San Francisco rents hit $3,728 as AI boom fuels bidding wars

San Francisco's average asking rent has climbed 18 percent in less than two years to $3,728 a month, surpassing New York City for the first time since 2019 as AI-driven salaries collide with a chronic housing shortage.

"I was honestly prepared for me to say, 'OK, we'll pay $10,000,' and for her to call back and say, 'Will you do $10,200?'" said Darren Mallot, 23, a UCLA graduate who moved to San Francisco for a finance job and won a Nob Hill four-bedroom after bidding escalated from $8,000 to $10,000.

The apartment vacancy rate in the metro area fell to 3.7 percent in the second quarter from 4.9 percent a year earlier, the lowest for any major U.S. market outside New York and San Jose, according to CoStar. Rents in the most competitive neighborhoods run twice the metro average, with bidding wars pushing some units into five-figure territory. Mission Bay, where OpenAI has offices, and SoMa, home to Anthropic, are seeing the fastest rent growth.

The squeeze reflects a structural mismatch: Bay Area venture-capital fundraising is up, San Francisco has recorded the highest increase in job postings of any major apartment market this year, and new construction lags far behind coastal peers such as Seattle and New York. With AI companies continuing to sign office leases and attract top salaries, the rental market shows no signs of cooling.

The pandemic-era reprieve is over. Asking rents across the metro area fell more than 7 percent during 2020 as remote workers fled cities, and they stayed at or below pre-pandemic levels until last year. That changed as the remote-work era faded and AI companies based in the city went into hiring mode.

The competition has produced extraordinary scenes. Jaya Gupta, a 28-year-old partner at a venture-capital firm, offered three months' rent in cash upfront for a $10,000-a-month two-bedroom in a luxury building. She lost to an employee at one of the big AI labs who paid for the entire year. Some residents have paid $1,500 over asking to secure a place. Landlords have started offering buyouts to tenants in rent-controlled apartments, and rent increases are spreading to Oakland and San Jose.

Supply constraints deepen the crunch

New apartment construction in San Francisco lags other big coastal cities. In the Marina District, plans to build an 800-unit apartment tower have divided residents, reflecting the slow pace of California's housing reform movement. The result is a market where listings can disappear within hours of being posted and rents for the most competitive places can jump by hundreds of dollars in a day or two as landlords seize the moment.

For many renters, the market has become untenable. Lily Mastrangelo, 22, a recent University of San Francisco graduate, saw an outdated two-bedroom listed at $4,800 a month. The landlord sent a mass text saying there was an offer for $6,300. A broker advised her to split from her planned roommate: in this market, it is every tenant for herself. She ultimately found a sublet in Russian Hill — $2,520 a month for a bedroom and private bath in a 67-year-old woman's house with two cats.

The AI salary effect

The AI boom is the primary driver. Bay Area venture-capital fundraising is up, and San Francisco has seen the highest increase in job postings of any major apartment market this year, according to property-research firm Green Street. One startup even offers a rent stipend to workers who choose to live near the office.

The last time San Francisco rents reached such extremes was the pre-pandemic tech boom, when the city's vacancy rate hovered around 3 percent and average asking rents approached $3,700. The current trajectory suggests the city may be entering a similar cycle, but with AI rather than social media as the engine.

For renters, the outlook is grim. With no meaningful supply relief on the horizon and AI companies continuing to expand, the race for housing in San Francisco is likely to intensify further. As one renter put it, "Believe me, this is a steal."

This article is for informational purposes only and does not constitute investment advice.