As housing prices in parts of the country rise faster than salaries--much faster in the case of places like San Diego, Boston, Washington and New York--recruiters are finding it more of a challenge to hire top talent unless the deal is sweetened with some type of housing assistance.
Take Susan Mason. She was asked to transfer from Ohio to Rhode Island and isn’t sure how willing she would have been to leave Cincinnati had her employer not had a generous housing assistance program.
Housing prices in Providence, Rhode Island--headquarters for her employer, Citizens Bank--are twice Cincinnati’s. She swapped a large, roomy ranch-style home with its big yard for a home with half the space.
"That was only part of it," says Mason, director of recruiting for 23,000-employee Citizens Bank. "I was leaving behind my (extended) family, my friends, my mechanic, my dry cleaner and moving to a place where I didn’t know a soul."
To smooth the transition, Citizens helped her with the housing costs, worked out a flexible schedule that permits her to fly back to Cincinnati on a regular basis and provided her with a relocation concierge to help her find a new church, doctor and the all-important auto mechanic.
"It is what a company has to do to attract and keep good people," Mason says.
Quitting to cash out
For years, companies have customarily picked up moving expenses and a house-hunting trip or two for new managers. Only the most senior-level people merited housing subsidies. Now that benefit has been pushed down the food chain, even if the richest packages still go only to the most senior people.
According to the Society for Human Resource Management, about 12 percent of employers offer a housing benefit, up from 7 percent in 2002.
One of the largest employers to add the benefit was the 42,000-employee California State University system.
Four years ago, as California’s housing prices were accelerating toward double-digit annual increases, the state system commissioned a study of the impact that rising prices were having onrecruitment andretention. At many campuses, the price of housing emerged as the No. 1 or 2 obstacle to recruiting and retaining faculty. The study found that at the urban campuses, almost all of which are located in the nation’s highest-priced markets, not only were candidates turning down offers, but longtime faculty were quitting to cash out their home equity.
Now the 23-campus system offers employee housing assistance to help staff, and especially faculty, buy homes.
Like the CSU system, Mason says Citizens Bank has programs to aid new employees with their relocation expenses--including help with mortgage payments--and a home-buying program for employees making less than $100,000 as part of a retention effort.
"As the employment market tightens up," she says, employers "have to be more creative. We want to be the employer of choice."
Despite the generous relocation packages that can include cash grants of 15 percent to 20 percent of salary, Citizens still loses about one in 10 of the candidates to whom an offer is made.
Elizabeth Portalla, vice president of client development for Mobility Services International, a Boston-area company that assists companies inrelocating employees, says that companies have been trying to ease the sticker shock for new and relocating employees coming into high-priced housing markets.
"A lot of companies are focusing on the housing piece now," which is the direct result of rising housing prices, Portalla says. To attract even midlevel candidates, the most aggressive companies offer a mortgage buy-down. These programs lessen the impact of buying a home by reducing the interest rate for a period of years; three to five is typical.
Companies prefer the buy-down to other incentives like down payment grants or bonus awards because the cost is lower and the subsidy ends if the employee leaves. There are also tax advantages for the employee that don’t exist with cash awards.
While these benefits are more often found at medium and large companies, Portalla says businesses with as few as 400 employees offer some form of mortgage buy-down.
Candidates said no, thanks
Employer-assisted housing programs took off when cities and companies, often in the Rust Belt during the 1970s, tried to lure employees back to parts of town where houses were going empty as people moved to the suburbs. When he was research director of the American Affordable Housing Institute at Rutgers University in the 1980s and ’90s, Dan Hoffman and his colleagues coined the term "employer-assisted housing" and compiled cost-benefit data suggesting that companies with such programs had an advantage in recruitment and retention. Hoffman, who today works as a consultant on housing issues, says, "It didn’t get a lot of penetration until companies started getting turned down by the people they wanted to hire."
While attracting talent is still the most common reason companies offer some form of assistance, retention--especially among the lower-paid ranks--is fast becoming another reason.
Beth Marcus, director for Fannie Mae’s national community lending center, says the federally chartered mortgage company has helped some 750 companies nationwide provide a housing benefit to their employees. Working through local banks to provide loans, Marcus says the most popular financial benefit is a down payment subsidy to workers that is repaid or written off over a period of years, so long as the homeowner remains an employee.
In Philadelphia, where the median home price was $164,800 in the first quarter of 2005, New Courtland Elder Services offers its nursing home employees up to $6,000 in down payment assistance if they buy a home within the city limits. The program is half-funded by the city of Philadelphia.
A similar program in Jacksonville, Florida, is helpingBaptist Health cut turnover at its five hospitals. The Florida Times-Union reports that every year an employee remains with the company, a portion of the loan (which can be up to $6,000) is written off until, after five years, the employee owes nothing.
Most of the programs are too new for companies to assess their impact on retention, Marcus says. Fannie Mae, however, made housing assistance available to 5,400 employees in 1991. Among the 2,500 employees who took advantage of the program, turnover has been reduced by 25 percent. Not all of this decrease can be attributed solely to the housing program, but Marcus says it was a primary reason.
Freddie Mac, the other federally created housing company, offers similar programs and lends its own employees up to $12,000, which can be forgiven over five years of employment.
Peter Wayman, executive vice president of global client relations of Cendant Mobility, says that other attempts at easing the cost burden include commuting subsidies for employees in high-cost areas and job-hunting assistance for the employee’s spouse or partner up to even hiring that person. Having two wage earners minimizes the sticker shock, and a commuting subsidy offsets the cost of traveling farther out where houses typically cost less.
Lessening the sticker price shock, however, begins at the first stage of recruiting, Wayman says. "Look locally," he says, or in areas where housing prices are comparable. "There are plenty of places where the cost of housing is going to be a neutral."
In San Diego, where the median house price was $584,100 in the first quarter of 2005, defense contractor SAIC can still attract top talent, but "it’s been a challenge," says Sue Keil, deputy director of corporate staffing. The city’s reputation for beautiful weather and even finer beaches is a powerful draw. The company works with its new hires to ease the sticker shock as best it can, including help with closing costs.
Even so, when she can, Keil goes headhunting in places like San Francisco, New York and other high-priced housing markets. But, she says, "We look for the skills, and it doesn’t really matter where they are," she says. "San Diego is still a very desirable place to live."