Tech’s biggest problem is one it doesn’t know how to solve

December 19, 2013

The gilded city. (Carol M. Highsmith)

For the past few years, writers have agonized over the increasingly obvious schism in San Francisco between those who can afford insanely expensive housing created by limited supply and a venture capital-fueled tech boom, and those who cannot. The losers: Artists, low-income Hispanics and the free-loving bohemians, who've long given the city its soul.

But there's been less focus on how the real estate crisis is a looming disaster for the tech economy that created it.

This morning, the Wall Street Journal asked Paypal co-founder turned celebrity investor Peter Thiel what he thinks is holding back entrepreneurs and innovation. Often, tech leaders will say our crumbling schools, or sclerotic immigration system, which choke off access to talent. His response was different:

Let me give a Silicon Valley—and New York City—focused answer. We have to figure out ways to make housing more affordable in these places. When people start companies they are typically getting paid in equity and not a large salary. The way rent and housing costs have gone through the roof in a number of cities where people go to start companies is a tremendous problem.

Zoning rules, while well-intentioned, have had the effect of making it almost impossible for people to take a pay cut and make a leap. This is an underestimated challenge.

Now, Thiel is a well-known libertarian, and naturally jumps to the free market prescription of relaxing zoning regulations. It's a complicated predicament, and that's certainly one part of the solution.

The striking thing about Thiel's diagnosis of the problem, though, is how little the tech community is focused on solving it. Progress has been made on the issue of office space, with an explosion of tech accelerators and incubators that shelter programmers during the day -- but for finding places to sleep, they're on their own. There are literally hundreds of startups -- and now well-established companies like Zillow and Trulia -- that help people find houses and apartments, or provide analytics for the real estate industry. But those are focused on helping people navigate what's already a terrible situation, not ameliorating it.

Of course, the challenge of expanding housing supply in the right places has a lot to do with hidebound local government and can't be solved with an app. That doesn't usually stop the ever-creative founder type, though (even if it means embarking on a high-profile political campaign). The startup that comes closest to actually making progress, a crowdfunding platform for investing in real estate called Fundrise, comes out of Washington. And if it scales, that could free up capital to put into housing projects that might ease prices.

Also, some of the largest tech companies -- like Facebook and Google -- are starting to build their own housing near their campuses. If more of them did so, company towns could at least take some of the pressure off the housing market in the rest of the Valley.

But for a community that's pretty good at solving its own problems, the tech sector writ large seems at a loss for how to fix something that stares it in the face every single day.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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