News broke recently that Andreessen-Horowitz invested $350M in Flow, a real estate venture led by WeWork’s Founder & fmr. CEO Adam Neumann. I haven’t read any hot takes about this, as they are all predictable so one knows what they’ll say before they publish, but I will engage with Mr. Andreessen’s blog then sketch out my own hope for what Flow (or a similar venture) could accomplish.
Flow joins a contested field where several, similar startups (not to mention countless landlords) fight for a slice of the OG recurring-revenue-model: rent. This competition reveals a reality that explains two things: why Flow attracted so much money & why it can’t fail. Real estate is the original investment scheme, as security enables property & property rights secure wealth which allows for wealth-generating improvements. So real estate is the investment with the most consistent & long-lived track-record of positive selection. People back it because it works & it works because people back it by necessity. Thus, plunging into real estate makes a lot of sense from a financial perspective, especially when one considers that it is the best performing asset during inflationary cycles yet still retains value during deflation given rather inflexible demand.1
Investing in real estate makes even more sense when non-monetary value is appraised. Andreessen appreciates this; he states what is obvious to the observant when he notes that,
“The demographic trends driving America’s housing market are impossible to ignore: our country is creating households faster than we’re building houses.”
This bottleneck slows or even restrains formation of families, which creates a myriad of social pathologies, & the lack/reduction of property ownership reduces social mobility, which has been key for economic growth, political legitimacy, & social stability.
Andreessen again puts it well:
The first model is: you own a home you call your own, typically with a multi-decade mortgage, near your current employer. IF you can find a house, as these locations often aren’t building new housing. IF you can afford that house, as housing prices in many such places have skyrocketed. And even then, you’re now stuck — you can’t move, even if your economic opportunity or life path wants to take you somewhere else.
The second model: you rent an apartment, but: it’s a soulless experience; do you even meet your neighbors, much less have any friends in your complex? Does it feel like home, or just a place to sleep? Are you proud to bring friends and family to visit, or hesitant? And you can pay rent for decades and still own zero equity — nothing. There’s a reason the federal government started subsidizing home mortgages: someone who is bought in to where he lives cares more about where he lives. Without this, apartments don’t generate any bond between person and place and without community, no bond between person to person.
The lack of supply for the first forces many into the second as a holding pattern that eats social & actual capital while paperwork is filed & frames are put up.
So the guarantee of healthy ROI, underwritten by future families (increased future demand thanks to population growth), & downpayment on preventing civil strife constitutes a compelling case for A16z investing in real estate. Xenophon & Aristotle were right that homes were the economy. But why invest in Flow, a particular kind of real estate venture?
For starters, it’s led in part by Neumann which is a unique asset as he’s evidently charismatic enough to earn a huge investment despite WeWork’s supernova; by this same token, his record at WeWork proves that he can generate interest in a quotidian sector which in turn garners gigantic investment & even higher valuation. The bet is that he can do for residential property what he did for office space. Flow’s fundamental value proposition lies not merely in building homes & apartments but building communities & leveraging this into an attractive brand. They need to be more than a landlord.
At the very least this sounds like Flow could find itself arbitraging housing as a trusted, digital real estate agent, but how is that any different than Zillow? It’s also possible for Flow to be a Zillow that, after it acquires a (niche or generally solid) homebuilder, constructs apartment blocks, neighborhoods, or villas with architecture & materials tailored to local tastes, but there are plenty of regional homebuilders. Another model, supplemental to either buying or building homes, is to offer timeshares in any of the domiciles built or sold by Flow.
If I were with Flow, this is what I would do after buying a trustworthy homebuilder: Build destination communities, as this has the highest margin & allows for the most customization per community. The main modality of the product is offering a community that is intrinsically desirable thanks to natural beauty, safety, & social capital (security & tolerable taxes are a given). While all ideal communities share these qualities, they must confront the question of what makes a community cohere—the qualia of community.
The history of American communes is instructive here, as communes are by definition self-selected according to a brand, which mirrors Flow’s business as it will establish & sell dwellings defined by Flow’s brand. Communes failed either because they couldn’t provide for themselves, they violated the law & were dismantled, or their conceptual basis lost credibility. Flow can avoid these challenges if they let their customers define their communities. This would be nothing less than a Freedom of Association revival, something that Tocqueville noted was the glue for American society. These communities will likely contain people engaged in a range of activity but it makes sense that over time certain Flow properties would become nodes unto their own for certain industries as talent in a given field catch on & move or are invited to live there.
