A Boost for Home Buyers : Employers See Value in Subsidizing the Cost

California housing prices are now so far out of sight that the American Dream of home ownership has become a pipe dream for many of the state’s residents.

Across the nation, and particularly in California, the rate of home ownership has declined throughout the decade, primarily because incomes have not kept pace with rapidly increasing housing costs. According to the California Assn. of Realtors, the median family income rose by 234% between 1970 and 1987, but during this same time period housing costs soared by 580%. As a result, only 26% of California households could afford to purchase the median-priced home of $165,600 last year. In contrast, 49% of the nation’s households were able to purchase the national median-priced home, which cost $89,700.

To date, most of the housing affordability and availability crisis has been borne by young families who wish to buy a home, others who seek decent, affordable rentals and by the thousands of people living on the streets.

However, there is increasing evidence that individual businesses and the California economy as a whole are beginning to suffer the consequences of high housing costs. Employees are moving farther away from work sites in search of affordable housing, leading to longer commutes and reduced productivity. Concern over commuter-generated auto pollution has caused the South Coast Air Quality Management District to consider denying permits for some new factories.

Employers are finding it increasingly difficult to fill jobs, retain vital personnel and expand their businesses. Even those businesses that are not yet experiencing labor shortages are facing higher wage demands and increased costs to compensate employees relocating from other regions. This trend is particularly noticeable among Silicon Valley firms. Nationally, the costs of relocation are daunting: A 1986 Merrill Lynch survey estimated that roughly 1,300 companies spend about $15 billion annually to relocate employees.

Eventually, high housing costs drive businesses out of the state. Signs of this are already appearing. For example, Patagonia, an outdoor clothing manufacturer, recently moved its prosperous mail order division from Ventura, Calif., to Bozeman, Mont., because, according to a company spokeswoman, “housing costs made it difficult to recruit entry-level workers.” Joel Singer, chief economist for the California Assn. of Realtors, sums up the situation, saying that high housing costs “ultimately could make California a noncompetitive economy.”

Fortunately, California businesses can play a major role in addressing their labor shortage and productivity problems while making housing more affordable, reducing auto-generated pollution and shortening commutes. Across the nation, more and more businesses are offering cost-effective employer-assisted housing benefit programs. Employers are structuring these benefit programs in several ways.

For example, Colgate-Palmolive Co. has negotiated with a lender to obtain for its employees highly competitive long-term mortgage financing. The firm also has a closing-cost subsidy program that can save the borrower a mortgage closing payment of up to 1.5% of the mortgage.

In another example, the University of Pennsylvania offers guaranteed mortgages, enabling employees to obtain a mortgage without a down payment. The program is cost-free to the employer unless the employee defaults. There has been only one default in the 20 years that the program has been in effect. The university also has used the program to stabilize and revitalize the area around its campus. This is done by offering this guarantee only on homes adjacent to the campus. This model could be of particular interest to California employers whose employees are plagued by long commutes.

Firms or groups of firms, such as the Coastal Housing Partnership in Santa Barbara, are working with lenders to develop second mortgage down-payment loan programs. Some of these programs have deferred repayment agreements, while others have shared-appreciation features that enable both the employee and the employer to benefit from the real estate price boom. One bank in North Carolina makes down payment loans to its tellers and other entry-level personnel. If the employee stays with the bank for five years, the entire down-payment loan is forgiven. The lender says that after five years the loan has paid for itself in improved employee retention and productivity and in reduced recruitment costs.

Some firms and institutions have gone as far as to actually build new housing. UC Irvine has done this, having built more than 400 homes for university employees. Some of these homes are available to employees earning as little as $20,000 annually.

These are but some of the innovative approaches that businesses are taking to address the serious business problem of affordable housing for employees. Californians need not endure two-hour commutes and endless tons of auto exhaust emissions. California business need not relocate to other states or pay exorbitant relocation benefits, which don’t really solve the bulk of the employee recruitment and retention problem anyway. Rather, California business leaders should seek to develop innovative, broad-based, cost-effective, employer-assisted housing programs, and should insist on supportive public policies to facilitate these programs.