AI boom triggers new shortages, and San Francisco's real estate market soars

San Francisco's real estate market is undergoing tremendous changes

San Francisco's real estate market is undergoing a huge turning point. The city has transformed from being synonymous with urban decline during the epidemic to the hottest real estate market in the United States. The reversal of this situation is mainly due to the prosperity of the artificial intelligence (AI) industry.

Today, high-paying employees at AI companies have pushed the ready-to-live housing market to the extreme, so much so that an all-cash offer of $25 million currently on the market is still considered low.

From a vacant office building to an open day for fifty people to bid for

San Francisco three years ago was a very different story. Due to the proliferation of telecommuting during the epidemic, the city lost more than 60,000 residents between 2020 and 2022. As of January 2023, the median selling price of a home was only $1.28 million, a sharp drop from the high of $1.68 million set in the spring of the previous year.

However, this downturn is over. In the past twelve months, median home prices have soared 25%. Real estate agent Paul Kitchen said certain listings even attracted as many as 50 bids. "You can only smile bitterly because it's ridiculous and outrageous." Kichin described how high-priced buyers might still not be able to buy a house even if they provided $25 million in cash.

Why AI brings different funding

San Francisco has benefited from previous technology booms, but this AI boom is different, as it highly concentrates wealth in the hands of a few people. Most operating AI companies are not yet listed, so funding is in the hands of a limited number of employees and investors.

The potential paper wealth is huge. If OpenAI conducts an initial public offering at its expected valuation, its current and former employees could have approximately $135 billion in after-tax equity;Anthropic employees could add an additional approximately $63 billion. The value of these two fortunes is almost 33% of the total value of San Francisco's housing stock. In addition, OpenAI and Anthropic both plan to go public and have leased approximately 1 million square feet of office space in San Francisco over the past two years, prompting employees to return to the office.

Renters and low-income home buyers are being squeezed out of the market

Pressure is not limited to the top. Young and high-paying tech workers pay $10,000 a month in rent, and some home listings receive hundreds of inquiries within hours. Average rents in San Francisco have risen more than $1,000 in the past year to approximately $4,600, making it the most expensive rental market in the United States after New York.

The situation is even more severe for ordinary income households. According to a May 2026 analysis by Realtor.com and the National Association of Realtors, only 2.1% of the homes listed in March were affordable to households earning $75,000 a year, which is equivalent to just 2,475 homes.

A comparison between two technology centers

The AI boom does not seem to be everywhere. Cities like Seattle have experienced a decline in house prices, which fell 3.6% to $809,479 due to layoffs by Amazon and Microsoft.

Meanwhile, median sales prices in San Francisco rose 6% year-on-year in July to $1.6 million, while active listings fell 18.4%, the largest decline in the country. In the first quarter, the number of people moving from San Francisco to Seattle fell to 369, well below the more than 5,100 people in 2021.

Zhao Chen, head of economics research at Redfin, said: "AI is reshaping the technology labor market, and San Francisco and Seattle represent two aspects of this transformation."

What's next for San Francisco?

The city government is working to increase housing supply. San Francisco passed the Family Zoning Plan bill in December 2025 to build denser housing in more communities. The bill also allows for reforms and helps convert vacant office space into homes.

At the end of 2025, the vacancy rate for office space was 34.4%. Whether construction will catch up in time to meet demand remains unknown, as current demand for home purchases still far exceeds the supply of houses on the market.