High Costs of Housing Creating Severe Labor Shortages
High housing prices in many metropolitan areas--led by Boston and Orange County--are creating severe labor shortages in those areas and costing businesses billions of dollars to help house their workers, according to a new study in the Harvard Business Review.
The study found that Boston and Orange County had the highest housing costs last year when compared to wages. In both areas a house cost about 7.5 times the average annual wage. The national average was about four times the average wage.
Businesses in high-cost housing regions such as Southern California, New York and New England are spending billions of dollars to finance employee mortgages, relocate workers around the country and subsidize incomes to help meet housing costs, the study found.
“The housing shortage continues to drive up wages, drain the work force of every region it afflicts, and force businesses to pour capital into ballooning recruitment and relocation budgets,” said the study, which appears in the September-October issue.
Calculating an “affordability ratio” of housing prices to wages, the study ranked Hartford, Conn., third after Boston and Orange County, New York fourth, Providence, R.I., fifth and San Francisco sixth as the least-affordable places to live.
In Boston, the median 1987 price of a single-family home was $177,200, while the average annual wage was $23,148, for a ratio of 7.7. That makes housing unaffordable, according to the study, since a household would need an income of $59,449 to buy the average house.
In Orange County the study pegged the median price of a home at $166,900, and found average annual income to be $22,231. That meant the cost of a home was 7.5 times the average wage, and a household would need an income of $55,994 to afford a house.
The average national ratio was 4.2--$85,600 for the house with a $20,615 income. But a family still would need a $28,718 income to afford the payments.
By the second quarter of this year, Orange County had topped the nation in the median price of a single-family house, according to the National Assn. of Realtors, which estimated the price at $204,000.
By July, that price had risen to $219,542, which fewer than one in five families could afford, said the California Assn. of Realtors.
Often, companies just can’t lure people to work in places with expensive housing, the study said.
“Many big- and middle-sized firms around the country are having a difficult time attracting employees,” said Peter Dreier, housing director for the Boston Redevelopment Authority and one of the study’s authors.
“An engineer who sells his three-bedroom house for $80,000 and moves to the East or West coast finds that for that money he can maybe get a one-bedroom condominium.”
Allergan Pharmaceuticals in Irvine, a manufacturer of eye-care products, lures executives from other regions with low-interest mortgage loans.
At the blue-collar end of the business, however, Allergan recently said it was eliminating 220 factory jobs and moving some of its manufacturing to Waco, Tex.
“Most of the reason was the general cost of doing business in Orange County, although housing cost was also a factor,” said Richard Hilles, senior vice president for human resources.
Housing prices have set off an intense scramble among local companies for one another’s employees, said Hilles, since workers who are already in the county don’t need to be recruited from elsewhere with promises of bonuses or subsidized mortgages.
Yet Orange County employers are less likely to make those kinds of concessions to get middle managers and skilled technicians, says a management recruiter.
“For many recruits, there has to be a differential in pay to compensate for the higher housing costs, and in our experience few companies are willing to pay it,” said Mike Sullivan, general manager of an Orange County franchise of Management Recruiters, a national recruiting company.
‘A Tough Sell’
“For people moving from the New York area or Boston, the prices aren’t too big an adjustment,” Sullivan said. “But for others, Orange County can be a tough sell.”
The high cost of doing business in the county--including the problem of competing for workers in a housing market few of them can afford--has pushed other manufacturing employers out of the county.
In a Times poll of local executives last year, the executives ranked high housing costs second only to high operating costs in general as an obstacle to doing business in the county.
As evidence of the effect of housing prices on business, the Harvard Business Review study noted that in the New York City area alone last year, Mobil Oil, International Paper, J.C. Penney and Lillian Vernon all announced they were moving, taking almost 4,000 jobs from the area. Grumman opened new engineering centers in Texas and Florida instead of near its Bethpage, Long Island, headquarters because of high suburban housing prices.
A high-technology research consortium earlier this year cited housing as a reason for locating a $1.5-billion semiconductor research project in Austin, Tex., instead of greater Boston.
The study criticizes the Reagan Administration for slashing the federal housing-assistance budget 75% since 1980, to $8 billion from $33 billion. It says American business “has shouldered much of the housing burden” and calls for corporate leaders to lobby Congress for a comprehensive housing policy for the rest of the century.
Dreier said: “Business needs to pay attention to housing not out of a sense of do-gooderism or civic pride but out of concern for their own bottom line.”
Times staff writer Michael Flagg contributed to this story.
HOUSING AFFORDABILITY FOR URBAN AREAS
A comparison of housing costs to wages in 49 metropolitan areas across the nation, according to a study in Harvard Business Review. The list gives each area’s median home cost for 1987 and an affordability ratio calculated by dividing the housing cost by the average wage in the area. The list ranks the cities from the highest multiple to the lowest. The median national home price was $85,600, 4.2 times greater than the average annual wage of $20,615.
Median Affordability Metropolitan Area Home Cost Ratio Boston $177,200 7.7 Orange County $166,900 7.5 Hartford, Conn. $157,400 6.8 New York $183,500 6.7 Providence, R.I. $121,400 6.6 San Francisco $171,400 6.6 San Diego $128,800 6.3 Los Angeles $139,500 5.8 W. Palm Beach, Fla. $102,600 5.1 Washington, D.C. $114,200 4.7 Albuquerque, N.M. $82,600 4.4 Albany, N.Y. $86,400 4.3 Orlando, Fla. $76,200 4.1 Las Vegas $77,000 4.1 Phoenix $80,900 4.0 Miami $81,100 4.0 Baltimore $81,100 4.0 Denver $88,900 3.9 Nashville, Tenn. $75,500 3.9 Memphis, Tenn. $75,000 3.9 Chicago $90,800 3.9 San Antonio $70,200 3.8 Dallas $89,200 3.8 Salt Lake City $69,400 3.7 Philadelphia $81,500 3.7 El Paso, Texas $59,200 3.7 Birmingham, Ala. $71,600 3.6 Tampa, Fla. $63,800 3.6 Minneapolis $80,500 3.6 Baton Rouge, La. $67,800 3.6 Jacksonville, Fla. $65,100 3.5 St. Louis $74,300 3.4 Milwaukee $70,500 3.4 Columbus, Ohio $68,700 3.4 Kansas City $69,800 3.4 Rochester, N.Y. $72,500 3.2 Oklahoma City $62,300 3.2 Portland, Ore. $64,200 3.2 Omaha, Neb. $59,000 3.2 Cincinnati $66,100 3.2 Tulsa, Okla. $65,700 3.2 Cleveland $68,100 3.1 Indianapolis $62,500 3.0 Buffalo, N.Y. $56,700 2.9 Des Moines, Iowa $55,600 2.9 Houston $65,900 2.8 Louisville, Ky. $51,700 2.7 Toledo, Ohio $56,300 2.7 Detroit $65,600 2.6
