Location, location, location. It's an old saw about real estate. Today, it also applies to talent acquisition and retention.
Rising costs and a limited supply of housing in many areas of the U.S. are making affordability a big factor in recruitment strategies and corporate expansions.
For years, Millennials have flocked to urban centers, lured by the promise of good jobs and an attractive lifestyle. From 2012 to 2016, the number of 25- to 34-year-olds with four-year degrees living in large cities grew nearly five times faster than the growth in the overall population (19 percent versus 4 percent), according to City Observatory, a Portland, Ore.-based think tank.
Some of the most popular locales are showing signs of stress, and so are the workers who live there. In a recent survey of San Francisco-area residents, some 40 percent of respondents overall and 46 percent of Millennial respondents said they were considering moving because of a lack of affordable real estate, growing traffic congestion and generally high living costs, according to the Bay Area Council, a business-backed advocacy group. In the Boston area, more than 72 percent of HR professionals said it had become "extremely or somewhat difficult" to recruit and retain talent, according to the results of a 2017 survey of employers by Northeastern University and the Massachusetts Housing Partnership. More than 67 percent said home prices and rental costs have affected their ability to recruit qualified candidates in Beantown.
"Affordable housing is absolutely coming to the forefront," says Sheryl Hopkins, senior vice president of HR at relocation consulting firm Runzheimer in the Milwaukee area. "It can really hinder your ability to get the quality and quantity of talent you need. It's a concern to both employers and the cities that are trying to attract companies."
The housing crunch's impact on recruitment has elevated the HR function in organizations nationwide. "The location decision of fast-growing companies is overwhelmingly dictated now by the HR department," says Joe Cortright, City Observatory's director. "They are focusing on places that either already have a pool of smart young people or that are attractive enough [for it] to be relatively easy to recruit people from other places."
So HR is playing a bigger role not just in devising new ways to lure employees to high-cost cities but also in deciding where to expand or relocate. It is taking a fresh look at revitalized, less expensive metropolitan areas whose leaders are looking to attract businesses. In some cases, HR is partnering with local governments to help renew aging city neighborhoods.
The cost of living in cities across the country has always varied widely, but "the disparity from one place to another has become greater," says Brian Kropp, HR practice leader in Arlington, Va., for Gartner, a Connecticut-based research and advisory firm. "So there's more of an onus on employers to balance the scales."
While plenty of young people are still moving to expensive hot spots, some older industrial and "fly-over" cities are attracting businesses because of their relatively low costs. Detroit, for example, is experiencing a renaissance of its urban core. In fact, that city's gain in educated young adults led the country, with a 60 percent increase from 2012 to 2016, according to City Observatory. The Motor City was followed by Hartford, Conn., at 58 percent and Orlando, Fla., at 56 percent. "No doubt, there are a significant number of young people moving to the downtowns of cities like Detroit," Cortright says, although he points out that such growth is from a low base.
Revived business districts and reasonable home prices appeal to older Millennials, too. While 20-somethings may be willing to share tight spaces with roommates in order to live in a cool city, those in their 30s often have different priorities. "As they build their career, get married and have a family, they start thinking about buying a home," says Cheryl Young, senior economist at real estate website Trulia, based in San Francisco. If they reside in an expensive area, they'll pay an even higher premium if they want to be in a good school district. In San Francisco and San Mateo County, Calif., for example, the median price of a home is $1.3 million. Even a "starter home" is $800,000.
The Texas Migration
One of the biggest ongoing U.S. migration trends is from Silicon Valley to Texas. Census data show that 250,000 people are moving out of their home states each year, mostly to "lower-cost-of-living red states," says Matt Regan, senior vice president of government relations at the Bay Area Council. And 25 percent of them are going to Texas.
Businesses are relocating there, too. Jamba Juice, an iconic Silicon Valley company, moved to Frisco, Texas. Google, Apple, Amazon, Dropbox and Oracle opened offices or facilities in Austin. The Dallas-Fort Worth area, where starter homes cost $140,000, is particularly popular with corporations from a range of industries. At least 72 major employers have moved there since 2010. Toyota, Liberty Mutual, JPMorgan Chase and others have made a home in Collin County, north of Dallas.
Indeed, companies seem to be spreading the wealth, geographically speaking. They have started opening satellite offices in more-affordable areas, Young says. Business leaders are giving more weight to cost of living when choosing an area for expansion because it is often hard to attract employees to pricey places. In some cases, they are moving functions that require more-general skills to less expensive regions or establishing offices in cities where they'll be more able to find particular in-demand skills. For example, Google and other tech companies have opened offices in Pittsburgh to be near Carnegie Mellon University, a top institution for robotics and artificial intelligence.
