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The Blessing (and Curse) of Mega-Factories on Real Estate and Economic Development

There’s not much happening in Stanton, Tennessee, or at least that’s been the case for a long time. The rural town in the western part of the state has an estimated population of 420 people as of 2019. In the history of Stanton, the town’s population has never exceeded 700 people. Stanton is about 50 miles northeast of Memphis but is known for its proximity to the Hatchie National Wildlife Refuge, which has about 11,500-plus acres of wetlands habitat for seasonal hunting and fishing.

The town has a total land area of only half a square mile and is part of Haywood County in west Tennessee. Haywood County is only one of two remaining counties in Tennessee with a majority Black population, as Stanton’s Black community accounts for about 68 percent of the town’s population. Like much of western Tennessee, the town’s history is tied to agriculture and cotton fields.

Haywood County, Tennessee, will soon be home to a $5.6 billion Ford factory that’ll build electric vehicles and batteries. Source: File:Haywood County TN county line marker.jpg – Wikimedia Commons

The quiet country life in Stanton, Tennessee, is all the more reason the news of a vast, complex mega-factory called “Blue Oval City” seems so jarring. Ford and SK Innovation announced in September 2021 that they’d build a factory in Stanton to manufacture electric vehicles and EV batteries. The facility is expected to be operational in 2025, costing approximately $5.6 billion and making it the single most expensive investment in Tennessee’s history.

Ford says the Blue Oval City mega-site will employ about 5,700 people, which dwarfs the population of Stanton and would be nearly a third of the size of the entire population of Haywood County. In September 2009, Tennessee’s State Building Commission authorized spending $40 million to purchase the 3,836-acre tract of land in Haywood County near Stanton that’ll be used for Ford’s factory.

Most public officials and Ford representatives are ecstatic about the potential of Blue Oval City. Jeff Huffman, mayor of nearby Tipton County, said, “There’s never been a private, $5.6 billion investment in what’s basically a 3,600-acre soybean field with no infrastructure around it.” State officials say the project’s impact will “hit every community in West Tennessee and beyond.” A local Tennessee TV station called it a “once in a lifetime project,” and Ford Electric Vehicle Footprint Manufacturing Director Greg Christensen said, “We think it’s generational. We really believe generations will feel the impact of this.”

Christensen is correct, the impact will be massive. It’s estimated that 30,000 temporary construction jobs will be required to build the mega-factory. And for every job created by building Ford’s electric trucks at the plant, 13 to 14 indirect jobs will also be created, according to a study by the Environmental Defense Fund.

But mega-factories like this also come with challenges. One of those challenges is the rapid development needed around the areas in which mega-sites are built which can lead to rising real estate costs. Martin Walker, a west Tennessee resident for two decades, summed it up well when talking to a local TV station. “We just don’t want to see it become too busy around here, you know, and change things from the way they are,” Walker said. Unfortunately, Walker and other residents of small towns in western Tennessee could be in for a rude awakening. A significant change is coming, and it’s coming fast.

Supply chain realignment

Ford’s Blue Oval City in Tennessee is far from the only mega-factory sprouting up across the U.S. As automakers shift to electric vehicles, several massive EV and battery plants are being built in America just like in Stanton and Haywood County. In Oklahoma, startup Canoo is building an electric vehicle factory on 400 acres of land they say will create 2,000 jobs. Toyota is planning a battery factory in North Carolina that will cost $1.3 billion. Hyundai recently confirmed it’s planning to build a new EV plant in the U.S. to make fully electric SUVs, but they haven’t confirmed the location. Rivian Automotive is planning on a $5 billion EV plant outside of Atlanta, and SK Innovation, a Korean battery maker, announced in 2018 that it’ll build two battery factories in Commerce, Georgia. 

This is just a partial list, but you get the idea. Plus, that doesn’t even include Tesla’s famous Gigafactories, of which the company has 5 in Storey County, Nevada; Buffalo, New York; and Austin, Texas, as well as two other international plants. It’s not just for electric cars, either. Other industries are building mega-sites for things like semiconductors and solar panels. The projects are high investment and employment, and their number and size have grown tremendously recently.