The simplest approach would be to build neighborhoods or apartments near currently popular hubs to tap into existent demand by offering a unique lifestyle if not accommodations for apartments that are a breeze to buy (model 1). The next, perhaps parallel, step would be to build ideal, self-contained communities in various climes across the country (near extant infrastructure) to capture remote workers, laying the groundwork for a future hub (model 2).
The former could mean meeting with companies or institutions who want Flow’s ideal communities near them; the latter, however, is much more ambitious whose scope could span from a given partner asking Flow to create a new company town for them to Flow competing with the likes of Disney’s Cotino. Flow could even go beyond this if it contracts out education, security & healthcare if they build de novo (model 3). I would expect Flow to pursue model 1 the most, though 2 & 3 are the most exciting as they could offer extant communities their ideal home—e.g., the charter city movement or dedicated hobbyists—as well as create space for ones yet formed. Designing & shipping modular homes (likely contracting out shipping) that can grow with the family to meet their needs (model 4), who could sell it back to Flow for refurbishment or donation if the family moves, strikes me as just as exciting as models 2 or 3 since it fills a void that has lain empty since Sears stopped selling DIY “Modern Homes.” Modular or at least kit homes represent a low-cost solution to housing crises near extant hubs for people who don’t want to live in an apartment. Furthermore, model 4 would complete coverage of the Hirschman spectrum for social engagement.
Flow could be the next, trusted designer of homes for the 21st century: per Hirschman, model 1 (building a brand for the best & easiest-to-buy apartments in existent hubs) is for loyalty-minded individuals; model 2 is a partial exit, whereas model 3 is as much of an exit as one can have while remaining State-side though both serve the possibility of designing entire self-contained neighborhoods for extant & emergent communities. Model 4 is the voice option as it allows would-be homeowners to circumvent the broken housing market of their choice; moreover, it’s likely that Flow’s model 4 homes would not only appear around current hubs, but would enable spontaneous formation of new ones for remote workers given their quality, affordability & accessibility.
In the case of models 2 & 3, Flow will need to either limit the portion of a community that has timeshares, make entire communities time-shared in coordination, or disallow it, so as to promote community by incentivizing continuous, long-term if not lifelong occupancy alongside the same/similarly self-selected people, whereas sense of belonging for model 1 or 2 dwellings comes with the location since homeowners & renters already want to be where they occupy, even if designed as self-contained communities they are still a part of the wider city. Model 2 & particularly model 3 offer the opportunity to literally break new ground that America hasn’t touched since the frontier closed.
Whatever model they pursue, Flow’s communities must strike a balance between form & function not just for architecture but in a community that integrates into a locale’s culture & shapes its own social topography. This is quite the task, one of the utmost importance, but it’s one with a high chance of success as homeowners (especially Americans) as social beings invest more than money into their homes, we want to be at home with one another. We are dying for community & for want of it.
I grew up in a small college-town which is the closest thing the United States has, outside of Amish & other confessional communities, to the Kibbutz—all of these are self-selected communities that have some self-sustaining element(s), which is the key for healthy communities.2 This is why I have high expectations for reinventing home-building that caters to self-defined (or at least selective) communities.3 The restoration of home-ownership, high-trust living, overcoming the GFC, drugs, covid, & much else, is quintessential American Dream, something that is too far out of reach for too many. I hope Flow can help fix that.
I’m convinced that the USA (Europe even more so) is trapped in stagflation until we produce more energy to enable growth, which is currently cost-prohibitive given lack of ONG & nuclear infrastructure (e.g., we have better infrastructure & more incoming investment in exporting LNG than we do for domestic distribution whilst we lack sufficient mining, processing & reactors to enable expanded nuclear energy). So even if we cut taxes & regs, manufacturing & other industrial activity would still be hampered or precluded by energy costs (especially as a global benchmark or at least trans-Atlantic one for NG is established). While what I call Model 1 housing is susceptible to market movements, Models 2 & 3 can defy normal supply & demand like a Veblen good thanks to their innate if immaterial qualities.
The Israeli Kibbutzim I have visited prove that self-selection indicates probability if not definite self-sustainment; e.g., years after many closed, the ones I visited had reinvented themselves for commercial ventures or nearby sightseeing while still living according to whatever ethic the community had chosen. Commitment is most of the battle.
Self-defined communities are resilient so long as the basis for selectivity lives, e.g., Amish, the Kibbutz, Mormon. Selective ones last as long as selectivity lasts (Tuxedo Park, Malibu, etc); even minimal coherence is enough for healthy, or at least functional, community as is often the case for small university towns in that whatever their differences, residents work for or like the university (or its sports) and can count on it for a mutual relationship. These are models ripe for adoption by new communities.