If you want a gauge the degree of inequality in the US, watch what America’s venture capitalists are funding. One of their most recent is FlyHome, a real estate brokerage that announced a $17 million funding round led by Andreessen Horowitz May 31. It is a service to help people buy homes in America’s hottest housing markets.
The problem with these markets is not merely price, which is remarkable since the median home price in San Francisco is now $1.61 million, double the average from just five years ago, and once affordable Brooklyn tops out above $1.4 million. It’s that people, and investors, are making all cash offers.
The surfeit of wealth in these cities has shut out all but the wealthiest with $1 million or more in cash to buy homes. Sellers will often take buyers with all-cash offers over those who have to secure financing from a bank, even at the same price, because there is more likelihood the deal will close. As the US economy has amassed even more wealth at the top, home prices have followed suit. The informal rule of thumb is that a house should cost about 2.6 years of income. Today, many US cities have home prices five to 10 times the median household income.
Silicon Valley startups have often gravitated toward serving the rich clientele of their area. BlackJet lets you book private jet tickets for $3,500, and the Hangover Club will deliver a $249 concierge IV service to your home after a night out drinking. Now they’re merely helping the wealthy try to compete with the slightly wealthier who are able to afford a mortgage running above $7,000 per month. FlyHome makes money by fronting the cash for buyers who have pre-approved home loans, and then taking 1% of the price as a commission.
FlyHome says it has helped more than 400 people close on more than $300 million in homes. The service will no doubt be the only way some can get their foot in the door. “We are making homebuying easier in the sellers markets,” co-founder Tushar Garg told GeekWire. The real estate brokerage currently operates in the Seattle, Chicago, San Francisco, and Boston areas.
The service is a symptom of a larger global problem. Cities are where the world’s economies are growing, and where opportunities are for those who need them most. Yet housing is now an investment vehicle tied to the financial system, rather than people’s incomes.
The expectations of skyrocketing housing prices, and a flood of cheap capital to purchase them, is driving home values beyond actual increases in earnings. That’s created an oversupply of luxury housing at the expense of affordable homes. The UN laments that if just a fraction of global housing dollars now building high-end units went to affordable housing and credit, the UN’s sustainable development goal “to ensure adequate housing for all by 2030, would be well within reach.”
For now, however, maybe you can pay cash.