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Does more VC activity in Silicon Valley lead to higher housing prices?

Wednesday, November 16, 2016 22:22
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There was an interesting article on the Mattermark blog today about the correlation between VC funding activity and housing prices in Silicon Valley. They postulate that as VCs are pumping more money into startups, housing prices are going up as well, and it’s likely related, but of course not the only reason (or even the dominant cause).

As you likely expected, there is a positive correlation between the amounts of cash VCs are flinging at tech startups and the price of housing in Silicon Valley. And, despite a couple of years that don’t line up with this correlative trend, it’s still remarkably consistent. (Source – Mattermark Blog)

Here’s a quick look at the data:


(Image Source – Mattermark)

Now there are a lot of other factors at play here and Mattermark isn’t trying to say that the only reason housing prices are going up is because VCs are putting more money into startups, but it is adding fuel to the fire. Of course things like successful exits, new housing, companies expanding in the bay area, etc. all play a major role along with just a general population increase as SF and Silicon Valley become a hotbed for all tech in general.

Still it’s interesting to see and the question most people have is if there’s some kind of “bubble” going on, or if this could be the new norm? Only time will tell, for now we’ll all just have to wait and see. If VC activity declines or has a bit of a lull it will be very interesting to see if there’s an impact on housing prices in SF.

I personally think that there will be a stronger correlation with a drop in VC activity than there is with an increase. However my crystal ball is just as good as any of yours – it really is more of a guessing game. Still I think that SF right now is hot, very hot, which means people not only want to move there, they want to invest in real estate there. If VC activity declines that could make SF less attractive for both startups and investors, and these two groups combined are a big part of the escalation in real estate prices.

What do you think?


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