By: Mithul Roy
Exploring New York’s growing reputation as the launchpad for tech firms and its impact on the city’s housing sector.
Amazon pulled an April Fools prank way back on Valentines Day when it abruptly withdrew its planned new NYC HQ2 in Long Island City, and with it the 25000 jobs the proposal promised. The massive project had been backed by tax cuts and the promise of job creation and meant that housing prices in the city and surrounding boroughs soared by 10 to 15% upon news of Amazon’s impending arrival and largely reverted back upon news of Amazon’s departure. The debacle also raised questions about the impact of the city’s growing reputation as the next Silicon Valley.
According to a new WSJ study, New York, Beijing, Tokyo, and London make up the top of the list of cities gearing up to become the next center of tech innovation. New York ranked number 1 on the list and is projected to surpass demand in Silicon Valley by 2023, according to a KPMG survey of 740 tech industry leaders in a dozen countries. Access to Wall Street, a diverse workforce, and top tech talent are all major factors in New York’s high ranking. The use of cloud computing means that firms no longer have to be based in any particular location, making expensive and overcrowded San Francisco far from the only option for tech firms. This is especially true given how the competition for programmers is pulling up salaries, rapidly escalating the average prices of homes, (which in many parts of the San Francisco Bay Area are above $1 million), and driving many high-tech workers to live elsewhere.
New York is already home to the second largest concentration of startups outside the San Francisco Bay Area, with more than 7,000 startups to be specific, which as of 2017, have raised $12 billion in venture capital funding. This sum is almost twice the $6.4 billion secured in 2014 and is only expected to grow. As the second-largest producer of billion-dollar “unicorn” startups in the U.S., and the second-highest performing startup ecosystem with an estimated valuation of $71 Billion, New York’s tech sector employs over 326,000 people who have average wages that are 49 percent higher than average private sector wages in the city. Moreover, the industry is the third-largest and fastest growing part of the New York economy presently. This trend is supported by the fact that there are also now more A.I and machine learning positions in NYC than in San Francisco, venture capital funding for which grew by 463 percent from 2012-17.
Large and small tech companies are considering New York as a second home, with Google announcing a $1billion+ investment in a new 1.7million square feet office complex in NYC in addition to its planned purchase of the Chelsea Market building for $2.4 billion and further plans to lease more space at Pier 57 along the Hudson. This doubles Google’s current 7,000 employees in NYC by 2020. Google joins Uber, Twitter, Salesforce, Spotify and Facebook, (which alone employs 2000) in their venture east. In fact, New York’s 100 biggest local tech companies — including Etsy, Oath, Shutterstock, and BuzzFeed — currently employ more than 38,000 people, 80 percent of whom have plans to expand the number in the near future.
One of the major draws of New York is the diversity of its human capital, increasingly an important part of the hiring process. A survey by Accenture and Tech found that 74 percent of respondents believed that New York’s diversity of industry will enable tech companies to attract top talent, and a staggering 89 percent of tech talent attribute diversity as a key attraction to move to NYC. Indeed, as one of America’s largest and most diverse cosmopolitan city, it boasts over 410,000 women-owned businesses, over twice that of any other U.S. city, and ranks first among 50 global cities for its ability to attract and support women-owned businesses. Additionally, as the international center for fashion, advertising, publishing, culture, and hospitality, New York is also in the unique position to offer ease of networking, creating partnerships, and raising capital combined with top notch human capital, all of which are important and time saving factors to tech startups.