[SHRM members-only toolkit: Managing Employee Relocation]
Making Living Affordable
Some employers are increasing lump-sum payments to help current workers relocate or to lure promising candidates to high-cost areas, Hopkins says. Rather than simply offering to cover the expenses of a move, for example, HR leaders are comparing the cost of living between the old and new locales and making up the difference. "Now a company really makes an apples-to-apples comparison of how to make this employee whole," she says.
HR professionals are also starting to provide "wraparound services" to more people. Such packages "provide a whole set of additional services to help employees become more engaged in their new communities," Kropp says. For example, a company might offer workers assistance with finding the right neighborhood and school district, a perk that used to be reserved for C-suite executives. "Now we're seeing companies trying to push those services down in the organization," he says.
HR teams at some organizations—especially medical and academic institutions—offer to help staff members buy homes. San Mateo County Community College was losing faculty because housing was so expensive, so leaders at the college arranged for the building of rental properties on its tax-exempt land and offered units to faculty at below-market rates. The catch: Renters are required to put the money they save into escrow toward a down payment on a house, Regan says.
In Baltimore, more than 100 employers participate in a long-standing city program called "Live Near Your Work." Businesses and the local government provide funds to workers that can be used to purchase a home in Baltimore. University of Maryland, Baltimore, has a particularly generous benefit, offering employees up to $18,500 to put toward a down payment on a home and closing costs. Most awards available through the program are in the $2,000-$5,000 range.
Johns Hopkins University in Baltimore has participated for 20 years and has seen the program's popularity rise. The number of workers buying a home using the benefit rose from 52 in 2013 to 171 last year, according to Katie Walsh, community programs manager at the school.
"Live Near Your Work" is a great recruitment tool. "We get a very large number of applicants for this program each year, and a hefty number of them are new employees moving from out of state," she says. Fortunately for them, homes in Baltimore, unlike in Silicon Valley, are already affordable. (A starter home costs around $125,000, according to Trulia 2017 Q4 data.) So, while one goal of the benefit is encouraging staff to live close to campus, another is revitalizing city neighborhoods. The program applies only to certain areas near Johns Hopkins, but a wide variety of housing is available there, Walsh says.
More Employer Involvement
Affordable-housing advocates say more business leaders should get involved in this work. "Employers are terrific spokespeople," says Robin Snyderman, principal of housing consultancy BRicK Partners LLC, based in the Chicago area. "Housing decisions are made at the local level, so having local business leaders, local employees, stepping up and speaking about their needs can change the tone of discussions," she says. "When employers get involved at that level, things can really change."
Amazon's HQ2 competition demonstrates the influence companies can have. The winning city will serve as the company's second headquarters and home to 50,000 workers and their families. Adequate, reasonably priced real estate and good transportation are among the top considerations in selecting a location, and local governments have promised infrastructure improvements and other incentives with their bids.
Consider Plano, Texas. "We're just starting a task force made up of HR people from local companies," says Sally Bane, executive director of economic development. "We're bringing them together to help us understand what we can do to help them in their recruiting." With the influx of so many new employers to the county, it has become more congested and home prices have risen substantially. The task force will begin by discussing challenges and potential solutions as the region changes.
But Plano has several advantages, Bane says. First, it has diverse housing available at a range of prices, so workers of various salary levels can afford to live there. And the city is part of the Dallas Area Rapid Transit system, so people don't have to drive everywhere. "We think transportation is going to be more and more important as we continue to add to the population around Dallas-Fort Worth," she says.
The New Company Town
Back in Silicon Valley, tech giants have been running their own bus systems for years. Now a couple of them are building their own housing. Last summer, Google parent company Alphabet, based in Mountain View, Calif., ordered 300 apartment units from a modular home builder called Factory OS as a short-term solution to the shortage for employees.
Longer term, both Google and Facebook are moving toward what might be considered new versions of the old company town in California. In July of last year, Facebook announced plans to redevelop part of Menlo Park into the Willow Campus, which would include 1,500 units of housing as well as office and retail space. And in December, the Mountain View City Council approved Google's North Bayshore project, which is to include 10,000 new homes as well as offices and retail space.
Although developments like these are unique to the two Silicon Valley heavyweights, tech companies in other parts of the world are also building employee housing, Kropp notes. In 2017, e-commerce giant Alibaba began building 380 apartments on its campus in Hangzhou, China, and was holding a lottery among workers for options to buy units at two-thirds the market price, according to the Financial Times.
Meanwhile, some cities that used to be affordable may become less attractive as more businesses move there. "Ten years ago, you could locate in the Dallas area and all your employees would have access to homes they could afford, with great schools, within a 30-minute commute," says Torrey Littlejohn, a senior vice president at real estate company Jones Lang LaSalle who is based in Dallas-Fort Worth. Now traffic has increased and housing prices have shot up. "It may not be so affordable anymore," she observes. Increasingly, HR leaders are stepping up for their employees to remedy that.
Tam Harbert is a freelance technology and business reporter based in the Washington, D.C., area.
Illustration by Mari Adams for HR Magazine.
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