Yesterday we explored how employer-assisted housing payments work, at least in the specific case of Chicago homeownership, via a Chicago Tribune article. 

With the inversion in housing policy innovation, advances in workforce housing finance are being led by employers who cannot find employees willing to work for what the employer wants to pay, unless the employer tops up the pay packet with place-based assistance, most commonly but not exclusively in the form of down payment help structured as a soft loan.

Laying a path to your Amityville front door

Those most likely to benefit from employer-assisted housing programs are workers who:

Plan to stay with an employer for a while and

Have a good financial track record.

Because the employer wants the employee to stay, it can’t be an immediate grant:

Like Loyola and the U. of C., many employers offer assistance in the form of a forgivable loan for a designated period as long as a worker remains with the employer. If the employee leaves before the loan expires, the remaining portion must be repaid.

What if the employee is fired?  Does the loan accelerate or is it forgiven?

Your loan is not forgiven!

The housing loan’s velvet handcuffs also represent a form of forced savings.

To think I used to have labor mobility!

To participate, a worker usually contacts the employer’s human resources department, which does a preliminary screening. The worker then is referred to an outside organization, such as Neighborhood Housing Services of Chicago or Affordable Housing Corp. of Lake County.

Both of these are solid, committed agencies with expertise.

A name you can trust

Those organizations, not the employer, decide who receives the loans and works with applicants on financial education and counseling.

Real service for real properties

The university employers are wise to outsource credit decision.  It’s a specialized activity, done only occasionally by any given employer and constantly by a homeownership counseling agency, a discrete part of the value chain.  And moving the credit decisioning and counseling out of the employer makes it disinterested but not uninterested, and therefore more defensible whether the applicant is rejected or accepted.

“Most HR people don’t consider themselves housing experts, and they want to protect the confidentiality of the applicant,” Snyderman says.

America tripping over its excess of laws again; the employer knows more than it is allowed to use in a credit decision, whereas if I the applicant tell a third party, that information is now sanitized.

Stephanie Henry, program manager for Northwest Housing Partnership, which has worked with programs in Arlington Heights and Northlake –

Notice the value of a robust, diversified, healthy housing finance ecosystem.  In one part of one city, we have three agencies all of whom do housing affordability.  That’s extraordinary economic speciation, which fosters innovation and continuous quality improvement.

– says the outside agencies must “educate [buyers] to make sure they make intelligent decisions. … We go through their budget, their credit rating.”

Homeownership requires financial literacy.

The counselors will advise those not yet in a position to buy on how to achieve that goal, but Henry says there are no financial handouts.

A little symbiosis here between specialists: the agencies do the credit decisions, the employers provide the carefully calibrated handouts. 

“If there is a [financial] problem, you have to fix it yourself,” she says. “You may have some money saved but not enough.”

Some advocates say the buyer education and counseling are the most valuable part of the program.

‘Most’, who knows?  Money tends to matter, doesn’t it? 

Any money for Eddie Money

But ‘very’ is indisputable.

They help ensure potential homeowners don’t make the missteps of so many in the recent housing bubble. Since 2001, only five foreclosures have occurred in the 1,700 Illinois EAH closings, Snyderman says.

Admirable track record, and a benefit to all concerned.

Benefiting all concerned

For employers, offering assistance can be a win-win proposition, says Michael Rummel, former mayor of Lake Forest. Illinois is one of the few states that offer 50% tax credits and matching funds for EAH.

The tax credits are soft equity, adding to the soft debt and hard equity we’ve already observed above.

On top of that, employers often use the programs to attract and keep employees or to invest in an urban area near an employer.

Ah!  Another benefit to the employer: by ringing their campus or work neighborhood with satellite homeowners who are both committed to improving their own property and working in their factory/ university/ office, the employer protects the value of all its property. 

We feel better with your little houses at our base

Homeownership is the hillside sod of society; housing is the linchpin of cities.  Ring your castle with homesteads and you have a loyal militia to defend it.

Loyola’s program, for example, helps workers buy in a neighborhood around the school’s Lake Shore campus in Rogers Park, near the downtown campus or along the Red Line elevated tracks that connect the two campuses.

