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A second headquarters is expected to bring headaches as well as benefits to the winning city.

When decides on the location for its second corporate headquarters in North America sometime this year, some economic experts, city planners, and labor leaders have words of advice for the winning city: Be careful what you wish for.


The 20 finalists are no doubt salivating over the prospect of adding as many as 50,000 jobs at the dazzling $5 billion campus for technology’s hottest company. They anticipate tens of millions of dollars flowing into the region each year.


Min Suh, a former real estate finance professor at Columbia’s Masters in Real Estate Development program, built an economic model for Barron’s on the financial windfall for the winning city. He anticipates $135 million in project-related revenue, $36 million to $64 million in annual real estate property taxes for the new headquarters alone, $5,500 to $8,400 in tax revenue per employee, which includes increased sales taxes from discretionary spending by a well-paid army of Amazon (ticker: AMZN) employees.


“There is a real positive impact,” says Suh, who is CEO of Assess+RE, which provides software that analyzes commercial real estate investments, assets, and data. “What is a city willing to offer to capture that revenue?”


Plenty. Perhaps that’s why finalists like Newark, N.J., are publicly willing to dangle $7 billion in corporate tax benefits, income tax rebates, property tax rebates, and grants over the next decade. Montgomery County, Md., is offering $5 billion, and Chicago, $2.25 billion.


“It’s a big deal,” says Brian Kenner, deputy mayor for planning and economic development in Washington, D.C., one of the finalists. “It speaks to our ability to attract Amazon and other companies.”


But there are several downsides—and prospective bidders should look no further than Silicon Valley. Even though 47,000 new jobs were created in the region from the second quarter of 2016 through second-quarter 2017, workers continue to struggle to find affordable housing while enduring hellacious traffic and escalating costs in the area, according to the 2018 Silicon Valley Index. An average salary of $131,000 was barely enough to keep pace with increases in median home prices (7.4%) and apartment rents (up 37% since 2011).


“Broad expansion also brings headaches, as they have in the San Francisco Bay Area,” says Greg Willett, chief economist at RealPage, a maker of property-management software. “Wherever Amazon ends up, to varying degrees there will be an impact on housing availability and cost, traffic could be a mess, infrastructure will be under incredible stress, and you’ll have income inequity.” (He says that the three best apartment markets to handle Amazon’s expansion are Atlanta, Dallas, and Washington.)


Kenner acknowledges potential hurdles. He says that landing the Amazon deal would require Washington to think about long-term funding for its robust transit system and enhancing training at local universities to develop top talent. The city already spends $100 million a year on subsidized affordable housing, he says.


Amazon did not reply to an email seeking comment for this article.


The company’s major expansion comes at a cost. A state government is likely to be forced to publicly subsidize such a large enterprise with municipal bonds and higher taxes for current citizens to maintain infrastructure and other basic services, says Frank Nothaft, chief economist for CoreLogic.


“Megadeals have grown so costly that their costs to taxpayers routinely far exceed any possible benefits,” says Greg LeRoy, executive director of Good Jobs First, a research group that tracks state and local economic-development deals. “They cause governments to grossly favor large companies over small firms, despite a large body of evidence that a subset of small, young companies—the ‘gazelles’—account for a disproportionate share of new-job creation.”


Such deals don’t always pan out in jobs creation and financial impact, prompting some states to more carefully assess them, according to the Pew Charitable Trusts, which rates states’ tax breaks. Among the cautionary examples: Washington state’s $8.7 billion deal to keep Boeing (BA) in 2013, and New York Power Authority’s offer of $5.6 billion in discounted hydropower to Alcoa (AA) in 2007.


Amazon’s deal may be among the most egregious, claim dozens of economists, policy makers, and city experts who recently started a petition.


“This use of Amazon’s market power to extract incentives from local and state governments is rent-seeking and anticompetitive. It is in the public interest to resist such behavior and not play into or enable it,” says the petition, which has been signed by more than 14,000 people.


To start, finding the necessary eight million square feet of commercial real estate to accommodate Amazon is no easy task, says Jesse Weber, senior managing director at Newmark Knight Frank, one of the world’s leading commercial real estate advisory firms.


“Filling such a large space sucks up vacancies, driving up rental costs and property taxes and possibly squeezing out smaller companies that can’t afford rent hikes,” Weber says. “The most likely scenario is stringing together buildings across a county, which puts a strain on infrastructure.”


It’s likely that the winning city will have to significantly upgrade roadways, public transportation, and other basic services to handle the addition of what amounts to a small town, Suh says.


The influx of tens of thousands of jobs will also drive up housing and rental costs. The median home value in Seattle, where Amazon is based, is over $700,000. By comparison, in Washington, D.C., an expensive city experiencing housing pressure, it’s about $500,000.


Most of the finalists are already “hot” housing markets, which means that the addition of Amazon to the market would add “further demand and upward pressure to housing costs,” says CoreLogic’s Nothaft. He points to Denver and Nashville, with home price increases at more than 8%, compared with the national average of 6%.


Amazon’s HQ2 promises to be a mix of jobs in engineering, accounting, back-office operations, legal, and sales. Will the site of HQ2 have enough qualified individuals to fill so many high-end jobs? With a shortage of tech workers nationwide, many of the jobs will not go to current residents but to people recruited from elsewhere. Their arrival will impact infrastructure and housing, LeRoy says.


There is also the concern that Amazon, which recently laid off hundreds at its Seattle headquarters, may not hire all 50,000 workers as it navigates a volatile stock market, LeRoy and others say.


Regardless of any inherent risks, one of the 20 finalist cities will be willing to take a chance.


And if a finalist misses out on Amazon, there’s always another opportunity: Apple in January said it planned to invest billions of dollars in the U.S. as part of a broad er effort to repatriate overseas cash. It intends to create 20,000 new jobs over five years at its current campus in Cupertino, Calif., as well as a “new one.” Apple Chief Executive Officer Tim Cook told ABC News that the new campus would be outside of California and Texas, where it already has large facilities.


Many economists generally frown on so-called megadeals—defined as more than $50 million in incentives to woo a company—but they are on the rise. Since 2008, the rate of such deals have more than doubled to an average of 25 per year. Last year, Wisconsin enacted a $3 billion subsidy deal for a Foxconn factory, and Iowa awarded $213 million in incentives to Apple (AAPL) for its data center in Des Moines—more than $4 million per job.