Pricey L.A. Housing Crimps Recruitment

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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.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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