Housing is already a major part of every company’s HR strategy, simply because wages depend on housing costs. But some companies go beyond wages, attracting workers with rental or mortgage subsidies. And in a few cases they even advocate for more housing to be built in a community, or directly provide employee housing. Companies should consider all of these options. The appropriate approach will depend on the properties of the local housing market.
Elon Musk is planning to build an entire town to offer below market rents to his employees. The new town is close to Austin, Texas where three of his companies, Boring, Tesla and SpaceX, have operations. Although company towns are not common today, Musk is not the first entrepreneur to realize that his ability to attract talent is tied to affordable housing. When the Manhattan-based piano maker Steinway & Sons — an entertainment industry giant of its age — expanded its operations to Queens in the 1870s, its corporate leaders did more than plan for a new factory. They built an entire new community complete with housing, kindergarten, library, and postal office.
And even today, Musk is not on his own. Meta (previously Facebook) is attempting something similar with its plan to build Willow Village in Menlo Park complete with housing, cafes, and a park.
Over the last 50 years, employers rarely provided more than relocation assistance to meet their workers’ housing needs. But today the high cost of housing means that some employers, like Meta, see a competitive advantage in assisting their workers with housing.
In a sense, housing is already a major part of every large employer’s HR strategy, since the cost of hiring depends on the cost of housing. The average cafeteria cook costs its employer $29,000 per year in Houston, which has abundant construction and low prices, and $47,000 per year in greater San Francisco, which is the epicenter of America’s housing dysfunction.
Yes, getting directly involved in housing would be a big shift in the employee benefits strategy of most firms. However, as companies are making a fresh push to reduce the number of remote positions, employers in America’s high-cost locales will find it even harder to attract and retain talent. Here are some considerations in deciding if housing should be part of your company’s talent strategy, and if so, how to execute that vision.
A Short History of Corporate Housing
In 1812, Francis Cabot Lowell returned to Boston with some of the world’s most valuable (stolen) intellectual property stuffed into his head: the design for the British power looms that were at the heart of the industrial revolution. Lowell had plenty of rich friends who could supply the capital to build textile mills based on these plans, but where was he going to get the labor? His answer was the underemployed daughters of far-flung farmers — but these potential workers weren’t going to move to just anywhere.
To get the workers he needed, Lowell provided boarding houses for the young women supervised by matrons, who would provide some assurance of safety to their families. Eventually, Lowell’s associates would build a whole community in Lowell, Massachusetts, which was designed around the “Mill Girls,” whom the company needed to hire. These young women worked 12 hours per day, grueling by modern standards, but the conditions compared favorably to mill work in Britain and France. When Charles Dickens visited he described a “large, populous, thriving place.” Lowell would be the model for plenty of company towns, such as the one that George Pullman built for his railroad car workers near to Lake Michigan.
In the 20th century, company towns fell out of favor. The strikes that rattled Pullman’s company showed both the limitations of company housing and the value of providing affordable living space. During the recession of 1893, Pullman had cut wages by 25% and done nothing to reduce rents. American housing was becoming cheaper and more plentiful as mortgage-lending and highway construction unlocked homeownership in the American suburbs. At the same time, streetcars and automobiles meant that workers didn’t need to live right next to a factory. These factors combined, led to American workers favoring finding their own housing, a trend welcomed by most corporate leaders who wanted to focus on their core operations rather than building and running company towns.
Higher Wages or Housing Assistance?
Despite all the recent headlines about layoffs, American businesses are struggling to attract and retain employees at a historically high rate. The U.S. currently has 11 million unfilled jobs, nearly 50% more unfilled positions than the pre-pandemic record. Employers are eager to find solutions that reduces their employee attrition as American workers are leaving their jobs at a historically high rate. At the same time, Americans have to commute further to find a job as new jobs being created often are outside of the old population centers. Tesla’s gigafactory in Nevada, for example, is located about 30 minutes outside of Reno. This is bad news for employers. One of us (Tarki) working with employers on this topic has found that a longer commute is one of the most reliable predictors of attrition, especially for mid- and lower-salaried positions.
Companies are always going to have to pay high wages when housing costs go up, but the big question is when it makes sense to go further and either offer a targeted housing benefit or to try to get more housing built.
Starting in the 1960s, the University of Pennsylvania was a pioneer in using housing assistance both to retain workers and revitalize the neighborhood near the university. An analysis of the program done by Harvard’s Joint Center for Housing Studies notes that the program provided a mortgage guarantee for employees with three years of tenure who bought within three blocks of the university. That structure meant short commutes for its workers and provided an extra kicker to reduce turnover. Of course, such programs must be carefully designed. As urban universities invest in their own neighborhoods, gentrification can harm nearby renters.
Amazon recently partnered with online mortgage lender Better.com for its own version of a housing assistance program. Under the program, Amazon employees no longer will need to sell their company shares to access the cash needed for a down payment for a home. Instead, Better.com will allow Amazon employees to pledge their shares for loan down payments.
Housing assistance, like almost any benefit, can help attract the right kind of worker and make existing workers more productive. For example, an employee gym can both help keep workers healthy and attract healthier workers to the company. These twin objectives — attract the right workers and make existing workers more productive — should shape all thinking about designing a housing assistance program.
