Los Angeles Business Journal: Pricey L.A. Housing Crimps Recruitment - "As soon as we mention that the position is in L.A., they hang up the phone"

Wow, I hadn't thought of the details of how the out-of-control Los Angeles housing market was affecting people besides what they had to pay for housing. But employers are being hit hard and dealing with the fallout, according to this August 7 Los Angeles Business Journal story (registration or $$ required).

Federal government agencies are especially being hard hit. Salaries are set by Congress so the Federal government is unable to raise the salaries of those in L.A. county to help employees meet their housing costs. It's true that Congress allowed a 10% adjustment to the Los Angeles area but for those who live here you know that is laughable. There has been an exodus of workers from this area and the government is not having much luck finding replacements. At a more local level, the vacancy rates among firefighting and law enforcement agencies is extremely high. Gives you a warm comforting feeling, doesn't it. Who's going to bring order when people hit the streets rioting because of housing costs? The median-salaried ($50,000) federal worker with a family of 3 actually qualifies for low-income federal housing assistance!

It wouldn't be too much of stretch to say that a credit bubble of our own making is actually endangering our national security.

Public and private companies have more flexibility. Some have moved all of their operations out of state, such as Nissan Motor (to Nashville, Tennessee), or are expanding their operations only in other states, such as Mercury Air.

The article says that employers are having great difficulty helping prospective recruits find homes for rent. Will that remain so? I've been seeing more rentals in my area (Redondo). Personally, I think market pressures will keep the rental market in control, because I've witnessed some homeowners, unable to sell their homes, put them up for rent instead. But that's just my opinion, and I don't have a way to number-crunch that.

Here is the full article:

Posted date: 8/7/2006

Pricey L.A. Housing Crimps Recruitment

By HOWARD FINE
Los Angeles Business Journal Staff

As chief executive of a mid-sized Los Angeles company, Joe Czyzyk spends more time 
than ever these days trying to minimize the impact of L.A’s stratospheric housing 
prices on his bottom line.

Czyzyk, chairman and chief executive of Mercury Air Group Inc., readily admits to 
having to make “significant housing adjustments” to recruit mid-level and top-level 
executives. Over the last few years as housing prices have soared, those adjustments 
have ranged as high as $75,000 in additional compensation.

“Offsetting housing costs has actually become a line item on our financial 
statements. It’s a big number,” said Czyzyk, who also tries whenever possible to 
steer new recruits to the company’s other offices in Colorado Springs and Houston.

Even as housing prices appear to have reached a plateau – with the median price 
falling back slightly last month to $550,000 – they are still more than double what 
they were five years ago and more than double the nationwide median of $230,000.

Employers all over the L.A. area are dealing with the fallout.

Recruiting from outside the region has become increasingly difficult, and companies 
that traditionally picked up a portion of the housing costs are now finding that 
those costs are exploding.

The impact has been extreme on federal government agencies, which employ more than 
53,000 people in L.A. County. Unable to raise salaries that are set by Congress, 
federal agencies have experienced an exodus of employees seeking cheaper places to 
live and have been unable to find replacements. Some agencies, particularly those 
with firefighters and law enforcement officers, have vacancy rates over 40 percent, 
leaving them barely able to perform their basic functions.

“This has been building for years, but it’s critical now because housing prices are 
now way beyond the ability of most federal workers to afford,” said Kathrene Hansen, 
executive director of the Federal Executive Board of Greater Los Angeles, a federal 
entity that coordinates federal activities at the local level. “Agencies don’t have 
enough people to staff vital functions, like inspecting ships coming into port, 
staffing the courts or processing immigration and social security claims.”

Her board issued a report late last month that stated “thousands” of “important 
positions” are vacant, with the problem getting worse. “We simply cannot find and 
keep enough good people. The foundation is crumbling,” it stated.

Blocking transfers
Chester Widom, a partner in the Santa Monica-based architecture firm WWCOT, said the 
situation has gotten so bad for his company that there’s a concern it won’t be able 
to staff up quickly enough to take on more projects.

“We’ve always tried to help with some of the housing costs. But if someone who lives 
in a large $500,000 home in another state wants to find an equivalent home here, 
that’s over $1 million. We can’t make up that difference,” said Widom.

