AI Growth in San Francisco Creates Mansion Shortage

The artificial intelligence boom in the Bay Area is driving demand for more than just apartments for incoming workers.

As AI barons move into town, the San Francisco real estate market is experiencing a shortage of mansions, the San Francisco Chronicle reported. Luxury listings that once sat on the market for months are now drawing multiple offers within days.

Take a 5,000-square-foot mansion in the tony Pacific Heights neighborhood that went into contract last month with a sale price of about $9.4 million. It’s roughly the same price it sold for eight years ago, but at the time, nearly four months passed before an offer came in.

“It was a difficult house at the time,” luxury broker Peter Rodway, senior partner at Neal Ward Properties who worked to sell the Jackson Street home in 2017 and now, said of the property. “This time, buyers were just banging at the doors to get into it. An offer came in on the first day, at full price.”

AI startups are growing, stock options are turning into cash and high-paid tech workers are returning to the — all ramping up demand in the high-end market.

“The future wealth in AI is out and touring homes right now. Some of them are touring $2 million condos. Some of them are touring $20 million houses. That wealth effect is going to continue to help drive demand,” Gregg Lynn, a luxury agent with Sotheby’s International Realty, said.

“The city is just flush with cash right now — and there’s not enough inventory to keep up with it,” Rodway added.

Sales for luxury homes are up 14 percent year-over-year in San Francisco, according to Redfin data cited by the Chronicle. Inventory, meanwhile, is down by about 4.5 percent year-over-year.

For the months of June through August, total home sales regardless of price were up by 4.2 percent compared to the same period last year. This September saw a massive uptick from the same month last year, with overall home sales last month in San Francisco being up 35 percent year-over-year.

Additionally, San Francisco was the only county in the Bay Area to see a year-over-year increase in its “pending ratio,” which compares demand versus supply.

“San Francisco’s pending ratio leapt higher by 15 percentage points, an enormous rise. We ascribe the large shifts in the market to its rapidly accelerating AI startup boom,” Patrick Carlisle, chief market analyst at Compass, said. October could be even bigger, as it’s “typically the big month in fall for closed luxury sales” in San Francisco. As it stands, 15 sales of homes over $5 million are pending and expected to close this month.

CBRE predicts the explosion of AI will bring more than 50,000 tech workers to San Francisco by the end of the decade. Just how much AI juices the once-slumping San Francisco market in the coming years remains to be seen.

— Chris Malone Méndez