SAN FRANCISCO — On a recent Sunday, 30-year-old Collin Russell was desperately visiting open houses, looking to buy a place in the city that his wife is from. They left two years ago so he could go to graduate school, and they moved back to San Francisco in June, just as the housing market here has exploded.
"I couldn't have timed it worse, honestly," he lamented after touring a condo in the affluent neighborhood of Presidio Heights.
His new job is in tech investment banking — a solid income. But finding a two-bedroom home within their budget these days has felt impossible.
"Maybe every two weeks, a new one comes on and then it's just a feeding frenzy. The last place I saw today had 10 people, and I got there two minutes after it opened," he said.
San Francisco is the epicenter of the boom in artificial intelligence, and it's intensifying competition in an already pricey housing market. AI companies are expanding fast as the tech industry brings many workers back to the office. Startups Anthropic and OpenAI are also preparing to go public, a process that has sparked a flood of wealth already, with a bigger one to come.
The jump in demand is a sharp turnaround after a pandemic slump, and it has sent home and rental prices skyrocketing. It's also raising fears of more displacement in a city where previous tech booms and a longtime housing shortage have already driven out many who could no longer afford to stay.
Record-setting sales and a "mansion shortage"
Inside the condo that Russell toured, a steady stream of people checked out the modern three-bedroom with big windows facing a shared garden. At 1,600 square feet and an asking price of $2 million, it qualifies as entry level for families here and is a steal in the current market, said Paul Kitchen, a real estate agent with Compass brokerage.
"We've done more business this year than we've done ever, setting records throughout," he said.
Compass finds that the median home sales price in San Francisco has skyrocketed 25% from a year ago. Kitchen has seen some properties pushed even higher than that as sales frequently turn into bidding wars.
"We've had clients who've bid, and it turned out there were 50 offers," he said, which takes an emotional toll on the many who lose out. "That's 49 agents who've talked through the night with their clients, people that have envisioned themselves there — they've talked to their banker, their loan officer."
At the highest end, even all-cash offers of $25 million and more have gotten outbid. "You have to laugh just because it is so ridiculous and so beyond the pale," he said.
This new demand with a lack of supply, especially of single-family homes, has been dubbed a "mansion shortage" by Compass and others.
"In June, there were 44 home sales that went at least a million dollars over the asking price," said Mike Simonsen, who tracks citywide sales as chief economist for Compass.
Many AI executives are in their mid-30s or early 40s with young kids, he said. "This group is like, 'We got to put the kids in kindergarten next week, right? So we need to get a home now,'" Simonsen added.
So far, the price spikes are concentrated in a few upscale neighborhoods. But history shows that over time there will be a ripple effect across the Bay Area and beyond, as people priced out look elsewhere.
"You can't buy in California — you got to move to Texas. And that drives home prices up in Texas," Simonsen said. "So a shortage in California drives home prices up in a lot of the rest of the country."
Renters also face bidding wars
The wave of AI wealth is also upending San Francisco's rental market, as real estate agents say there's an influx of highly paid 20-somethings not yet looking to buy who can easily afford $10,000 a month in rent.
Ally Alessio, 27, and Aidan Cahill, 31, felt the pressure when they decided to move to San Francisco from San Diego and faced a brutal monthslong search online. An apartment listing on Zillow "would be posted four hours ago, and it already had 200 contacts," said Alessio. "It's crazy to see how quickly things are coming off the market."
When the couple did apply for places, they sometimes got notified that a person ahead of them had bid the rent higher. "And so it creates this competitive nature of almost, like, homebuying, but for rental markets, which is odd," said Cahill.
Even though they were still in San Diego, they realized they needed to move faster. When a listing for a two-bedroom with wood floors and high ceilings went online in the middle of a weekday, they jumped on it. Within hours, they'd reached out, applied and — after a friend in the city visited the apartment the next day — took it sight unseen.
They feel lucky to have snagged it in the current market, despite the $5,200 rent that feels more like a mortgage. "You do basically have that feeling when you pay your rent — 'Yeah, I could probably buy a home right now,'" said Alessio.
In the Mission District, at a hillside park with a view of downtown, 29-year-old Alex Brenner described the stressful apartment search that he and his fiancée just went through, including lines at open houses.
"Best-case scenario, there's five people there. Worst-case scenario, there's a line of 25," he said. "Just down the street over there, we looked at a place, and were waiting in line, and it didn't even have a living room."
Before they even saw one apartment, the rent was bid up by $500, then another $500. They'd been hoping to find a two-bedroom since they both work from home, but settled for a larger one-bedroom.
"It's actually ridiculous," he said, "and making it hard for people like me and my fiancée who work in healthcare, who don't work in the tech industry, and like our jobs. We don't want to, you know, jump ship just to afford rent."
Brenner has a brother here and a new baby nephew, and he loves the outdoorsy lifestyle. But the dramatic price spike has given him pause about the high cost of staying long term.
Even for many who live in rent-controlled buildings, this sudden price spike will have an impact. "A teacher, a service worker or a nonprofit employee or family trying to move today, they become financially trapped in place," said David Blosser, who directs leasing at the apartment agency RentSFNow.
Blosser's agency does not allow bidding wars. But he hears from real estate agent friends about the lengths that potential renters are going to.
"They have told me someone offered them a brand-new Samsung television, if they give them this unit at this rate," he said.
Luxury housing is expanding across the U.S.
San Francisco's AI wealth is adding to a nationwide boom in luxury housing "over the last decade across the country, in line with the expansion of the wealth gap," said New York-based market analyst Jonathan Miller.
Such buyers are more likely to pay with cash or other income, rather than a mortgage, and they've benefited greatly from the rising stock market.
For a dozen years, Miller has tracked U.S. home sales in what he calls the "super-luxury" market — $50 million or higher. When he started, "there might be one every three months," he said. Now he counts "something like 45 last year nationwide, and this year we're on track to tie it."
That will include a Bay Area estate sold in August for $70 million to someone the listing agent said was in AI, according to The Wall Street Journal. The home had originally been listed for significantly more.
But such ultra-high-end sales generally have little to do with local markets, Miller said, as "the high end is getting further away from everything else."
Instead, he sees what's happening with San Francisco's growing AI industry as the "New York-ification" of real estate.
"It's like buying a one-bedroom apartment without great views in Manhattan and it costs you $3 million, and you tell that to somebody in Des Moines, Iowa, and they're like, 'There's something wrong with you,'" he said.
But the price isn't really about the property. It's based on the value of being in a specific location.
"This is the sort of repricing that San Francisco is going to go through for the next bunch of years, just because of this economic driver," he said.
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