Benevate Blog


5
APR 2016
The Address Effect
By Jason Runak

As seen here on HR.com.

Facebook offers employees up to $15,000 to relocate within ten miles of its headquarters. Johns Hopkins University offers up to $25,000 in down payment assistance to buy a house near its Baltimore campus. The Cleveland Clinic offers both rental and down payment assistance for employees that live near the hospital. Why do these employers and hundreds more, offer incentives to their employees to "live near their work?"

The answer depends upon your perspective. The altruistic perspective is because these employers want to help their employees achieve the American dream and gain financial independence through tax deductions and the accumulation of home equity. The social perspective is because these employers recognize the community benefits of homeownership, including greater civic engagement, less neighborhood crime and reduced traffic. The strategic perspective is because these employers want to gain a competitive advantage through the address effect.

So what is the address effect and why should employers care about it? Simply put, where a person lives has a direct impact on their commute time, mobility, financial needs, and social interactions. In turn, these factors over time will either positively or negatively influence the ability of employers to recruit and retain employees. To understand the address effect, we need to understand each of its components and how they impact recruiting and retention.


Commute Time

Key Question: How long will it take an employee to get to and from work every day?

If the expectation is that an employee is going to work onsite, they need to understand what type of commute they are signing up for. Studies show a clear link between employee attrition and commute times. For example, a large Ohio manufacturer found that a 30+ minute commute "almost assured that an employee will quit" within 2 years. In a similar analysis, Gate Gourmet was able to reduce their unwanted turnover from 50% to 27% by including commute time as part of their hiring strategies.

Commute time does not just impact employee retention; it also is strongly correlated to absenteeism, tardiness, and overall employee engagement. Intuitively it makes sense, as short commutes enable employees to spend less money on gas, less time on the road and more time enjoying life with friends and family. It is no wonder than that as HR increases its use of big data, more and more companies are including commute times as a variable in their predictive employee retention models.

Likely Impact: The longer the commute, the lower the employee retention.


Mobility

Key Question: Does the employee own or rent?

Due to the transaction costs of buying and selling property, homeownership makes employees less mobile and consequently less likely to pursue employment opportunities outside of their current geography. Homeownership is also a sign that an employee is "settled down" and more likely to engage and remain in their community. On the other hand, if an employee has worked in multiple cities and is currently renting a property, one could assume that they have yet to make a commitment to a city and your organization could be another stepping stone along their journey.

Likely Impact: Homeownership causes an employee to be less mobile and more likely to stay within their current geography (and your organization).


Financial Needs

Key Question: Can your total rewards package support the current and future housing needs of your employees?

Mortgage payments, real estate taxes, and insurance premiums are typically the biggest expenses in a household budget. Don't forget that "keeping up with the Jones" is also relative based on neighborhood. Unfortunately for many employees, their jobs are in areas they can't afford to live. Add in the not-insignificant costs associated with a move, and many American workers find themselves out of luck and forced to accept a long commute. Affordable housing becomes even more important as families grow and require bigger, more expensive, properties. If an employer is located in a high cost of living area, it will have a significant impact on their current and future talent pool.

Likely Impact: Lack of affordable housing near a work location will lead to longer commutes, lower retention and a smaller labor pool to recruit from.


Social

Key Question: Do your employees have an extended work network near their home?

While many employees find it preferable to separate work and home, it's never a bad thing to have a colleague nearby for carpooling or to commiserate after a long day of work. The absence of a "support network" near their neighborhood could leave employees less engaged and more vulnerable to the "greener grass" of another company.

Likely Impact: Social interactions with colleagues outside of work could lead to stronger engagement at work.


How to Take Advantage of the Address Effect

In an ideal world, employees would own an affordable home, have a short commute to work and live near other colleagues. Rarely, however, do we live in an ideal world. So what can an employer do to take advantage of the address effect?

One way to take advantage of the address effect is to offer a Down Payment Assistance (DPA) benefit. In a DPA benefit, an employer provides an employee with a forgivable loan that is used as part of a down payment towards the purchase of a home. The loan is forgiven over a specified period of time as long as the employee fulfills agreed upon requirements (e.g. performance, retention). Most DPA programs include a requirement that the home be within a certain distance of the employer - thereby ensuring a short commute.

DPA programs are currently being offered by hundreds of employers, including: Zappos, University of Chicago, Quicken Loans, Under Armour, The Cleveland Clinic, and Yale University. These organizations understand that not only are they helping their employees achieve the American Dream, but they are also benefiting from the address effect.