Surrounded on three sides by unknown Chicago

Loyola on the North Side, and Chicago on the South Side, have been in the same locations for decades upon decades, during times good and bad.  With so much of their wealth is tied up in immovable infrastructure, they have to make the city work – and if they can’t fix the whole city, they want a viable Potemkin village around the campus.  Similar thinking motivates Yale in New Haven, Penn in Philadelphia, and Columbia in the Bronx.

Designed to encourage staff at all income levels to live near the campus, the school lends up to $10,000 depending upon the home location and the applicant’s household income.

If we can’t directly influence the neighborhood, at least we can directly influence who lives there.

Michelle Olson, the school’s director of external and government affairs, says the program was “launched to promote home ownership and investing in targeted redevelopment neighborhoods surrounding the university and to address home affordability concerns in the more established communities near campus.”

Now if we can fill in the neighborhood with an orchard of homeowners …

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1. People want to own homes. 

2. Owning a home decreases labor mobility. 

3. Employers value loyalty and longevity of service. 

The simplest formulas can yield the most complex results

Mix them together and you have the formula for a cluster of initiatives known broadly as employer-assisted housing – which, in part because of the housing policy innovation inversion, is a movement without leadership, a concept without a structure, being advanced by hundreds of initiatives like those profiled recently in a Chicago Tribune article:

Tara Morin and Coleman Hillstrom are refinishing the woodwork after discarding the green shag carpeting and re-tiling the bathroom in their one-bedroom condo.

Employer-assisted housing encompasses both rental (as in Vicarage of the church of football) and ownership; it touches hard debt, hard equity, soft debt, soft equity and subsidy; and because it involves people in two parallel enduring economic bonds, employment and housing, it raises touchy questions about dependency and exploitation.  Still, it arises out of genuine need and in the modern era, nearly always for the best of motives on all sides.

Morin, like many first-time buyers, had cobbled together savings and gifts from parents last year –

While it’s no part of this post, parental gifts are among the most common forms of grant-converted-into-hard-equity used in housing purchases.

–  to buy the unit near the home of President Barack Obama.

But it was the $7,500 from her employer, the University of Chicago, that put the deal over the top.

Just the edge I needed!

What stake does the employer have in its employee owning this condo?  One can quickly think of three reasons:

1. To reward employee loyalty.

2. As golden velvet handcuffs to discourage job-hopping.

3. To protect the neighborhood around its campus.

“Without the loan, it would have impacted how fast we could renovate,” says Morin, 25, of the foreclosed property she shares with Hillstrom, her 27-year-old fiancé, who is studying for his doctorate.

Moving a property out of foreclosure emptiness and into employee occupancy has to be good for the value of all other U Chicago property.

Morin joined the U. of C. staff as a department assistant in art history last summer and soon learned that what she had paid to rent a house in North Dakota would get only a small apartment in Chicago.

Even as people move to cities because that’s where wealth is created, this economic pressure drives up the price of housing, and with it the price of urban land.  Thus when an aspirant moves to the city, expenses rises more quickly than does income.  Income will catch up, but only if the household succeeds in implanting itself in a secure affordable tenure.  Without down payment assistance, in other words, newcomers like Ms. Morin would be forced into unacceptably constricted accommodations, retarding their formation of a new household (more bedrooms means more babies) and impairing their job effectiveness. 

After shopping around, she decided to buy.

To be precise, she decided she wanted to buy.  Then she had to assemble the money, which included tapping parents and the corporate uncle, her employer.

For my next trick, I will make money from my relatives appear!

She applied to the school’s employer-assisted housing program and used the five-year forgivable loan –

Thus Ms. Morin, in addition to using her parents’ gift as hard equity, takes soft debt from her employer.  The loan requires no payments (making it soft) but must be repayable (making it debt) if she moves or leaves Chicago’s employment. 

[As a technical matter, structuring this as a forgivable loan means Ms. Morin does not recognize income from the money until five years hence, when it is forgiven, so it's effectively passed to her tax-free, as does her parents' gift, which they are allowed to give up to $24,000 jointly to each child each year.]

