House rules

By Marie-Laurence Sepede

Housing is the most significant component in an expatriate's package – and not just in financial terms. It typically accounts for around half the cost of the total package, but the psychological effects of their accommodation on the expat and their family are almost incalculable.

How expatriates feel about where they live has a direct impact on their happiness and wellbeing, and thus on the ultimate success of the assignment. A nice house or apartment is pleasant in itself – particularly in a 'hardship' location – but it also conveys a very visible message about an expatriate's status and value within the firm. What's more, it influences the expat's perception of the overall package they receive too: pleasing accommodation is a tangible manifestation of a 'generous' relocation policy.

Given the expensive and emotive nature of housing, companies seeking to manage their costs while at the same time maximising the value they get from international assignments in an increasingly global business world, should resist making quick decisions when it comes to getting better value for money from this aspect of their expatriate packages.

Against a background of fluctuating currency movements and volatile housing costs, the challenge companies face is to provide the right accommodation for their international assignees, at the right price. Housing policy needs to be closely aligned with the objectives of each individual assignment, as well as with HR policy and business strategy. The best companies are working hard to create this alignment, with greater segmentation of their expats and more careful management of their expectations top of the list.

How to save on housing costs

1) Differentiate. In regions and cities where housing costs are high or even rising, it may no longer be reasonable for expats to expect to live in a large house – something that used to 'go with the territory'. But rather than 'downgrading' existing expats, which could severely undermine the success of an assignment, companies are increasingly differentiating accommodation according to factors such as the seniority of the assignee, the size of their family and the length of the assignment. Employee mindsets are changing too, and provided differentiation is done openly, honestly and transparently, employees accept it – although it helps if other 'sensitive' elements of the package, not least being close to an international school, for example, remain intact.

2) Tie housing to career paths. Another factor exerting downward pressure on housing costs is the trend towards building international assignments into career paths. If an employee sees a move as a good development opportunity, their need to be 'compensated' for it with mobility premiums and generous allowances reduces. This trend supports and reflects other talent management initiatives enlightened businesses are pursuing, and represents a real advance on a situation that still prevails in some organisations, whereby expats are not even guaranteed a job when they return home.

3) Provide free accommodation. Counter-intuitively, perhaps, more companies are saving costs by providing free accommodation rather than giving assignees an allowance to cover the difference between accommodation costs in the home and host locations. A free accommodation policy carries a number of advantages: it is easier to administer, it is looked on more favourably by employees, it is less subject to discussion, it makes repatriation easier – and, crucially, it may cost less, because companies that provide free housing tend to pay less in additional allowances for things like fuel and insurance.

4) Think laterally. Growing numbers of companies are exploring alternative options to traditional international assignments – such as recruiting locally, localising expats, or doing more intra-regional, rather than inter-regional, transfers. All these options help to reduce housing costs without undermining the happiness and wellbeing of the individuals concerned.

5) Reduce exceptions – within reason. Companies are also applying 'no exceptions' rules more rigorously. Benchmarking studies Mercer has conducted show that around 65 per cent of companies regularly make 'exceptions' to their existing policy – that is, they offer more than their guidelines recommend, usually because of the difficulty of attracting people to particular destinations and jobs. But making exceptions can typically add between 25 per cent and 50 per cent to an individual's package. However, policies need to leave room for a bit of flexibility and negotiation on housing, given its sensitive nature: for example, you could offer a slightly larger apartment in exchange for reduced car benefits.

6) Revise allowances mid assignment. Companies could also save money by revising housing allowances mid assignment in line with shifts in either the property market or family circumstances. For example, if an assignee has a new baby or gets divorced, they are likely to need, respectively, more or less room. Similarly, during the recession rents in cities including New York, London, Dubai and Hong Kong fell. While moving an expat to a smaller apartment or reducing their allowances is difficult to do, some companies are incentivising them to either move to smaller premises or renegotiate their rental contract by offering to divide the savings with them.

7) Do financial planning. It is possible to negotiate cheaper rents with landlords by taking out longer leases and paying in advance – up to two years ahead. It is also worth monitoring the tax situation on a fairly regular basis – every two years, for example – in order to maximise tax advantages on employer-paid accommodation.

Above all, it is very important that all companies keep a close eye on expatriate rental markets to ensure they have accurate and up-to-date information. In an increasingly volatile world, it is growing more and more difficult to generalise about where and how fast costs are rising, falling or stabilising. For example, many African cities rank highly in Mercer's Worldwide Cost of Living Survey 2010, nailing the lie that cities in the developing world are 'cheap'. To entice staff to these cities, many of which are classed as 'hardship' locations, multinationals need to provide the same standard of living and benefits that employees and their families would enjoy at home. In some African cities, this is very expensive to do – particularly given the cost of good, secure accommodation.

So while Mercer's report provides comprehensive information on over 300 major cities, companies are increasingly turning to us for very specific data on smaller cities, in order to ensure that the money they spend on expatriate packages – with accommodation costs being the biggest element – is being spent wisely and not wasted.

About the authors

Marie-Laurence Sépède is Mercer's expatriate accommodation services manager. Based in Geneva, she can be reached at + 41 22 869 30 65 or marie-laurence.sepede@mercer.com.