41.3% of households earning 80% of the local median income in San Jose and 42.7% in Seattle are rent-burdened, according to a new analysis from Redfin, the technology-powered real estate brokerage. While high-income households living in those areas can afford to buy or rent a home, lower-income people like teachers and retail workers have a harder time paying for housing.
“Seattle is turning into Silicon Valley, with software engineers driving up home prices. That’s especially true over the last year; Amazon and Microsoft employees are the winners of the recession, with stock prices increasing so much that many of them can afford down payments with proceeds from their stock alone,” said Seattle-area Redfin agent Scott Petrich. “Even if people who earn less money find a home they can afford, it’s almost impossible with so few homes on the market to win bidding wars against other potential buyers, who are often able to waive contingencies and waive the appraisal.”
Tech companies including Amazon, Google, Apple, Microsoft and Facebook have introduced initiatives to help combat the affordability crisis, especially in areas where their offices are located. Most recently, Amazon launched a $2 billion fund intended to create 20,000 total housing units for households earning less than 80% of the local median income in Seattle, Nashville and Washington, D.C. — regions where the company already has or expects to have at least 5,000 employees in the coming years.
Amazon’s housing pledge is likely to have a small impact on the rental market
If Amazon helps add 6,666 additional affordable rental units in the Seattle area (one-third of the company’s 20,000-unit pledge divided evenly across three metros), 41.6% of households earning 80% of the local median income would remain rent-burdened, a difference of just one percentage point, according to Redfin’s analysis of the likely impact of Amazon’s commitment.
By comparison, just 2% of households earning Seattle’s local Amazon software engineer salary ($167,000) spend more than 30% of their income on rent — and that estimate is likely high, given that it doesn’t account for Amazon employees’ stock compensation. And many people earning that income are likely choosing to spend more than 30% of their income on rent, as they could very likely find a lower-priced rental.
“Regions with a lot of tech employees have struggled to produce enough new housing to keep up with the surge of demand coming from those workers. Even Amazon’s commitment of $2 billion–a huge amount of money and nearly 5% of HUD’s annual budget–will have only a minor impact on affordability for lower-income renters,” said Redfin economist Taylor Marr. “Lack of affordability is a major problem for a lot of families because being rent-burdened can lead to bigger financial problems. When families spend so much of their income on rent, they’re unable to save money to eventually buy a home or even create an emergency savings account, which perpetuates inequality in America. And the topic is especially relevant today, as the pandemic is exacerbating income and wealth inequality as white-collar workers, including tech employees, hold onto their jobs while many people in the service industry lose theirs.”
“Even though the impact of Amazon’s pledge is small for renters, corporate commitments like this one could help prevent the housing affordability problem from getting even worse,” Marr continued. “It’s up to federal and local governments to enact bold legislation to help lower-income families all over the country afford housing on a long-term basis.”
Like in Seattle, the impact on Washington, D.C.’s rental market would be small: 40.9% of households earning 80% of D.C.’s local median income (80% = $84,527) are rent-burdened, a share that would decrease to 40.1% with 6,666 additional affordable units. Just 2.2% of local Amazon software engineers, who earn an average $169,000 per year in D.C., spend more than 30% of their income on rent.
And in Nashville, 39.7% of households earning 80% of the area’s local median income (80% = $56,210) are rent-burdened, a share that would decrease slightly to 37% with 6,666 more affordable units. The typical local Amazon software engineer in Nashville earns $211,000; 2.5% of locals earning that salary spend more than 30% of their income on rent.
The potential impact of Amazon’s pledge on for-sale markets is larger, but unlikely to come to fruition
While Amazon’s affordable housing pledge is likely to help add to the supply of rentals rather than add to the for-sale market, Redfin also analyzed the impact of the commitment on the for-sale markets in Seattle, Nashville and Washington, D.C.
In the Seattle metro, 47.3% of homes with at least two bedrooms listed for sale in 2020 were affordable to families earning 80% of the area’s median income. Redfin analyzed listings with at least two bedrooms because they are suitable for a family. If Amazon were to help create 6,666 additional affordable homes, the share of two-bedroom-plus homes affordable to those households would increase to 57.5%. While that seems bigger than the impact on the rental market, it’s likely to be less impactful because lower-income households are more likely to be renters and Amazon’s pledge appears to be largely targeting rental apartments.
By contrast, more than 90% of two-bedroom-plus homes for sale in the Seattle metro in 2020 were affordable to the typical Amazon software engineer.
In the Washington, D.C. metro, 70.5% of two-bedroom-plus homes listed for sale in 2020 were affordable to families earning 80% of the area’s median income. The share would increase to 77.3% with 6,666 additional affordable homes. Nearly 95% of those homes in the D.C. metro are affordable to the typical Amazon software engineer.
And in Nashville, 66.4% of two-bedroom-plus homes listed for sale were affordable to families earning 80% of the local median income. That share would increase to 80.9% with 6,666 additional affordable homes for sale. Nearly all–98%–of Nashville listings are affordable to Amazon software engineers.