Company Towns Are Bad

This is one of those things that should be surprising to even have to mention, but the concept of company towns pops up from time to time in discussions on California’s housing crisis, so here’s a summary of why they are bad.

The specific proposal often takes different forms, but they are all variations of Gilded Age company towns (or Communist countries with internal movement controls if you like):

• Workforce housing: because California’s housing crisis is so bad it’s impacting middle class professionals like teachers, some liberal communities have begun to feel embarrassed that people with “respectable” jobs can’t afford to live in the city where thy work. This generosity rarely extends to people who do things like work at 7-11, who are expected to have to endure long commutes as the price of their insistence on working in the service industry.
• Company housing: misdirected anger at the tech companies that are a big part of California’s economy results in calls for these firms, which certainly have the profits to do so, to build housing for their employees to take pressure off the local housing stock.
• Tying new office development to new residential development: this is a proposal to force cities to permit enough housing to accommodate the employees in new office space that they permit.

The first two proposals are similar enough to discuss as one, with the main difference being that in the first the government provides housing for its employees, while in the second the private sector provides housing for its employees.

These proposals are bad because they demote the employees to second class citizenship, where the ability to secure housing is contingent on employment with a single employer. It is not hard to see how this will easily lead to employees surrendering their rights and not speaking out against institutional problems, because of the fear of losing their housing. It also implicitly creates a third class citizenship, occupied by the elderly, the unemployed, government employees whose jobs are not deemed important enough to get them housing, and people employed by businesses that do not have the huge profit margin needed to provide subsidized housing.

Simply put, people’s ability to find housing should not be dependent on them staying at the same employer.

The third proposal may seem appealing because it targets recalcitrant municipalities like certain Silicon Valley cities that permit new office space and see a large amount of job creation, but allow almost zero new housing to be built. The idea here is to force these cities to build more housing, to relieve pressure on the housing stock in nearby cities that have not had the same amount of job growth.

The unintended consequences of such a policy are likely to be bad. The recalcitrant cities are just as likely, if not more likely, to respond by stopping or slowing office development. This will lead the high-profit industries to outbid small businesses and lower margin industries for office space, hurting the region’s economy and the people who work for those smaller or less profitable places. If we want to make cities that don’t build enough housing build more, we should just do that and not make it any more complicated than it needs to be.

History suggests that jobs-housing balance can only be achieved on a regional level. While coastal communities like Santa Monica and Venice complain about too much job growth (oh, the entitlement!), cities towards the edge, like Santa Clarita, Palmdale, and Moreno Valley worry about a jobs-housing imbalance in the opposite direction – too many houses and too few jobs. Employment always seems to like to concentrate to a greater extent than housing, perhaps because the efficiencies achieved are greater. It seems likely that we will always have more jobs than housing near the employment centers and more housing than jobs on the edges. In addition, policies to try to achieve jobs-housing balance at a local level ignore the fact that people changes jobs from time to time, and many households have more than one income earner.

There are a few places where company towns or workforce housing make sense. These are generally isolated towns where the economy is dependent on one enormous employer or one dominant sector. Examples are mountain resort towns, island resorts, and remote mining towns. Resort towns often feature a large number of second homes, owned by people with much greater means than local service industry workers. They may also face serious natural or imposed constraints on development, such as very limited space suitable for building, limited water, or business development plans that place a high priority on keeping the town to a small size or maintaining the appearance of natural surroundings.

These unusual circumstances certainly do not apply to any city in California (except maybe Avalon due to water availability, a desalination plant would be expensive for a city so small). People in California already face precarious housing situations due to the high cost of owning and renting; many would have a hard time keeping their housing upon loss of a job. The solution is to make housing cheaper for everyone in California and reduce people’s dependence on any particular employer for housing, not increase it.