Bristol is pleased to feature this month two expert analyses of the current conditions in U.S. real estate and global temporary housing market, respectively, as linked here: https://www.bristolglobal.com/industry-connections/temporary-housing-industry-update-fall-2021/ and https://www.bristolglobal.com/industry-connections/housing-market-appraisal-gaps/
Some of the factors are interrelated, i.e. low sales inventory and booming prices are causing higher demand and escalating costs for rental properties. What are the implications for your corporate relocation policies? Here is my view:
Home Purchase support: What first comes to mind is the formal policy element of home purchase assistance. Many companies offer their homeowner transferees mortgage assistance for the destination purchase of 1-2% (even 3% on the high side) of either the primary mortgage amount or even the full purchase price, sometimes with a cap on the benefit of $5-$7,000. Not all companies do this, however – recent benchmarking indicates approximately half to two-thirds of companies depending on industry and job level do so. If you do not offer this benefit you might consider offering it now; if you do offer it, consider flexing it upwards (from 1 to 2% for example, or raising the cap) either as a temporary exception, a “flex” component in a core/flex model, or a permanent provision.
Before you do, however, consider case-by-case nuances. For example, a transferee who just sold their house at origin may well themselves have reaped a higher sale price over their asking price – so a company might well conclude that the sale windfall provides for a bigger down payment on the purchase side so no assistance is necessary. Also, take a hard look at the type, style and quality of the house they may be upgrading to - e.g. is the target property a true need or a "lifestyle" choice? Finally, assess the relative cost of the destination market to the origin market - you’re more likely to offer assistance for a transfer from a low- to high-cost city than the reverse. So there are definite pros, cons, nuances and case-by-case considerations.
Another possible long-term consideration is future loss-on sale. Let's say a transferee “overpays” for their house in the hot market of 2021, then the market cools (or reverses) and they are asked to transfer again in 3 years, they may be looking for a loss-on-sale provision at that time if their mortgage is underwater. In other words - it might be time in the not-too-distant future to dust off those dormant LOS policies.
Temporary Living support: Most companies' policies limit the approved number of days in temporary housing, typically in increments of 30, 60 or 90 days often depending on job level and/or homeowner/renter status. While closely managing actual need will always be appropriate, companies may want to exercise discretion and flexibility in the current environment, for example if a potential purchaser may need extra time to find and finance their destination purchase, if logistics issues are delaying the arrival of their household goods shipment, or other similar personal circumstance. Be flexible and understanding!
A creative approach might be to combine the two interrelated housing issues: e.g. offer either (the lesser of) an additional percentage of mortgage assistance or an additional month in temporary housing. Your transferees will appreciate the thoughtful consideration.
A word on lump sums: A trend in recent years is to offer a combined lump sum to cover multiple benefits including temporary living, a potential house-hunting trip, final move trip, auto shipment and miscellaneous expenses. With the escalating costs we are experencing across-the-board, the cost bases used to calculate these lump sums may be outdated and the lump sum insufficient in the current environment. We suggest re-evaluating your current lump sum levels if this is your policy, or perhaps reverting to directly-managed benefits.
Talk to Bristol! Bristol welcomes your comments and is available to assist! Please email Martin at firstname.lastname@example.org or reach out to your Bristol Client Engagement Director for more information or advice on your unique situation.