The tough race to rent an apartment in San Francisco is shifting gears
Limited housing supply clashes with high salaries in the AI industry: "Fine, we'll pay $10,000".
San Francisco. Flowers and wine for brokers showing apartments at open houses. A year's rent in advance. $2,250 for a room without a closet.
The housing market in the city was already a battleground for renters, and the boom in the field of artificial intelligence has further accelerated the tough race to find an apartment, because limited supply clashes with high salaries in the industry. In less than two years, the average asking rent in the San Francisco metropolitan area has risen by 18% and reached $3,728 per month, according to real estate data company CoStar. This year, San Francisco surpassed the New York metropolitan area for the first time since 2019, reclaiming the title of the highest average rent in the USA.
In the most sought-after neighborhoods, the rent can reach twice the average. Bidding wars are pushing the prices of some apartments to five-figure sums.
Ten people stood in line to talk to the landlord
Darren Malott, 23, moved to San Francisco for a job in finance after graduating from the University of California, Los Angeles in June. After weeks of scouring listings in search of an apartment for himself and three roommates, he finally found a four-bedroom apartment in the historic and affluent Nob Hill neighborhood.
When he arrived at the open house, there were about two dozen people there, and ten of them were waiting in line to talk to the landlord about the apartment, for which the rent was $7,800 per month. Malott handed him a letter with personal details about all four roommates, including their credit scores.
The bids started at $8,000, jumped past $8,500, and reached $9,800. Malott offered $10,000 and won the apartment. The renovation and the view are indeed impressive, but one of the roommates is paying $2,250 for a smaller room that doesn't even have a closet.
"I was already prepared to say, 'Fine, we'll pay $10,000,' and she would come back to me and say, 'Will you agree to $10,200?'" he said.
Dropped during the pandemic, and rising again
Rent in San Francisco dropped during the pandemic, as people left cities in search of more space and moved to work remotely. Remote workers returned to the city slowly, and some large companies left it permanently. According to CoStar data, the asking rent across the metropolitan area dropped by more than 7% during 2020, and then mostly remained at or below pre-pandemic levels until last year. The trend changed with the fading of the pandemic, the decrease in the volume of remote work, and the shift of AI companies based in the city to extensive recruitment of employees.
Today, affluent workers in the AI industry are driving a significant part of the recovery. Venture capital fundraising in the San Francisco Bay Area is on the rise, and this year San Francisco recorded the highest increase in the number of job openings posted among the large rental markets in the USA, according to real estate research firm Green Street.
And there is no slowdown on the horizon: AI companies continue to rent additional office space and attract new employees to the city with high salaries, and they need a place to live. One startup even offers employees assistance with rent if they choose to live near the office.
Want to live near OpenAI and Anthropic
The increase in demand for apartments is happening simultaneously with a decrease in the number of apartments available for rent. The vacancy rate in the San Francisco metropolitan area dropped in the second quarter to 3.7%, compared to 4.9% in the same quarter last year. This is the lowest vacancy rate among metropolitan areas in the USA, except for New York and San Jose in California.
The result is a frantic market, where apartment rental ads in the city may disappear within hours of being posted. In the most sought-after apartments, the rent may jump by hundreds of dollars within a day or two, as landlords try to take advantage of the demand.
Rent is rising at the fastest pace in neighborhoods like Mission Bay, a relatively new area on the waterfront where OpenAI's offices are located, and SoMa, a former industrial area where Anthropic's offices are located.
Some residents paid $1,500 above the asking price to win an apartment. Landlords have begun to offer payments more frequently to tenants living in rent-controlled apartments in exchange for vacating them, and rent increases are spreading...
Jaya Gupta, a 28-year-old partner at a venture capital fund, saw a two-bedroom apartment on a high floor in a luxury building in May, which was offered for rent at $10,000 per month. Hoping to improve her chances, she offered to pay three months' rent in advance and in cash. In the end, she lost the apartment to an employee at one of the major AI labs. "Someone just paid for the whole year," she said.
Renters don't have many new apartment buildings to choose from, as the pace of new construction is lower than in other large coastal cities, such as Seattle and New York. Efforts to increase the volume of construction in California are slowly gaining momentum in San Francisco. In the Marina District, plans to build an 800-apartment tower have sparked controversy among many residents.
Lily Mastrangelo, 22, recently graduated from the University of San Francisco and hoped to find an apartment with a new lease starting on August 1. She initially planned to live with a roommate. The two saw an outdated two-bedroom apartment offered at $4,800 per month. Afterward, the landlord sent a message to all interested parties stating that he had received an offer of $6,300.
"We both earned pretty well, but not enough to spend more than $3,000 each on rent," said Mastrangelo.
A broker recommended they split up and each look for an apartment for themselves. Later, Mastrangelo visited a one-bedroom apartment offered at $2,800 per month. It had one window, and it faced a large dumpster. "It was the ugliest place I've ever seen in my life," she said.
In the end, Mastrangelo found a sublet: she will pay $2,520 for a bedroom and a private bathroom in a woman's house in the affluent Russian Hill neighborhood. Her new roommate is 67 and has two cats. The two haven't met yet, but have spoken on the phone. The lease will end in November, and then Mastrangelo will try her luck again in the rental market.
The woman told her that some of her previous tenants eventually decided to extend their stay. "It must be really nice to live with her," she said. "Believe me, this is a steal."