Local federal law enforcement agencies have now taken the extreme step of forcibly 
transferring employees to their L.A. offices from other parts of the country – 
employees who sometimes are unable to bring their families along because they can’t 
afford to house them. Many federal agencies here are also blocking almost all 
transfer requests and forcing employees to work overtime, Hansen said.

While federal agencies have traditionally lagged the private sector in pay, the 
doubling of housing prices in the Los Angeles area in the last five years has turned 
a perennial problem into a crisis. The slight adjustment to L.A. area salaries that 
Congress has allowed – about 10 percent above the national average – has not kept up 
with the region’s spiraling housing costs.

Indeed, the disparities are now so great that the median-salaried federal worker in 
Los Angeles with a family of three who pulls in $50,000 a year now qualifies for 
low-income federal housing assistance.

To combat the vacancies, federal agencies here are mounting a push to get Congress to 
grant housing allowances for employees in Los Angeles and the Bay Area of up to 60 
percent of base salary, just as the military already does.

But the last time such an effort was tried, at the peak of the last housing boom in 
1990, the effort fell flat because lawmakers from other states objected. “It was the 
‘Anywhere But California,’ treatment,” Hansen said.

Private sector companies, though, have more flexibility. As housing prices have 
soared here, they’ve been able to shift operations to lower cost areas. One of the 
major reasons why Nissan Motor Corp. chose to move its North American headquarters to 
Nashville was the lower cost of living, especially housing prices.

And while some companies have relocated entirely, many more are keeping a presence 
here but are growing their operations in other lower-cost states, as Mercury Air is 
doing.

Those that can’t easily shift operations have found creative ways to cope with the 
problem.

For example, at Los Angeles-based Psomas, an engineering firm, executives are taking 
advantage of technology to have out-of-state engineers work on local projects.

“We can actually have engineers in Salt Lake City work on projects in Southern 
California that don’t have to live here. With housing prices the way they are, that’s 
a tremendous cost-savings,” said Jacob Lipa, president of Psomas.

As for bringing people in from out of state, that’s becoming nearly impossible these 
days.

“We offer them relocation money, but it’s not enough,” Psomas said.

Affordable housing
Many companies are offering to pay closing costs and points for their employees’
mortgages, but are now seeing those costs explode. Others are bringing in corporate
relocation consultants to walk potential recruits through the costs and pitfalls of 
moving to L.A. before the candidates agree to take the posts.

“Before, we used to be brought in at the very end of the process, to help the recruit 
actually move. Now, we’re being called in earlier and we spend most of our time 
working to convince the person that ‘Yes, despite what you may have heard, you can 
find a place to live here that you can afford,’” said Barbara Blake, co-owner of 
downtown L.A.-based Quest Relocation Group.

Blake said that most outsiders don’t realize how many different neighborhoods with 
different housing price ranges there are in the L.A. area. “We almost always find 
something that a job prospect can afford in an area they want to live in,” she said. 
The only exception: homes for rent. “There’s almost none left right now in this 
market.”

Many times, though, companies never get a chance to dispel the notion that it’s 
impossible to find an affordable place to live in Los Angeles.

“Many candidates don’t even get as far as coming out here for the interview. As soon 
as we mention that the position is in L.A., they hang up the phone, saying the 
housing costs are way too high,” said Betsy Berkhemer-Credaire, co-owner of Berkhemer 
Clayton Inc., a retained executive search firm also based in Los Angeles.

Others who do come out see the sticker-shock first hand and often leave.

That’s what happened at the Los Angeles Biomedical Research Institute, a non-profit 
research lab just outside Torrance.

“We tried to recruit a very competent researcher from Birmingham (Ala.), but he was 
looking at comparable housing being five times more expensive,” said president and 
chief executive Kenneth Trevett. “He never came back for a second visit. We had a 
professional meeting of the minds, but the issue was housing, pure and simple.”

In cases like that, increasing a salary offer 10 percent or 20 percent or offering a 
substantial lump sum relocation payment up front doesn’t come close to bridging the 
gap.

As a result, Berkhemer-Credaire said she now recommends that companies looking to 
fill local positions stick to the L.A. region for recruiting. That way, most 
candidates are likely to already have a suitable place to live and don’t have to 
worry about buying or renting a place.

“It’s a greater and greater plus on your resume to indicate you live in Los Angeles 
and even more of a plus if you live in housing that’s relatively close by,” she said.