The booming tech sector, however, has raised concerns over its impact on the city’s housing market and cost of living. Amazon’s HQ1 in Seattle reportedly caused an initial 35% increase in Seattle housing prices with a price rise of 73% and 31% higher rents in the last five years alone and about a 90-140% rise over the past decade. A testament to the speculative investment spurred by anticipation of Amazon’s move is the surge in contracts signed for home purchases; 135 deals in Long Island City between November and February, over twice last year’s 48 deals over the same period. Interest in condos has skyrocketed with a 10% to 15% increase in prices, and a nearly 200% increase in condo sales since the November Amazon announcement compared to the same period last year. Furthermore, these price hikes were also accompanied by a decline in price cuts despite a slow market until October. New York, however, has a larger and more responsive housing supply than Seattle, a more mature public transit infrastructure, deeper labor markets, and better air accessibility, and the impact on housing prices and rents in the city may not be as robust as that in other up and coming cities for tech innovation.
Concerns over increased gentrification have also been a worrying issue for New York residents since only fewer than 12% of current Queens’ residents, who on, average have an income of $67,700 can afford listed homes in the borough. Woodside/Sunnyside, which includes Long Island City, is currently home to 135,767 residents with median household incomes $63,494 as of 2016 and a poverty rate of 10.1 percent. Long Island City and the surrounding communities of Astoria, Sunnyside and Woodside are already the most expensive neighborhoods in Queens, with an average rent of just over $3,000 per monthand nearby Hunter’s Point, Williamsburg, Greenpoint also expected to feel upward pricing pressure as more workers look for affordable housing options outside Manhattan. Projected growth for the New York metro area of 3.0 percent is more than offset by double that in predicted rate of price growth, making an already unaffordable housing market even more unapproachable to Queens locals and pushing them out of their current homes.
Current renters may find it increasingly difficult to access affordable housing with the incoming stream of highly-paid professionals joining the city’s population. According to New York University’s Furman Center, the share of low-income households in Queens that were severely rent burdened in 2016, those who spent more than 50 percent of their income on rent —was 48.7 percent, the highest share of all five boroughs. Over the past year alone, local rents and housing prices have risen 4.7% and 5% respectively and while current homeowners stand to gain from their growing home equity, the dream of home ownership may get further away from younger professionals and lower income households. The influx of new residents is also likely to put pressure on the city’s parks, schools, and water and sewer infrastructure.
The long term effect of such rapid expansion of the city’s tech industry is largely unknown.
Hudson Yards, a new high investment project, is anticipated to be a self-contained, gated community for high income professionals, largely insulated from the city, and making little contribution to changing the city’s infrastructure or culture. With only 4% of the development being dedicated to affordable housing, it poses the risk of widening the already large wealth inequality in the city while making little effort to manage the density of New York.
It’s not all negatives, however. The arrival of Amazon played an important role in Seattle’s ranking as the fastest growing U.S city, and could aid in New York’s growth as well. Higher taxes from these highly paid tech professionals (Amazon employees on average make $150,000 annually) are a lucrative asset to the city. In fact tenants of low-income housing broadly supported the Amazon move, hoping the influx of high income professionals would boost local business and communities while more affluent residents ran a NIMBY campaign over the risk of rising rents.
Furthermore, New York City is one of few cities that was equipped to best absorb HQ2 with minimal disruptive impact due to its well built inventory of real estate. According to a recent analysis from HotPads, New York would have required the fewest additions to rental stock — just a 1% boost even if all 50,000 of the Amazon HQ2’s jobs landed in the City, and a less than 0.1% increase in rents, equating to less than $1,391 over the next 10 years. Before the Amazon announcement, Queens was marked by a local oversupply of luxury condos and a shortage of affordable housing, with a glut of luxury rentals—and to a lesser extent, condos. Landlords and developers were slashing prices and offering concessions and it seemed as though the it could take years for the housing market to return to an equilibrium. Even with Google’s upcoming expansion into the city, the NYC housing market is unlikely to see any big shocks, mainly since there are already plenty of homes to go around and the overbuilt inventory is expected to keep prices from getting out of control.
All in all, there is little cause for immediate concern; but with such a fast growing sector, the future of the City’s housing market and impact on communities seems to be a question yet to be answered.
Image source: https://pando.com/2013/01/09/new-york-isnt-the-next-silicon-valley-and-san-francisco-isnt-the-new-manhattan/
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