Yes, this is a bet on rising home prices in the Bay Area, but that seems basically equal to a bet on the Bay Area tech ecosystem, which is already their core business.
I've lived in 'man camps' on remote jobs where it was easier to just put up trailers for workers than put them all in hotels. Or sometimes there isn't any temporary housing options available so you get to stay in the man camp. Pretty sure programmers aren't going to fall into line for that option though.
Life imitates art...
Incubators yes. But exchanging a place to stay for equity (as OP alluded to) is mostly in the realm of the show although it has happened a few times in real life as well...
I don't accumulate as much stuff as some do, but I'd say $12k/year in extra discretionary cash (not just throughput to a landlord) is more than adequate compensation for the risk of a cross-town move.
Maybe that suggests that these incubators should be owning rather than renting. Your investment in property is generally going to be recoverable if you have to kick out a failed startup.
Granted, if you can't afford rent in SV you might want to reconsider joining a YC class. It's a tough decision for sure.
So that he and his peers think that continuing to live like you did in college isn't that big of a logical leap when you consider that their interview process feels exactly like a final exam in college, despite the fact that you and I and indeed Google's own success stories know the difference between theory and practice.
I thought that's exactly what people in the startup world glorified.