Consider three hypothetical examples:
Company A is a large employer in a low-density, low-cost area where its workers can afford to buy a home. Currently, however, company A is having a huge turnover problem, partially because its younger workers often move to a more exciting metropolitan area — two thirds of the nation’s population live in the top 100 metropolitan areas. A mortgage assistance problem could be perfect for Company A because once its workers have bought a home in the area then they are locked in, and because that program will help attract workers who like living in the area.
Company B is a smaller employer in a larger and expensive metropolitan area. Company B’s core workforce typically can’t afford to buy. Some workers share apartments nearby; others have dreadful commutes so that they can have nicer places. Company B’s big problem is that low productivity among the long-distance commuters, who are more likely to miss work, arrive late because of traffic disasters or to quit their jobs once their training is done and they start becoming productive. Company B considers a rental assistance program that provides more aid to workers who live near work, since that could reduce the commute-related problems.
Company C is opening up a new location where there are plenty of local workers, but the challenge is to attract applicants with career ambitions. This company’s funds might be better spent at education assistance to attract workers who are wired toward career growth.
Housing assistance has a couple of other nice features. Rental assistance can be temporary and targeted, which means that it can be cut more easily than wages if housing prices fall during a recession. Furthermore, these policies can be designed to address a specific pain point as opposed to some benefits programs that can balloon in cost due to higher company-wide usage.
Beyond Housing Assistance to Building
With Willow Village, Meta is going beyond stipends and making a tangible commitment to build more housing in the Bay Area, as part of the company’s larger $1 billion commitment to affordable housing. Meta clearly understands that if the stock of housing in California is fixed, then as tech companies pay higher and higher salaries the prices of housing are just going to keep on climbing. Even targeted housing assistance would just show up in higher prices, as long as the supply of homes is limited. The only long run path towards lower cost housing, which would lower Meta’s labor costs dramatically, is for California to produce more housing.
Economics 101 teaches us that housing subsidies work well when housing supply is elastic. In markets where supply has room to increase, then these subsidies lead to an overall expansion of the housing market. In markets where the supply of housing is essentially fixed, often due to strict land use regulations, then subsidies just lead to higher prices. If one employer subsidizes living nearby, then all employers face higher housing costs. Companies need to think about the housing market when weighing higher wages vs. housing subsidies vs. building or advocating for building. The more constrained the supply of new housing, the less effective housing subsidies will be in the medium- and long-run.
Meta is hardly the only tech company that has noticed the need to build more housing in Silicon Valley. The Silicon Valley Leadership Group, which has over 350 member organizations from Apple to Zillow, list among its “significant achievements” as “advocating for thousands of homes to be built for workers.”
Businesses speak for the needs of American productivity and when business leaders speak out about the need for more affordable housing political leaders listen. One of us (Glaeser) was at a “housing summit” with then-Governor Mitt Romney, where the CEO of a major local employer made the case that Boston’s high housing costs were his company’s biggest problem. Romney listened to that far more than to any academic voice.
But aren’t debates about housing controversial? Won’t my company risk alienating key constituencies?
Not if you’re smart. Eighty-five percent of Americans told a recent Pew Poll that the availability of affordable housing in their area was a major (49%) or minor (35%) problem. Supporting the creation of affordable housing is overwhelmingly seen as a virtue.
Companies wanting to support affordable housing, but to avoid local controversies around specific construction efforts can do this through industry and community organizations. The Silicon Valley Leadership Group is a perfect model. First, its distinctive brand creates a way for companies to support affordability without having their names drawn directly into any policy debates. Second, it supports legislation that “requires cities to better plan for needed housing,” which meant “housing allocations more than doubling for the Bay Area.” They support pro-housing legislation, but not specific projects.
Companies willing to take a stronger stance can support specific projects. Disney did just that when earmarking 80 acres for a new affordable housing development.
From textile mills in Massachusetts to sugar refineries in California, a lot of American communities were not only built around companies, but by companies. Decades after moving away from viewing housing as an integral part of their talent strategies, companies are struggling to attract and retain talent. Corporate leaders seeking to reverse this trend are once again helping their employees address high housing costs.
As home prices have skyrocketed in recent months, many employers are being asked to help alleviate the struggle their employees face with regards to housing costs. It is well documented that high housing costs often contributes to increased employee stress, lower morale, and impaired productivity. Here are a few things employers can do to address high housing costs.
1. Increase wages for employees. One way for employers to help alleviate the burden of housing costs is to raise wages for employees to keep up with increasing housing prices. By ensuring a livable wage, employers can help their employees afford more suitable housing that is closer to their workplace.
2. Consider implementing a housing benefit. By offering a housing benefit, employers can help their employees with their monthly payments and relieve the financial stress that can sometimes accompany housing budgets. A housing benefit can be a useful tool for employers to show their employees that they are invested in their wellbeing.
3. Work with local housing providers. Employers should consider working with local housing providers to set up special deals or discounts that can help employees with their housing needs. This is an effective way to help employees access better housing that is closer to where they work, and that is more affordable.
4. Consider subsidized housing programs. Subsidized housing programs are designed to help lower income individuals find and maintain affordable housing. Employers should look into these programs and consider making them available to their employees who might otherwise not be able to afford housing or have difficulty locating housing.
By taking some of the measures outlined above, employers can assist their employees in addressing the problems of high housing costs. By providing assistance with their housing needs, employees will be more productive and motivated to perform, ultimately benefitting both the employees and the employer.