Tesla’s Gigafactory 1 in Reno, Nevada, pictured in 2019. Credit: File:Tesla Gigafactory 1 – December 2019.jpg – Wikimedia Commons

“I’ve been doing corporate site selection for 24 years and I’ve never seen this much mega-factory activity in my entire career,” said Didi Caldwell, President & Founding Principal of Global Location Strategies. Caldwell explained there’s a geographic realignment going on in the manufacturing industry because of all the turmoil with COVID, the war in Ukraine, and shocks to the global supply chain. Companies have seen supply chain shocks before, but the recent crisis has been so painful and prolonged that companies are rethinking their strategies and onshoring to locations in the U.S.

The mega-factories are swallowing large chunks of property in rural, suburban, and “exurban” areas so fast that Caldwell says companies and states are now challenged to find suitable big sites. The factories are mostly a good thing, as they employ thousands of people and boost local economies, but they bring some thorny challenges. For example, electric vehicle plants are very energy-intensive and can strain the electric grid. All the plants and companies want direct renewable energy, but Caldwell questions if that’s even possible.

An affordability paradox

The plants have a multiplier effect, as suppliers tend to locate close to them. The problem with EV plants is that they don’t have as big of a multiplier effect as regular auto plants because electric vehicles require fewer parts than fuel combustion cars. But no matter what kind of mega-factory is being created the biggest problem is their need for housing and the impact that has on local real estate. “A mega-factory can bring 5,000 jobs, so there’s usually not enough housing nearby,” Caldwell said. “And that causes affordability concerns.”

Tesla’s Gigafactory in East Austin, Texas, is a good example of the troublesome multiplier effects these plants can have. Tesla’s entry into the low-income, predominantly minority community increased property values in the area by roughly 22 percent from 2020 to 2021, according to real estate service firm Orchard. The $1 billion Gigafactory in Austin will come with more than 5,000 or up to 10,000 “middle-skill” jobs, as the company has promised.

Tesla Gigafactory’s impact on Austin housing prices

Within 10 miles of Tesla’s GigafactoryQ3 2020Q3 2021
Home sales1,6401,752
Median days on market67
Median sale price$437,050$534,402
Median price per square foot$288$353
Source: How Competitive Is it to Buy Near The Tech Giants of Austin? (orchard.com)

With an average annual salary of about $50,000 for assembly-line employees, it’s tough to see how those employees could afford to buy a house in Austin’s already pricey housing market. The value of a single-family home in the city has spiked about 54 percent since the beginning of 2020, the highest among any of the top 50 largest U.S. metro areas tracked by Zillow.

The disparity between incomes and housing costs has led to some non-traditional types of housing being built in the Austin area for potential Gigafactory workers. There are reports of camper and RV sites getting demand from Tesla contractors such as safety inspectors and machine operators. Homebuilders Icon and Lennar also plan to build the world’s largest neighborhood of 3D printed homes in the Austin area.

But even more worrying than the increased property values is the environmental impact the giga-factory could have on the nearby community that has long been subject to environmental justice concerns. It’s a cruelly ironic concern given the potential of electric vehicles to help fight climate change. Austin’s Colony is the specific community where the Gigafactory is located, and some residents’ biggest fear is flooding, as the massive factory spreads over 2,000 acres of former swampland. Concrete replaced the former permeable surfaces, removing flood buffers in an area next to the Colorado River. With heavy rainfalls becoming more common, the risks of runoff and flooding are more severe to Tesla’s neighbors.

War among the states

Many also criticize the massive state government subsidies and tax incentive packages used to close deals for mega-factories. Despite the economic benefits to the state and local communities, critics say the tax packages usually don’t pay back taxpayers because they’re too astronomically high. For example, the Blue Oval City project in Tennessee was expected to garner a $500 million package of incentives, including infrastructure improvements, grants, and a new trade college campus to train workers. But the final cost of the tax incentives that Ford got ballooned to $884 million.

