Corporate Housing – Back to the Future?

Corporate Housing – Back to the Future?

Corporate Housing – Back to the Future?

In the late 1800’s and early 1900’s it was not uncommon among employers in industrialized countries to provide residential housing for their employees, particularly in geographic areas that were difficult to access. In some areas corporations would establish “company towns” to ensure the reliability of a stable work force. In the 21st century we have a new phenomenon emerging where certain employers are unable to acquire the employees they need because of the extremely high cost of living in their immediate areas. This trend has led to the need to reexamine the notion that employers may benefit by providing housing for their employees.

What are the impacts of high housing costs on the supply of qualified workers?

First let’s consider the issue of relocation. In a low-unemployment era it’s very difficult for employers to fill jobs with qualified workers who reside in the immediate area of the workplace. The notable exception occurs when an employer can “recruit” an employee away from another, nearby company. If that option fails to produce the kind of employee needed employers will often look for workers who are willing to relocate to take the job.

The obvious problem with the relocation strategy is that the compensation for the relocating employees rarely covers their exponential increase in living costs, and is often in an area with a reduced quality-of-life due to crowding. The other, less apparent problem with a relocation-based strategy is that in the 21st century the willingness of workers to relocate for job opportunities has dropped dramatically along with the corresponding increase in affluence (this is the subject of a previous blog in this series). We see this even in areas of relatively low cost-of-living, and is a demographic trend unlikely to change. This phenomenon was described in a New York Times article about the negative impact of fewer corporate relocations on overall economic activity: Ny Times Article: Fewer Americans Strike Out for New Jobs, Crimping the Recovery

The other impact that high living costs have on the labor supply is evident in increased commuting times. This has become one of the most common complaints I hear and the #1 or #2 reason cited when employees look to make a job change. Not only do they not want relocate their family for a job, they also don’t want to stare through a windshield for two to three hours every day just trying to get to work and back. They increasingly view this as counterproductive for themselves, their employers, their customers, and society at large. And of course, they are right.

So what do we do about it?

Some employers choose to do nothing about this issue and continue to insist on enforcing long-standing policies. They frequently suffer from prolonged job vacancies or they settle on hiring candidates that are sub-optimal. We will occasionally hear about an organization that elects to move their primary workplace to lower cost of living areas. This is a trend that is gaining some momentum in the BioPharma and Med Tech industries, but generally it’s still very rare due to the cost of such a move and the difficulty of building a new employee base in an area that typically doesn’t have a high number of workers with the necessary qualifications.

The most popular trend we are seeing is the increasing willingness for employers to allow employees to work from home. Although this allowance is rarely granted for more half of the work week, it’s now very common for employees to work from home routinely, after passing an initial training / probationary period where they get to know people, demonstrate value, and earn trust. It’s still rare to see an employer formalize a written policy that details work-from-home arrangements, but informal understandings are common and this has become a necessary allowance to attract and retain the best talent. Of course, there are certain leadership or customer-facing positions where this is difficult to implement, particularly those with new direct reports who require training and close supervision. Other jobs can be so team-oriented that it’s usually unlikely to be able to perform them well from home.

So that brings us to another viable option in responding to this employment conundrum: providing temporary or permanent housing options to employees so they can reside closer to their workplace. Although I don’t foresee a return to the “Company Town” model anytime soon I am seeing employers becoming more willing to invest in programs that will make it easier to acquire and retain talented people. There are three common housing arrangements that employers offer employees and they each have different advantages and disadvantages:

• The employer pays for the housing of the employee’s choice – this is generally achieved using a “housing allowance” for leased properties. It is an operating expense for the employer and a taxable benefit for the employee

• The employer provides leased housing directly to the employee – typically these are apartments adjacent to or nearby the workplace. This is usually a capitalized cost to the employer, and the amount of any subsidy that is offered on the rent is a taxable benefit to the employee.

• The employer provides temporary lodging for employees while they “travel” for business – similar to what field based salespeople do but the overnight travel is to the primary workplace for a few nights each week. This is a standard operating expense for the employer and is subject to restrictions.

Each of these employer costs are tax deductible if it can be demonstrated that they are “ordinary and necessary” business expenses. It is wise to consultant an accountant to determine what is ordinary and necessary to acquire talented employees in high cost of living areas. With the current trend of exploding housing costs and extended commute times getting worse it’s no longer a question of whether or not to offer creative alternatives to the conventional employment model, but instead the question is which options make the most sense?

From a third-party recruiter’s perspective it has become clear that employers who are more creative and willing to experiment with different arrangements are winning the battle for the best employees. As always I welcome your comments and questions.

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