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What happens when a huge company wants to hire highly-skilled workers but those workers can’t afford to live where the company’s locations present challenges? According to Redfin chief economist Daryl Fairweather, you plan to build housing for them.

Some of the nation’s largest companies, including Google, Microsoft, and Facebook have pledged billions of dollars to create affordable housing near their campuses. They have come to realize that their part in the housing affordability crisis facing Silicon Valley, Seattle, and San Francisco areas is crucial to their present and future growth. Savvy business strategy or charitable effort?

Fairweather reports that 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,” she says. “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”

She cites an example in Google, which most recently announced their housing plan. Glassdoor, a web site where employees can anonymously report on job and employer conditions and experiences, demonstrates that the typical Google software engineer in Silicon Valley earns a base pay of $135,174 in base pay. Seem like a lot, right? On that salary, however, an employee could afford only 16.5 percent of homes for sale in the San Jose metro area, where the median price for a home is $1.15 mil. By comparison, at Google’s Austin, TX campus, the typical software engineer earns almost as much as a software engineer in San Jose — $132,108. But there they can afford 84.1 percent of homes for sale, where the median-priced home costs a mere $320,000.

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. Such is the case of Frisco, TX, where the median home price is $420K — a far cry from relocating to Seattle, where homes are median-priced at $700K.

“Google and other tech companies in the Bay Area are going to have a difficult time recruiting employees without substantially increasing compensation,” says Fairweather. “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.”

And don’t forget the people who support these employment bases, such as teachers, police officers, and firefighters. These employment-rich 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,” says Fairweather. “That way Google can keep its salary growth in-check and help mitigate rising housing costs for all local residents.”

Source: Redfin, TBWS