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Metro Struggles And Housing Costs Stand In The Way Of D.C.'s Amazon HQ2 Bid

The D.C. region is widely seen as a contender for landing Amazon HQ2, but some developers and influential regional figures think two of the area's biggest issues — a struggling Metro system and a high cost of living— could put the District at a disadvantage.

Bob Buchanan
Buchanan Partners' Bob Buchanan (right) with Loudoun Economic Development Director Buddy Rizer

Developer Bob Buchanan, who heads a coalition of D.C.-area business leaders called the 2030 Group, predicts Amazon will place at least one D.C.-area site among its finalists. But he expects the tech giant will come to the region with some concerns that it wants to see addressed.

"Amazon might say to the Washington area, 'We've got a couple sites in mind, but before we decide on them, you tell us what you're doing about Metro first and then tell us how the housing affordability is going to work if we go to this site or that site,'" Buchanan said. 

On funding Metro, he said he thinks the prospect of competing for Amazon could help the region come together to find a permanent solution, something it has long struggled to do. The nation's third-busiest subway system still does not have a dedicated funding source, and Buchanan does not think Amazon would pick D.C. without strong assurances. 

"I can't see them committing to coming here knowing how the Metro thing has been twisting in the wind for the last 18 months," Buchanan said. "They're going to want to see a commitment from this community." 

Bryant Foulger Matt Alexander
Foulger Pratt Chairman Bryant Foulger and Dochter & Alexander Retail Advisors principal Matt Alexander

Foulger-Pratt Chairman Bryant Foulger, also a member of the 2030 Group, praised WMATA General Manager Paul Wiedefeld's efforts to improve Metro, but he said more needs to be done. 

"Metro is still, by most people's descriptions, somewhat broken," Foulger said. "We still don't have a long-term solution to funding Metro. Somebody like an Amazon is going to pay attention to that." 

Former Mayor Anthony Williams, who now runs the Federal City Council and has put forward plans to overhaul Metro's governance structure, said he is confident a solution will be reached soon. He is encouraged by a bill Rep. Barbara Comstock (R-Virginia) has introduced in Congress to reshape Metro's governing system. 

"I think we’re talking about a matter of months," Williams said. "You have to factor in legislative schedules with Congress and state legislatures. In terms of building a consensus around key principles, I think we’re well on our way. Now it’s a matter of getting these things to happen."

An April report commissioned by the Metropolitan Washington Council of Governments recommended a regional sales tax of 1% across Metro's eight city and county jurisdictions. D.C. Deputy Mayor for Planning and Economic Development Brian Kenner said the District is ready to step up and commit to such a tax.

"We have tried to show leadership by saying we feel comfortable and we can produce our share of revenue from an increased tax to fund Metro," Kenner said. "We think that is a viable solution. We are hopeful the region either goes along with that or develops another strategy that could be equally successful to its long-term success. The District is ready to do it."

Former Mayor Anthony Williams Federal City Council
Former Mayor Anthony Williams, who now heads the Federal City Council, at a 2013 Bisnow event

Amazon has already made Seattle a much more expensive city to live in, and Buchanan worries about the effects it could have on D.C., a market that already ranks among the top five priciest cities in the U.S. for apartment rents. 

"I think they're going to be looking at the same impact they're going to bring here and [be] saying 'how do we make sure we're not forcing ourselves to have to pay more for these people to live in the area?'" Buchanan said. "If I were Amazon, I'd be saying 'prove to me you've thought these things through.'" 

One solution Buchanan identified to help alleviate D.C.'s high housing costs is to increase density, particularly around transit hubs. Williams echoed this idea, noting that some of the city's zoning laws and regulations can stunt housing growth.

"We have to look at artificial barriers to the supply of housing, which tend to bring up housing prices," Williams said. "We live in a city and last time I checked cities need to be dense. I love my people in Northwest but sometimes we get a little too precious about development." 

For developers, stagnant rents and rising construction costs have made it difficult to get deals done to build multifamily projects, Foulger said.

"We're developing to the narrowest, tightest returns I've ever seen in my career," Foulger said. "I understand the concerns about affordable housing, but we have a cost structure based on everything, and with the entitlement process and construction costs and the amenity war going on, returns are the tightest I've seen." 

Deputy Mayor Brian Kenner WDCEP Luncheon
D.C. Deputy Mayor for Planning and Economic Development Brian Kenner

To help developers get multifamily deals that include affordable housing done, D.C. has allocated $100M annually in its Housing Production Trust Fund, a tool Kenner said could be a model for other jurisdictions.

"We in Washington, D.C., in some ways feel it more than others do because our cost of living is higher than in suburban locations," Kenner said. "That has probably caused us, especially this administration, to take it more seriously than certainly the District has in the past. Also I think we're taking it the most seriously in the region." 

It remains to be seen if these efforts to solve Metro's funding woes and improve housing affordability will be enough to convince Amazon to invest $5B to put its second headquarters here. The tech giant received 238 proposals for where to build the 8M SF campus. Four of those came from the District and several others from its neighboring jurisdictions. 

The Amazon HQ2 competition will be a hot topic at Bisnow's Unifying D.C., Maryland and Virginia luncheon on Nov. 15, where Buchanan, Williams, Kenner and Foulger will all speak.