Orange County Housing’s Costly Headache
Ronald D. Kissam has a small problem: The high-tech company he represents wants an executive well-versed in a highly specialized technical field. But even the $150,000 salary may not be enough to lure the right person to Orange County.
What’s the hitch? Southern California’s housing prices are so high that some executives are reluctant to move here, even at a much higher salary.
“I don’t mean to be overly dramatic, but it has definitely become a problem for anyone who is trying to relocate employees here,” said Kissam, owner of Deane & Co. in Newport Beach, one of Orange County’s oldest executive search firms. As of last week, the position was still unfilled.
For the time being, the county’s sky-high housing prices are primarily just a nuisance for companies trying to recruit middle managers and technical people from elsewhere.
But in the long run, some employers worry that housing prices could force all but the wealthy out of many areas of the county and--eventually--perhaps even their own children.
Since some companies seem unwilling to subsidize housing costs--reasoning that the allure of Southern California will draw employees no matter what--companies are likely to continue raiding each other’s work forces for employees already accustomed to high housing prices.
“I have to wonder if we’re creating a shortage in entry-level people, of kids right out of college,” said Tom Burnham, a vice president at Korn-Ferry International’s Newport Beach office.
“Are we raising a generation of people who are looking at this housing market as one they’ll never be able to succeed in or even equal their parents’ life style?”
The median price of a single-family house hit $226,200 in Orange County during the third quarter, according to the National Assn. of Realtors, making the county in recent months the most expensive housing market in the nation. And that study excluded new houses, which now top $300,000 on average.
The huge demand, which pushed prices up by almost a third in one year, is expected to slow in 1989. But short of an economic catastrophe--which is unlikely--home prices won’t go down much, experts say.
So the county is stuck with a housing market in which prices have risen much faster than household incomes. At last count, only 17% of Orange County families made enough money to qualify to buy the average house with a 20% down payment. Nationwide, nearly half of all families could afford to buy a house at the median price of $88,100.
Others fret that high housing prices and the effect they have on employers might eventually put a dent in Orange County’s booming economy.
“The big question is: How long does it take to hit the wall, where you can’t bring any more people in because they can’t afford to live here?” said Phillip E. Vincent, a vice president and economist for First Interstate Bank in Los Angeles.
Thousands of blue-collar and clerical workers who can no longer afford a house in Orange County have moved to Riverside County and northern San Diego County. And some companies--particularly old-line manufacturing firms, but some high-tech companies as well--are leaving the county to chase after them.
“The jobs are starting to follow the people, instead of people following jobs, which was the normal process,” Vincent said.
In the long run, that could cause Orange County’s economy to slow, the economist said.
Others take a less bleak view.
“Undoubtedly, high housing prices as well as high rents slow growth somewhat,” said Robert K. Arnold, president of the private Center for Continuing Study of the California Economy in Palo Alto.
“But the economy of the Los Angeles basin is so strong that it keeps growing, and if we had the wide-open spaces and cheap land we had 30 years ago, the growth would be explosive.”
Still, angling for most top-level executives has yet to become a serious problem, executive recruiters say.
In some cases, that’s because companies are willing to provide a housing subsidy to get the right executive.
The real crunch involves positions for middle management and technical employees, for whom companies are less willing to approve lavish relocation programs.
In especially big demand, says Mike Sullivan, general manager of a Management Recruiters franchise in Costa Mesa, are technical people and middle managers for the county’s burgeoning high-tech companies making medical devices and drugs.
The search firms who specialize in finding such people say their clients usually direct them to begin looking in Southern California so new employees won’t be shocked by the housing prices.
If they must look outside the region, the search firms say they start by scouting potential employees in other regions where housing prices are high, such as New England and the New York area.
If recruiters must go to the Midwest, for instance--where an executive might be able to buy a huge house and several acres of land for what some condominiums cost here--recruiters for Southern California companies still have some advantages. They can pitch not only the attractive climate but the lower heating costs and property taxes in Southern California, said Margaret Magnus, editor of Recruitment Today magazine in Costa Mesa.
“You have to get the candidates to look at more than just the cost of housing here, because there’s a lot more involved than that,” Magnus said.
For those who still prove a stubborn sell, some companies in areas with high housing prices offer a range of subsidies to new execs.
According to a recent study published in the Harvard Business Review, U.S. companies spend billions of dollars each year relocating employees and helping with housing costs. The study found the most common types of help involved:
- Compensating employees for the difference in their old mortgage interest rate and the new one.
- Loaning employees the down payment on a home.
- Buying the employee’s old home or making arrangements to have a bank or other institution purchase it.
- Reimbursing the employee for the cost of selling the old home or for the expense of carrying two homes until the old one is sold.
Housing assistance offered by local companies runs the gamut, from no program at all to fairly generous incentives, say relocation executives.
The county’s three biggest employers still rarely offer help with housing, even to new top executives.
Rockwell International Corp.’s autonetics electronics systems unit in Anaheim, which employs 7,800, “makes it a point to be candid and up front in telling candidates about the high housing costs,” said a spokesman.
But there’s still enough affordable housing in Riverside and San Bernardino counties so that finding housing “hasn’t really impacted employees yet,” the spokesman said.
The company doesn’t usually offer financial help on housing to new executives, the spokesman said.
McDonnell Douglas Corp.’s base systems unit, which employs 8,000 in the county, also offers little in the way of housing packages because it tries to recruit engineers and executives “mostly from the aerospace industry in Southern California,” said a spokesman.
“So they’re already aware of the high housing prices.”
And Hughes Aircraft Co., which has been trying to cut employee ranks in its Orange County operations, simply isn’t hiring, a spokesman said.
At the other end of the spectrum, Allergan Inc. in Irvine woos executives from other regions with low-interest mortgage loans.
Ironically, the manufacturer of eye-care products this year shifted more than 200 blue-collar jobs from Orange County to Waco, Texas. That was mostly to reduce the high cost of doing business in the county, the company says, but among the other reasons it cited was the high cost of housing here.
But even big local companies looking for high-ranking executives are beginning to balk at the kinds of lavish housing packages they’re being asked to offer out-of-town execs, says John H. Telford, principal in charge of the Far West region of Peat Marwick Main’s executive recruiting business.
And the executives themselves are also getting harder to budge, Telford said.
Peat Marwick recruits executives in the $100,000 salary range, and even with a bonus to cover the cost of relocation--typically no more than $15,000--top executives find their budgets stretched buying a house here.
“You find a lot more working wives,” Telford said. “Even at that salary level, it’s becoming more important.”
And even in the Southern California region, Telford is finding executives more reluctant to move, to deal with buying a new house and possibly a longer commute.
“People are getting more tied in to their neighborhoods now, particularly as traffic gets worse in the region, and the transience of the last 30 years in Southern California may be ending,” Telford said.
THE DECLINE IN AFFORDABILITY
Only 17% of Orange County households could afford a median-priced resale home here in October, about half the level of early 1987, according to monthly data released by the California Assn. of Realtors, In determining its affordability measure, the association assumes a 20% down payment on a median-priced house and a maximum expenditure on mortgage payments of 30% if household income
February 1987: 32%
October 1988: 17%
SOURCE: California Assn. of Realtors
MEDIAN RESALE HOME PRICE IN ORANGE COUNTY
November 1987: $178,870
November 1988: $230,701
SOURCE: California Assn. of Realtors
