Friday, 23 March 2018

"Peter Thiel gripes about San Francisco rents"

The man is brutal, but brutally honest:

Outspoken venture capitalist Peter Thiel has trouble finding many people who agree with him in the Bay Area these days, but at a speech Thursday at the Economic Club of New York, Thiel may finally have found common ground with the average San Franciscan by railing against skyrocketing rents.

When asked about the future of the tech industry, Thiel speculated that the lure of Silicon Valley may no longer be enough to overcome the pain of punishing housing costs.

“At what point is this a feature and what point is this a bug?” asked Thiel, admitting that “it’s a feature if [...] everyone has to be where everyone is, where all the ideas are, where the capital is” and thus creating an enormous network.

Thiel also asked, “At some point does it just get so expensive that it doesn’t quite work, that you have to very quickly make money just to pay the rents?”

The venture capitalist complained that most of the money he invests in new companies these days goes not into product development but instead “to landlords, to commercial real estate.” He even referred to Silicon Valley landlords as “urban slumlords.”

Correct, that's called "agglomeration effects" which is what drives rental values.

His options are:

1. Relocate somewhere cheaper. Rents will be lower in the middle of nowhere, but he will find it more difficult to do business there. Over time, the economy and population in his chosen middle of nowhere should grow and mature, making it easier to do business but the rents will go up to match. So that doesn't solve his problem.

2. If you can't beat 'em, join 'em. If he first buys up the land on which to build Peter Thiel City, he wins on both sides of the equation.

3. Fight the system and campaign to shift taxes from output, employment and profits (and in his case, capital gains) onto land values.
In reply to Lola's comment/question, see here Peter Thiel on Henry George, I think he has mentioned Henry George favourably on a few occasions, but usually as an aside or when prompted.


Lola said...

What stuns me is that these people never seem to be able to make the intellectual leap from the status quo to LVT land. Although I am not convinced that by itself alone LVT will solve the land rents issue it will go an awful long way to doing so - especially if the rate of LVT is set to capture 100% of the location premium.

Mark Wadsworth said...

L, he's getting there, but only very slowly, see update.

Patrick Hutton said...

An important apologerap is the response to "won't a LVT exacipate the high rent problem?" I know there'll be facepalms of frustration at tgit question. Bit it's one we need to be able to answer off the cuff.

DBC Reed said...

Meanwhile in a " brilliant" performance in PMQ-s according to the white trash press, Theresa May called "Land value tax a tax on you home and garden." This is why this country needs an elite: to make major pronouncements with all the authority of carefully preserved centuries' old ignorance. She is an affront to economic knowledge.

L fairfax said...

Oracle in the UK did this by investing in Reading and renting land to other software companies, allegedly they made more money one year from property than software.

Bayard said...

"allegedly they made more money one year from property than software"

That's the UK economy in a nutshell.

A few years ago, my brother bought a derelict farmyard as a base for his business. He repaired one building as his premises and then, one by one, repaired or rebuilt the others and let them out. He now makes more money from property than he does from his original business.

Bayard said...

DBCR, I think you overestimate TM. To me, like David Cameron before her, she appears simply to be saying what she has been told to say. The "elite" you see on camera is not the real elite.

DBC Reed said...

Its very hard to tell whether she's a real phony or a phony phony.Two weeks before her loutish remarks at PMQ's she gave an interesting speech at the TPI in which she told developers "to step up and do their bit", listing all their abuses and also showed she thought the housing crisis had affected the snap election (see YOU GOV PM Speech on making housing fairer.) She also signalled approval of Matthew Rognlie,an American elite economist who appears to be a lightweight Georgist.