Silicon Valley Frauds 🎭

With the rise of crypto, the case of Elizabeth Homes, and even the Netflix documentary about Bernie Madoff, it seems like frauds everywhere. Everyone seems wary of scam callers and shady crypto exchanges, but what about the biggest hidden frauds? In Silicon Valley, there’s huge swaths of people who are secretly hiding behind a false pretense and they’re hurting millions of people. It’s different from Sam Bankman-Fried’s FTX, or Charlie Javice’s Frank. It’s the people who don’t want to solve California’s biggest crisis, housing.

2 Birds, 1 Stone-Built House

I recently took a trip to the Tenderloin to grab dinner with my sister after work. If you’ve ever been to the Tenderloin, especially in the evening, you know it’s a bad place to be. But most people in San Francisco accept homelessness as an immutable fact, shrugging their shoulders and saying there’s nothing that can be done. The harsh truth about homelessness in Silicon Valley is that we’ve done it to ourselves.

If you ask any San Franciscan about their biggest concerns for their city, two of the top issues will be homelessness and housing affordability. The big surprise? They’re connected! We have a simple problem with an unbelievably difficult solution. Build more housing.

Of course, it’s easier said than done, but a lot of our problems stem from this lack of housing. The tricky part about building more housing is figuring out the right incentives to align. Let me explain.

Trust Me, The Math Works Out

In another life, I think I could’ve been an economist. I took a macro-economics class my freshman year of college and absolutely hated it. Once, I fell asleep for 45 minutes in one class and woke up to the shuffling of papers and people getting out of their desks as I desperately tried to ensure I wasn’t the last one in class with the professor. But over the last few years, with people like Steven Levitt, who published Freakonomics, I’ve fallen in love with it. I don’t care for the macro economics, which stocks to buy or what GDP is looking like. The micro economics of any small system, is some of the most fascinating data you can find out there.

Economists such as Edward Glaser and Enrico Moretti have written extensively about the economics of cities. (You can check out the grandmother of city planning, Jane Jacobs, to learn more about how to build an awesome city) Fundamentally there is a supply and demand problem in the housing market. As Silicon Valley has exploded as a hub for innovation and tech in the last 30 years, people from around the world have flooded in. Trillion dollar companies have been built on the land that we live on. One of my favorite fun facts about San Francisco is that we have the second most billionaires per capita, second only to Geneva (which is a lot smaller population-wise). Technology in the Bay Area has exploded to affect change all over the world. Despite all this growth, there hasn’t been enough housing to match the demand, so people who aren’t making 6-figure salaries are getting evicted and priced out of their homes.

This isn’t just hurting people at a humanitarian level, we’re handicapping our ability to grow economically. As Enrico Moretti finds in his paper Housing Constraints and Spatial Misallocation,

We’re hurting our potential for even more growth and innovation that could help fuel new technologies and a brighter future, simply because those people aren’t going to be working with each other because they can’t live next to one another. When we vote to make building housing more difficult, we can’t turn around and ask why rent is so expensive. This is the crux of NIMBY’s.

San Francisco, and California as a whole, claims to be progressive and wanting what’s best for all. As we look upon other states and cities with differing ideologies, we scoff. Yet, when there’s a proposal to build housing in the sunset district, people hiss at how it would be an eyesore, it’s too big to be built or anything else like that. People want to do what’s best for others, yet when push comes to shove, everyone cowers at the reality of what it will take to happen.

Again, using incentives to navigate this situation, there is no reason for people who already own their homes to advocate for more building. As Ed Glaser puts it,

So What Now?

How do we fix this problem? It’s a long term solution because there are no easy ways to alleviate a problem that’s taken us decades to get into. But there are some great people who are working on great ideas to help. Foundamental, a VC firm focused entirely on construction has funded many great companies that are trying to solve this problem. Companies like Permitflow, Juno, & Agave have focused on building something better. Between reducing the headache of construction or focusing on building products that can help people live better, I can’t wait to see how these companies continue to grow and change the world. And next time you see an idea floated around about building new housing, take some time to support it.

-Derek