AI hiring spree pushes San Francisco rents to pre-pandemic levels
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San Francisco rents are soaring to pre-pandemic highs amid an AI hiring spree and decades of stalled housing growth that hasn't kept up with demand, ratcheting up competition in the process.
The big picture: Unlike past tech booms centered in Silicon Valley, the AI wave is anchoring itself in San Francisco, with tech heavyweights like OpenAI, Anthropic and Scale AI doling out top dollar to recruit elite talent and offering a number of incentives.
- Many newcomers arrive with big salaries but face few housing options, driving double-digit rent spikes in downtown-adjacent hubs like SoMa, Mission Bay and Hayes Valley, according to a July report from real estate tech company Zumper.
What they're saying: "AI has made San Francisco the epicenter of office space, where commercial demand is driving residential demand," Ken DeLeon, a Bay Area-based real estate broker, told Axios. "In this talent war for AI, a lot of the companies are paying people a bit more if they're willing to live closer to the office."
By the numbers: San Francisco led the nation in rent growth, with one-bedrooms up 13.3% year-over-year to $3,415 as of early August — the highest since April 2020 and just below the pre-pandemic peak of $3,500. This is 71% higher than the national average.
- Two-bedrooms increased by 16.3% to $4,780, back to pre-pandemic prices, per Zumper.
Return-to-office mandates and Mayor Daniel Lurie's recovery efforts are also spurring renewed demand for living in San Francisco, added DeLeon.
Between the lines: This all comes as San Francisco remains roughly 140,000 homes short after decades of not building enough housing, making it hard to keep up with population growth and demand, said Kara Ng, a senior economist at Zillow.
- Even with flat population growth, today's housing gap would be hard to close at the current construction pace, Ng said.
- The shortage has fueled sky-high home prices — averaging nearly $6,000 a month in mortgage payments for a typical home with 20% down — making renting a relatively more affordable option, she added.
- "Because of the unaffordability issues, even high earners are priced out of buying homes in San Francisco, so that leaves a lot of demand for rentals," Ng said.
What we're watching: Lurie's proposed zoning ordinance aims to alleviate that strain by building 36,200 new units by 2031, allowing for taller building heights and streamlined permitting rules.
- But the proposal faces pushback from some residents opposed to higher density in the city's west side, factors that have derailed past housing overhauls.