The university is one of more than 60 Illinois employers ranging from Allstate Insurance Co. in Northbrook to Medela Corp., a McHenry manufacturer of breast-feeding equipment, offering help to workers who want to buy.

These employers have stumbled upon a happy value-chain synergy. 

Employees buy = decreased labor mobility = greater company loyalty = greater employee retention. 

To say nothing of the enduring flush of simple gratitude.

Because mommy and daddy bought a house, they were able to make me!

Thanks, Chicago!

[Cynical note: If Chicago did not have this program, to lure those like Ms. Morin it would have to pay higher salaries, so we can see the loan as a $1,500 annual in-lieu-of-raise payment, front-ended and recoverable.]

We creative types are always underpaid

– toward a $78,000 fixer-upper unit with four layers of cracked and peeling kitchen linoleum, purple walls and leaky toilet.

Home ownership decreases labor mobility.  In the abstract, one can debate the national-competitiveness socioeconomics of this – like most things, I think it’s good in moderation but not to excess – but in the specific, one can quantify the consequences precisely. 

The structure of Chicago’s loan – its maximum amount – has a controlling effect on the maximum price employees can afford.  That, in turn, means they must come in via a lowest-decile-quality apartment, which being below-market in amenities will require them to invest substantial sweat equity in its renovation.  They will, in short, not be flippers any time soon, even if the market were to recover, so in addition to the soft-debt velvet handcuffs, Chicago has also induced Ms. Morin and her fiancé to indenture themselves for five years while they pursue making their new space worth their imagining and investment. 

The programs vary from employer to employer but in general are a benefit aimed at attracting and retaining good workers.

Is the university Machiavellian?  Or frugal? 

When neither their property nor their honor is touched, the majority of men live content.  – Niccolo Machiavelli

Or merely lucky?

Just lucky, I guess

Employer-assistance programs usually begin as benign, arising in times when housing affordability is racing away out of reach:

Started when housing prices began to skyrocket –

Employers tend to be older than the people they are hiring, and more affluent, and as such are more likely to be homeowners already, with their monthly payments locked in.  As such, they experience a sticker shock when the candidates they want tell them, almost apologetically, that they cannot afford the job because they cannot find housing in the area.  Because home ownership has proven a great investment for the employer in his or her personal life, they can naturally enough discover a ‘doing well by doing good’ approach of offering capital to get people into homes.

– employer-assisted housing programs are proving to be just as valuable in a down real estate market.

Aside from contributing soft debt to enable the aspiring family to buy, employers can act as de facto credit enhancers for their employees.  Lending the candidate money is a strong indicator the employee’s unlikely to be laid off or fired, meaning that the employee’s income stream is more secure, and therefore safer to lend against.

“It is more important now because lending is more strict. People were getting home mortgages with no money down, but now buyers have to have a down payment,” says Christopher King, president of Robinson Engineering, which has had a program for its 100-plus employees in South Holland and Frankfort for five years.

As I’ve written elsewhere, the commitment of hard equity represents more than just money.  It psychologically anchors the participant to the investment.  People fight harder to prevent loss of something they believe is theirs than they do to gain something equally valuable whose ownership is an open question –

Mine!

– one of the many reasons home ownership changes behavior for the better, and a component in the value of hard equity.

It “really takes some of the pressure off; so many fees seem tacked on at the end,” says Melissa Mares Stambor, Loyola University’s director of donor relations, about a $5,000 five-year forgivable loan she received last year from her employer.

Please give Loyola money and they will lend money to me: Melissa Mares Stambor and her husband

Stambor, 29, and her husband, Zak Stambor, 27, in August decided to buy after shopping for more than a year. They used the loan, one of 25 the university makes available to staff each year, to cover the closing costs on a two-bedroom, two-bath condo in Lakeview.

Likely any other discretionary benefit, this one is structured for best triage: making the biggest difference in those whom the employer might lose otherwise.

[Continued tomorrow in Part 2.]

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