Rising rents and appropriate responses

Your friend's argument is basically the opposite of Georgian economics. It is a set of policies that maximizes land speculation at the expense of capital investment and even rent seeking. If you want to maximize value for incumbents then restrict construction without establishing rent controls. If you want to keep rents accessible to an influx of poor people then allow construction. You cannot provide housing for an influx of residents while restricting construction. There won't be enough living space to go around. The only way to provide sufficient housing while keeping prices low is to restrict immigration, which San Francisco lacks the sovereignty to do.

Every country wants their own Silicon Valley. Few have succeeded in creating one. Building new hubs is hard because there are massive network effects. In theory, it is possible. (Many countries have built massive industrial sectors via government-led industrial policy.) The problem is that centralized decision-makers are bad at urban planning in general and bad at building startup hubs in particular .

Can you speak to this: 
The density will grow, and since individual construction companies don't have an incentive to care about urban planning, just their own projects, you will get ugly neighborhoods and questionable infrastructure. There's no guarantee that this will happen, but I've seen it happen in my city.
 

AFAIK, every major city developed like this. If anything, there seems to be evidence that absent development planning you get organic development which leads to massively desirable places to live (NYC, LON, SF)- where almost all the existing constrution was before significant zoning restrictions.

Basic standard microeconomics (supply and demand) is a pretty strong model, so you're doing great! 

What you're missing is formalizing the value or disvalue being pursued or created by the system.
Right up until "If you do literally nothing at all," the discussion was about prices and quantity, but then suddenly we care about aesthetics and infrastructure. Did you know that people would also pay for that, too? This might lead to things like some neighborhoods being more valuable than others and accordingly commanding higher prices for otherwise similar accommodations.

If a lot of people want to move to the city because the opportunity is so vast and they aren't as concerned about aesthetics, developers would develop accordingly. If instead many of these people are pickier, well, developers would be too. This sounds bad because that means we can't guarantee other people live according to our preferences, but it's actually good because it's demand and supply meeting up. Where things go awry is when these market exchanges create externalities that should be internalized by the market participants. If bare wires a strewn across the streets and children are being electrocuted every day, maybe we need a government to enforce some basic regulatory code to take care of that (because in this hypothetical, I guess the neighborhood is populated by selfish singles and the children come from elsewhere to play in these oh so attractive streets, so the problem won't get fixed otherwise).

Yes, inventing a generic government can cover the really bad results (if they occur) from this market arrangement. The risk with this is that people may then seek to enforce their preferences through this government rather than letting the market handle it. That might be fine. Or it might be inefficient, maybe even unjust. "I think apartment complexes should have at least a one-car garage or two parking spaces per unit; I'm also super benevolent so developers can mix and match" leads to an absurd result when the would-be tenants just grin and bear it despite their preference for taking the available public transit or use their bikes. It just becomes a value-suck, raising prices and/or lowering supply, achieving one (foolish) objective to the neglect of the many (important) others.

I come from a mountain town - space is scarce. The government decided it would be more efficient, kinda neat in town, and better for tax revenue to implement onerous housing regulations but exempt mixed-use (residential on top, commercial on bottom, and you know it, parking in the back) from some (not all) of those regs. We got a lot more mixed use. The housing filled up since we had a shortage already. The commercial did not, wasting resources and space. This also cratered commercial rent prices, but the new building owners don't seem to cry about it. Turns out the developers were building residential space; commercial rent would just be gravy since the commercial space was just to get the desired regulatory structure applied. That's how valuable the residential space was.

I can tell you what experts aren't disagreeing on.

Discussions of rent control never seem to distinguish between rent control on new and recently constructed units (which suppresses construction), and rent control on 20+-year-old houses (which doesn't). Paying attention to this distinction suggests some easy wins, like waiving property tax for the first few years of a building's life.

AFAICT there isn't significant disagreement among experts about the effects of rent control, construction, etc on housing prices. However, I don't think local policymakers have reliable access to uncorrupted information; if they try to find out what effects policies will have, then political processes can guide them to a tiny minority of economists who will tell them whatever those political processes wanted them to hear. It might help to tell city councilmembers that they can pin an economics-department directory to a dartboard, and that throwing darts at it and emailing whoever comes up will get them more reliable information than they're currently getting.

When building new hubs, it's also important for the new hub to be close to the old one, since people who have the choice prefer not to move. For example, nothing is preventing everyone in SF from moving somewhere cheap in Texas, but the rich people fueling SF don't live there (or anywhere nearby).

Also when talking about planned cities, it's important to notice the many failures and consider what will make this one different.

The density will grow, and since individual construction companies don't have an incentive to care about urban planning, just their own projects, you will get ugly neighborhoods and questionable infrastructure.

This is only true when construction companies are building small projects. If they're building large projects, then insofar as people value infrastructure, and will pay extra for it, the construction companies will have an incentive to build infrastructure.

Currently construction companies have an incentive to buy large plots of land, and build nice neighborhoods with good infrastructure as they can charge more per unit. So if that's not happening it's because it's too difficult to buy land.

In which case we need to increase land liquidity. 

Robin Hanson likes the idea of Harberger taxes to solve this:  https://www.overcomingbias.com/2017/10/for-stability-rents.html. The idea is everyone needs to declare a selling price for their property. In order not to encourage inflated selling prices making the market illiquid, you get charged property tax based on your stated price.

An alternative might be the Georgist idea of taxing land value according to its full rent. This means that holding onto land is expensive and it's only profitable to hold onto it if you can use it more valuably than the next guy - there's no money to be made speculating on it. This should help both increase liquidity, and reduce land prices. I enjoyed the recent book review on this at https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty.
 

Building new hubs doesn't need to be literally building something new.  A lot could be done just by load-balancing with cities that have lower rents and could use the jobs. Suppose that places where growth is a problem cooperated more with places that want more growth?