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Stanford Report, July 12, 2000

Students propose startup to tackle housing crisis


It's only a class exercise, but students from Spring Quarter's CEE 45Q have big dreams to relieve a part of Silicon Valley's housing crisis.

Fourteen civil and environmental engineering students taught by Assistant Professor Bill Behrman and Professor Boyd Paulson have come up with a business plan to help low-income people find affordable housing.

The students, mostly sophomores, have devised a Silicon Valley-style nonprofit startup called "" that would collect information about affordable rentals, put it online and reach out to income-qualified residents searching for housing within a 10-mile radius of Stanford.

"There are certain macroeconomic forces that the students can't influence, such as the fact that we're not building enough housing for the jobs" being created, says Behrman. "We wanted to focus on what could be done. So [the students] decided to work on [providing] information."

According to research done by the class, online housing search resources exist for middle- and upper-income people. But nothing has been developed for low-income residents, who are defined by the Department of Housing and Urban Development as those earning 80 percent of the median income, or about $57,500 for a family of four in San Mateo and Santa Clara counties.

Katy Herbert, an American studies major and a sophomore during the course, speculates that such a service has never been created because nonprofit organizations are already overwhelmed. Furthermore, she says, the very nature of such a service is unlikely to generate large profits.

Despite the housing scarcity, which is being exacerbated by the region's booming economy, students found that a limited amount of low-income housing is available. About 27,500 affordable housing units exist that are either managed by nonprofit groups, rented at below-market rates or fall under Section 8 housing, a federally funded subsidy program. But there is no coordinated, updated system for listing vacancies and no efficient process for evaluating eligible applicants.

Behrman and Paulson instructed their class, which had no previous business experience, to come up with a workable plan that would target affordable housing issues. The objective was to get the students to work together to form a social entrepreneurial startup, based on the for-profit model.

"We brought a mass of ideas and had to refine them," says Herbert. "We talked about building apartments; lobbying Congress. We were a bunch of dreamers, and we wanted to change the world. But it was a good lesson in teamwork. By the end we had a working idea and could put it on the market."

At the end of Spring Quarter, the students presented their plan to a group of advisers who work in the nonprofit sector. In their business plan, the group said that "" could not guarantee housing, but it would make the search more efficient by making every possible resource available online. Furthermore, by establishing partnerships with existing nonprofit organizations such as the Mid-Peninsula Housing Coalition, which develops low-income housing, volunteers would help eligible renters create housing resumes to help themselves get pre-qualified. Users also would attend workshops at nonprofit agencies to learn how to navigate the website.

The business plan estimated startup costs at about $14,000, with annual operating expenses running at $25,000. Although most of the financing would come from grants, the business would generate revenue from selling advertising space, selling housing resumes to providers and charging fees for counseling services. By the third year of operation, the plan reported that the business would earn a small profit.

Business School Associate Professor Gregory Dees, a social entrepreneurship expert at the Haas Center, and a member of the advisory board says he was impressed by the class's end product. "These are students with no prior business training," he says. While the primary value of the project was educational, Dees says, the plan could move forward. "But this is not easy. It's not just common sense." Whatever happens, the proposal may help to advance the debate concerning the lack of affordable housing, Dees says. "Innovative or new thinking can find ideas that other people have overlooked."

Advisor Nancy Glasur from the Entrepreneurs' Foundation, an organization that applies venture capital principles to support successful nonprofit groups, says the plan could be viable. "A lot of organizations are helping a piece here and there," she says. "But no one has pulled this together. Whether there's enough housing to satisfy clients is unknown."

The advisory board, which also included technology and business experts, housing developers and providers, and a counselor for the homeless, suggested that the group try out parts of the plan without first committing substantial resources. This would allow it to be adapted as the entrepreneurs learned from their mistakes. "Start small, test your hypotheses and then escalate," Dees explains.

Paulson and Behrman say the project will continue if students show interest. This fall, the professors want to start setting up an incubator laboratory environment for the project and other social ventures on campus. The concept, taken from the high-tech industry, would provide the support needed to get a startup idea off the ground.

Herbert, who is working as a summer intern at Mid-Peninsula Housing Coalition, is interested in helping the plan move ahead. "It's so hard to find housing," she says. "This is something that joins [all the elements] together." SR