Tech companies like Google are committing to build more housing for their employees and neighbors. That could help housing affordability, but it could also ease employers’ recruitment costs.
The nation’s largest companies, including Google, Microsoft and Facebook, have pledged billions of dollars to create affordable housing near their campuses, acknowledging their part in the housing affordability crisis facing the Silicon Valley, Seattle and San Francisco areas. But, this may be a savvy business strategy, and not just a pure charity effort.
In order to recruit talent, tech companies have to pay high salaries so that employees can afford housing and an overall high cost of living with money left over for savings. Investing in housing near headquarters could bring down the cost of recruiting and paying talent over time. It could also help with employee retention if people are less likely to eventually need to either leave the area in search of affordability or quit in favor of a higher-paying job. But it’s possible demand for housing could outpace these increases in housing supply, to the point that these new units remain unaffordable to most of the people who would want to live in them.
Let’s look at Google, which most recently announced their housing plan, as an example. According to Glassdoor, the typical Google software engineer in San Jose earns $135,174 in base pay. On that salary, one could afford only 16.5 percent of homes for sale in the San Jose metro where the median priced home costs $1.15 million. Most of the affordable homes in the San Jose metro are located near Hollister, CA where the median home price is $550,000, which is an hour commute from Google’s campus in Mountain View without traffic.
For comparison, at Google’s Austin campus, the typical software engineer earns almost as much as a software engineer in San Jose — $132,108. On that salary, one could afford 84.1 percent of homes for sale in the Austin metro where the median priced home costs $320,000. An Austin software engineer could afford to walk to work. The median priced home in the zip-code of the Austin Google offices costs $464,000, and 44 percent of homes for sale would be affordable.
Some tech companies large and small are creating options for affordability for their workers by opening offices in other parts of the country where housing is less expensive.
“Redfin recently opened an engineering office in Frisco, TX where the median home price is $420,000, quite affordable compared to the $700,000 price tag now typical of homes in Seattle, where our headquarters is located,” said Redfin vice president of engineering Jennifer Chao. “It’s early days, but we are already seeing just as much interest from candidates looking to relocate from higher-cost cities as we are from local candidates.”
With 3.5 million square feet of office space in Mountain View, Google isn’t going to move its headquarters to Austin even though it’s much for affordable for Google employees to live there. However, Google and other tech companies in the Bay Area are going to have a difficult time recruiting employees without substantially increasing compensation. But, if Google were to just increase compensation, the Bay Area would see home prices grow even faster as employees compete for the same existing homes. We could see a repeat of the 40 percent price growth San Jose experienced in 2013.
At the same time, the cities where these Google employees live would have to pay their teachers, police officers and firefighters more to retain those public servants. These cities would likely have to increase taxes to fund wage increases, which would further push up the cost of living. It’s a much better long-term strategy to build housing to stop the cycle of rising costs of living. That way Google can keep its salary growth in-check and help mitigate rising housing costs for all local residents.
This phenomenon of corporations providing housing to employees isn’t new. In the 1890s mining and other industrial companies needed to recruit workers to remote areas, and had to set up entire towns, complete with company-owned housing. The Pullman Palace Car Company set up a company town in Illinois, complete with housing and other amenities like parks and libraries. Pullman workers eventually went on strike to protest the living conditions of the company housing. These workers were specifically upset with how unaffordable the company housing was because housing costs grew faster than wages.
In the future, tech companies may find themselves in a similar conundrum where local residents view these tech companies as not only being indirectly responsible for housing prices (like they are viewed now), but directly responsible for housing prices. More housing near these tech campuses will certainly mitigate rising housing costs. But it’s possible that demand could outpace these increases in supply, and these tech companies could end up building housing that only the highest paid employees can afford.
This post first appeared on Redfin.com. To see the original, click here.