In this second part of our series on housing strategy we look at how to set up a system for administering the programme and delivering the money to pay for the accommodation.

Click here to read the first part of the article on expatriate housing strategy.

In this article: Types of housing administration, How 'free' is free housing?, Home country orientation at the host location, How to pay, Determining the right programme.

Piecing together a good housing programme takes careful consideration

Several decisions need to be made when administering a housing programme.  Will a company withhold a hypothetical home housing contribution from international assignees or pay for 'free' housing?  Does the company pay the rent directly or give money to the assignee and let them spend it as they want?  Will housing vary by home country of the assignee or will it be the same for all employees of a certain job level in a host location?  And, last but not least, what are the tax consequences of each option in a company's operating territories?

Types of housing administration

In essence there are two ways to administer housing programmes.  Each of these choices carries significant consequences – for assignees' impressions of the housing system, for administrative overhead assumed by the company, and for the companies' bottom line.

The first is a differential programme.  The differential programme asks the assignees to contribute money from their salary to the global housing expenditure.  This can be accomplished in two ways.  The company can pay a 'top up' allowance which represents the increased cost of housing over and above the amount the assignee would have spent on home housing.  The assignee receives the allowance in cash and is expected to augment the company-provided funds with their own money to secure housing at the host location.

Alternatively, the company can provide a total host location housing budget and withhold a home housing contribution from the assignee.  The home housing contribution can be based on third-party statistical data, a percentage of salary or, in some instances, in actual rent paid at home.  The money withheld from the assignee flows to the company, which in turn applies it to the costs of housing in the host location.

The second option is for companies to run a guideline programme.  Under this scenario, guidelines are established for rent levels in each host location.  The guidelines are typically based on income/job level and/or family size.  Guidelines can be set by third-party sources, local HR, destination service providers or a combination of inputs.  The assignee is given a budget, finds housing within the guideline and the company assumes rental payments directly.

In Europe, approximately 50 percent of companies provide a housing guideline at the host location without asking for any contribution from the employee according to AIRINC studies.  This is commonly referred to as providing 'free housing'.

How 'free' is free housing?

The first choice which confronts many companies when running a housing programme for their expatriates is whether or not to provide 'free' housing.  The choice is complicated by an 'Atlantic divide' on the question. 

In North America, where assignees are quite mobile and tend to sell or rent out their homes at the start of an assignment, almost 80 percent of companies withhold a hypothetical housing contribution from the assignee.  

However, in retaining a home housing contribution companies may open themselves up to other administrative burdens.  Because an assignee might not be able to sell their house at an attractive price, or rent it in a quick time-frame, companies that withhold a home housing contribution will offer other protections to the assignee.  These might include home sale assistance, property management assistance, rental assistance, furniture storage and other programmes.  These can be quite costly, eroding the 'savings' gained by withholding the contribution from the assignee in the first place.

The typical European approach, however, is to adopt a Laissez-Faire attitude toward home housing.  Companies neither retain a home housing offset, nor do they pay for such perks as rental assistance, property management.  This is because European assignees are much less likely to sell their home housing.  European companies, then, are much more likely than their North American counterparts to leave home housing entirely out of the equation. 

Home country orientation at the host location

As a trade-off to the lost 'savings' of the home housing contribution, European companies tend to have lower host location housing guidelines than their North American counterparts.   The impression that American companies have very rich housing guidelines, then, should be coloured by the fact that most of them are asking the assignees to contribute up to 20 percent of their own home gross salary to the rent payments in the host location.

And assignees will judge host country housing in the context of what they left at home.  Americans and Australians may value large homes with ample gardens, which will likely create a problem when they arrive in the Netherlands and begin a home search.  Germans and Swiss may value high quality accommodations, and be willing to sacrifice size to get it.  Asian companies, meanwhile, may expect to house their assignees in apartments similar to those which are the norm in Singapore, Hong Kong or Tokyo.

In general, companies tend to arrive at one standard of housing for all expatriates doing similar jobs arriving in a certain location.  Thus the Indian marketing manager will receive the same housing budget as her American, Swiss and Japanese colleagues.  By equalising the housing guideline at the host location, companies can establish an 'even playing field' among all expatriates in a city.  This prevents problems of resentment arising among various nationalities working together at the same host location, which can lead to assignment failure.

How to pay?

In many ways, assignees would rather receive a cash payment and be set free in the local housing market to find their own accommodation.  Many companies do just this, allowing expatriates the maximum flexibility in securing housing while at the same time reducing the administrative load of tracking rent payments and dealing with landlords for instance.

There are, however, several good reasons why companies will assume payment of rent directly.  First, companies often insist that assignees secure a minimum quality standard of housing.  Particularly in hardship locations, there may be good reasons why a company would not want assignees to save a few euros on housing, only to be robbed or physically threatened due to their choice of an insecure neighbourhood.

There may also be tax consequences to the way housing is paid.  A company-signed lease for expatriate housing in Belgium, for example, attracts a much more advantageous tax treatment than does an employee-signed lease.  In Japan, too, where housing costs are astronomical, company-signed leases provide significant tax advantages over personally signed leases.

By taking on the added administration of paying leases directly in some territories, then, companies can save themselves large amounts of tax money.

Determining the right programme

In evaluating the method of housing money dispersion, International HR must consider many points.  If flexibility for the assignee is of paramount importance, then a cash-driven system may be the best fit.  For a company that exerts a central control over the programme, paying rent directly may be a way to retain access to cost data and maximise tax savings.  Increased administration may lead to cost savings in the long run, but requires an organisation to have access to dedicated professionals looking after the day to day challenges.

Similar to setting the level of a housing subsidy, deciding on the administration of the programme must be done with an eye towards corporate resources, the balance of cost savings and administration and the corporate culture of each organisation.

In the first part of this two-part series John Pfeiffer offers some strategic advice on what is the second most costly element of the expatriate compensation package, 'expatriate housing'.

July 2005

John Pfeiffer is the managing director of AIRINC Europe (www.air-inc.com)

Subject: Expatriate housing strategy, accommodation abroad