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Housing Crunch Puts Squeeze on Corporate Expansions

Despite today's high unemployment, the weak housing market has made potential hires unwilling - or unable - to relocate for a new job.

Fall 2011
Art Young needs to hire two good software developers. He's the Business Intelligence team leader at Hypertherm, Inc., a Hanover, New Hampshire-based maker of plasma arc cutting equipment. Those two are part of the 75 new workers Hypertherm needs to hire worldwide. You'd think, in an economy hovering near double-digit unemployment, Art would have candidates lined up outside his office in this pleasant college town (Dartmouth College is located in Hanover). Not exactly, Art noted. "It can be a challenge to hire people when they're reluctant to move up to the Northeast, especially a somewhat rural area like Hanover, if they're leaving a city or someplace where they seem to have more mobility and potential future jobs." Jon Sisler, president of a privately held group in Marion, Ohio, that makes oven door hinges, faces a similar issue. "We have one individual right now that we're trying to relocate, and the problem has been that he hasn't been able to sell his home. It's just a difficult climate."

Apparently, a national housing market where at least a third of sales are foreclosures or short sales is becoming a factor in corporate hiring and expansion plans. It may not top the list of issues for expanding companies, but the impact is beginning to sink in for companies like the Sisler Group and Hypertherm. However, strategies for dealing with today's realities are beginning to emerge as well.

Weak Housing Market
Jed Smith manages quantitative research for the National Association of Realtors® and sees the impact of a weak housing market in the numbers he crunches each month.

"The sale of one existing home tends to create about two jobs," he says, through the purchases and services people require when they buy a house. "And the construction of a new home produces between three and four jobs," he notes. So, with home construction off about a million homes per year, that's three to four million jobs taken out of the economy. Smith also notes that the recent "Great Recession," which he says "allegedly" ended a few quarters ago, eliminated $17 trillion in household wealth through falling housing prices and stock market declines. America's GDP is about $15 trillion per year. "A year's pay and change," he says. "It's kind of hard to say `let the good times roll,' when you've lost a year's pay."

Looking at banks' inventory of foreclosed properties, as well as those on the brink of foreclosure, Smith expects short and foreclosure sales to continue depressing real estate prices for at least the next three years. It's no wonder, he says, potential employees are reluctant to sell. "One thing that businesses are running into is [the fact that] people don't want to move. The reason is, in most cases, they can't," without losing a substantial portion of the equity in their home - which, for many, represents the bulk of their personal wealth.

Nonetheless, according to Katie Culp, senior vice president with site consultants Cassidy Turley in Indianapolis, "With unemployment being what it is, I think workers will do a lot more than maybe they were previously willing to do to keep their jobs. if that involves a relocation, maybe they're inclined to consider it more than they might have in a better economy." Cassidy Turley's business has picked up in the last year, she says, as pressure mounts for companies to expand or lose market share. "As soon as companies start to have the confidence that the investments they make will be well-spent, we'll see pent-up demand" turn into more expansion projects.

Pockets of Opportunity
Even in a sluggish economy, there may be pockets of opportunity for expanding companies. King White, president of the Site Selection Group in Dallas, says underemployment may mean a bargain on wages for a company building a new facility in such a market.

"Our clients are asking questions like, `Where are these places with the high unemployment?' I think, really, that question is probably the main thing" clients are focused on. White says wages in such markets have stabilized, while wage inflation in high-growth offshore markets such as China, India, and the Philippines is running in the 7 to 10 percent range. It's bringing some projects like call centers back to the United States, he maintains. "We're even seeing the manufacturing side come back too. The U.S. dollar is cheap and wages have stabilized.I got a call from a guy who's talking about bringing all of his manufacturing back from Mexico."

White also sees communities preparing for a turnaround by conducting targeted industry studies so they better understand their strengths when companies come calling again.

Incentives for Competitive Projects
Jed Smith notes the heavy toll on the number of jobs taken by the recession. "We are down a tremendous number of jobs," he says, "and the bad part of this is [that] our GDP is back up to where it was prior to the recession. So, what this says is, we have permanently lost eight million jobs or so. They're just gone." That kind of job loss leaves communities reeling, looking for an employment and tax base. "I think any company that wants to expand anywhere, right now, is very welcome," Smith concludes.

Cassidy-Turley's Katie Culp says companies need to understand that state and local governments have been strapped by the recession too, "so it makes offering things like cash grants difficult," she says. "But I do think things like tax abatements and tax credits - things that don't cost direct, upfront money to state and local governments - continue to be very available. And for competitive projects, I think state and local governments are still quite willing to put maximum incentives on the table." Culp notes as many as half the states have come up with "close the deal" funds to help a company with its relocation costs and put competitive projects over the top. "It's kind of a new approach," she says, but "it's been very well-received."

Outsourcing the Hiring
Some companies facing challenges in recruiting key people have outsourced the process to individuals like Kate Wolfe. Wolfe is a Certified Personnel Consultant - what you and I might call a headhunter, who operates HDB, Inc., a retained search firm, out of St. Louis. HDB recruits nationally for its clients. She explains that her job is not finding warm bodies, but instead, it's finding the right fit.

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