Silicon Valley’s artificial intelligence frenzy is minting apartment landlords as winners in the boom alongside startup founders and venture capital firms.
Multifamily vacancy across Santa Clara and San Benito counties is projected to fall to roughly 3 percent over the next two years, making it one of the tightest rental markets the region has seen in more than a decade, the Silicon Valley Business Journal reported, citing CoStar data. The tightening imbalance between supply and demand is expected to give landlords significant pricing power as a fresh wave of AI-fueled hiring and investment reshapes the region’s housing market.
Average rents in the two-county market have already climbed to about $3,400 per month from roughly $2,700 before the pandemic. If current forecasts hold, rents could approach $3,600, with rent growth projected to rank second nationally behind San Francisco. In total, rents are projected to rise 6 to 7 percent over the next year, per CoStar.
The rapid rent hike can be attributed to a dearth of new supply in the area, as apartment construction has slowed dramatically from pre-pandemic levels. Developers historically started about 1,600 units per quarter, but in the second half of 2024, the market recorded no new apartment starts at all, according to CoStar. While construction activity has recovered to about 1,050 starts in the latest quarter, it remains below norms.
Developers pulled back amid elevated interest rates, tighter capital markets and fear of oversupply. Cities including San Jose and San Francisco have rolled out incentives aimed at jump-starting multifamily development, but few developers have been able to get shovels in dirt. In San Francisco alone, more than 20,000 units that have been approved for construction are in limbo as builders face high construction costs, tariffs and other financial barriers.
The surge in AI hiring as venture capital funding pours into the local industry is also exerting pressure on the limited housing supply. In San Francisco, tech workers searching for homes at the high end of the market are running into a shortage of mansions thanks to an influx of deep-pocketed buyers.
“The folks in AI are driving the show like nobody’s business,” economist Chrostopher Thornberg told the Business Journal.
— Chris Malone Méndez
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