776 billion in 2019. Amazon proposes to spend $2 billion, spread over three different cities and most of it in the form of loans. The Seattle Housing Levy, a city initiative to fund affordable apartments, low-income homeownership assistance and emergency rental assistance, was most recently renewed by voters in 2016: it raises $290 million over 7 years. Mull over the differences of magnitude in those numbers for a minute.

Regarding Amazon's plans in Washington and Virginia, Curbed points out a similar scale gap:

[In Seattle] Amazon plans to invest about $185 million in loans and grants to preserve 1,000 affordable apartments. For scale, the region has lost a net total of 112,000 affordable homes in the last 10 years. The company’s plan for Virginia is similarly minimal; it aims to “create or preserve 1,300 affordable homes,” in an area where Arlington alone needs 8,000 affordable units.

"If you want housing to be affordable, you have to build affordable housing" is a mantra of a certain type of advocate. It is a misguided one, as misguided as telling young adults to skip lattes and avocado toast and thereby save up for retirement. It shows a total misunderstanding of scale.

How do you fix the market? 

Renderings of the Amazon campus in Arlington, Virginia. Image source.

We need to stop prices from rising out of proportion to people's ability to pay. Philanthropy will not do that. Enough supply—total supply, most of which will inevitably come from the private sector—in regions that aren’t building enough would help. Transforming the role that housing-as-investment plays in the whole economy might be essential. This is about unwinding bad incentives, and it will take a generation or more.

If you're Amazon asking that question—if you want to leverage charitable giving to improve affordability in ways that will truly scale—is there anything you can do? It means not housing development and acquisition, but things that would permanently change the cost structure.

One such thing might be funding research and development into construction techniques and materials that can bring down construction costs.

Another might be lobbying for policy changes that are needed to unravel exclusionary zoning and allow more housing development across a broad range of in-demand places. Amazon certainly has enough clout to influence policy. But it's questionable whether this is where it should spend resources in a highly visible way. The optics of wealthy tech companies funding pro-housing advocacy are not always welcome; in some eyes, it diminishes the credibility of such advocacy.

The third thing Amazon can do is to grapple with its own role in exacerbating affordability problems. But frankly this is a tough one to ask, because so much of Amazon's effect on the housing market is simply a function of what Amazon is. The giant scale of the company, and the giant scale at which it expands its operations, pretty much guarantees disruption of the type Northern Virginia witnessed after the HQ2 announcement. It is a flood of money into an area in a very small time. 

There are some big questions to be raised here about the role of consolidation in our economy—the dominance of bigger and bigger companies, and the concentration of wealth and high wages in fewer and fewer cities. This has more than a little to do with the roots of the housing crisis in markets like Seattle. But let's be clear: Amazon is emblematic of this problem, and no one should expect it to lead us toward a solution.

Fundamentally, the likes of Amazon offering a philanthropic Band-Aid is better than not offering one. But the mindset that these kinds of efforts are how you get affordable housing is something that advocates and local governments alike need to resist. Housing affordability in America is a policy problem, not a money problem.

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