“These are big transfers of wealth that happen between taxpayers and company shareholders as a result,” said Greg LeRoy, Executive Director of Good Jobs First, a nonprofit that promotes government and corporate accountability in economic development. The result is a “war among the states” and what some say is a race to the bottom as states compete to draw companies’ investment and offer higher and higher incentive packages.

LeRoy thinks the federal government should place caps on how high the subsidies can get, though that seems unlikely to happen. “There’s no federal industrial policy for this, so that’s why we have a corporate dominant site selection system,” he said. Few governors or presidents have challenged this process over the years, and LeRoy said the last time the National Governors Association debated the topic was 29 years ago. LeRoy bemoaned that site selection companies often run the process secretively, making states compete against each other, and even using code names for the projects. “Biden could do a lot to rein this in and so could have Trump, but most presidents are M.I.A. and just let it happen,” he said.

But Caldwell, the site selection professional, said most people don’t know that the incentive packages are usually performance-based. Some incentives will never be realized, so the published numbers are theoretical. If the company doesn’t meet job-creation and other goals, what they actually get in tax incentives could be much lower. Caldwell says state and local governments do a lousy job of conveying this to the public. Still, companies see those big incentive numbers published and want a piece of the action, too. “So, who’s the customer, the company or the community?” Caldwell said.

Quiet no more

The mega-factories bring plenty of jobs and dollars to local economies but can also upend life in quiet communities. NIMBYism sets in as a result. A recent deal with a Rivian Automotive electric vehicle factory caused blowback in Atlanta and even factored into the gubernatorial primaries. Conservative and liberal residents united in pushing back against the mega-factory development, saying it would ruin their quiet towns. Residents were also upset with the massive $1.5 billion state and local tax incentive package offered to Rivian.

Former U.S. Senator David Perdue used the mega-deal in attacks against Georgia Governor Brian Kemp in the Republican gubernatorial primary, saying, “Kemp gave away the farm to a woke corporation for something the locals don’t even want, and hardworking Georgians are left footing the bill.” Rivian announced the deal last year and planned to break ground this summer, hoping to begin EV production in 2024 and employ 7,500 workers.

A Rivian R1T electric vehicle rolling off the assembly line at the company’s plant in Normal, Illinois in 2021. Credit: File:Rivian Normal Plant Floor.jpg – Wikimedia Commons

But local residents have continued to voice frustration and concern over possible well water contamination, light pollution, and the disruption of wildlife habitats and farmland. “To have this sprung on us after all these non-disclosure agreements and secret meetings, can you not understand why we don’t trust you?” said Edwin Snell, a resident near the planned Rivian EV factory at a state committee hearing in April.

Despite the sometimes-unruly side effects of the mega-factories, Caldwell, the site selection professional, said most companies aim to be a positive force in the communities where they situate them. “Companies are making generational investments in communities, it’s like a marriage,” Caldwell said. “Their baby is the project and people like me are the matchmaker. So, it doesn’t make sense for these companies to do anything that would harm the communities.”

Caldwell added that the headwinds on the supply side for electric vehicles could cause problems down the line. EVs require lots of minerals like cobalt and nickel, and the war in Ukraine has made it harder to get those materials. Electric vehicle makers also need tons of semiconductors, and there’s still a shortage of those as well. Nevertheless, enormous factories for electric vehicles and other industries look poised to keep growing across America, for now at least. These mega-factories bring a wealth of opportunities for states and local communities, including real estate, but they bring unique problems, too.

Across the U.S., places like East Austin, Texas, and outside of Atlanta will become home to sprawling electric vehicle factories that economically could be a blessing and a curse. Tiny towns like Stanton, Tennessee will see an economic boom, but questions still remain about how they will be able to harness it. One thing that is certain is that there will be many jobs, perhaps some environmental concerns, resurgent NIMBYism, and impacts on real estate development.

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