There are signs of life in downtown San Francisco’s beleaguered housing market, as the AI sector booms and a new mayor tackles the city's notorious quality-of-life issues.
Mayor Daniel Lurie, who took office in January, has focused on reducing crime, open drug use, and street encampments in the city—a campaign that has shown signs of progress so far.
“The people of this city have called on us to rebuild a safer, cleaner, thriving San Francisco,” Lurie said last month. “To do that, we must provide clean and safe streets, address the crisis of homelessness and addiction, and reinvigorate the spirit and strength of businesses and neighborhoods across this city.”
San Francisco’s housing market has responded positively, signaling a renewed interest from buyers after years of weak prices and depressed sales.
In May, median home list prices surged 51% compared with a year ago in the downtown San Francisco ZIP code, which includes iconic neighborhoods such as Nob Hill, Union Square, and even parts of the infamous Tenderloin district, according to Realtor.com® data.
Median list prices don’t necessarily reflect underlying home values, as they depend on the types of properties coming to market at a given time. Median list prices can also move erratically at the ZIP code level due to the relatively small sample size.
Still, the geographically focused rebound in list prices suggests that San Francisco’s troubled downtown might have regained its footing and is drawing renewed buyer interest.
Importantly, home list prices in most San Francisco ZIP codes remain below where they stood in 2019, before the COVID-19 pandemic hollowed out the city by driving an exodus of tech workers into remote roles.
The streets, devoid of foot traffic from office workers and conference attendees, became grim sites of human misery as homeless encampments proliferated and fentanyl overdose deaths surged. Many storefront businesses shuttered, contributing to the vicious cycle.
Home values in San Francisco took a hit, falling 12% from their May 2022 peak over the subsequent nine months, according to the Case-Shiller Home Price Index.
“Demand for homes in central San Francisco fell as office workers went remote and even relocated,” says Realtor.com senior economic research analyst Hannah Jones. “However, compared to last year, prices are on the rise again, suggesting demand for homes in the city is on the rise once again, perhaps prompted by return-to-office requirements.”
The median home list price for the broader San Francisco metro area stood at $998,000 in May, down 4% from a year earlier.
Mayor’s cleanup campaign shows early signs of progress
Lurie, a political outsider and heir to the Levi Strauss fortune, defeated fellow Democrat London Breed, the incumbent, last fall in an election that focused largely on crime and quality-of-life issues.
Last month, he presented a budget plan that focused on core services such as public safety and sanitation, while attempting to close the city’s projected $800 million deficit.
His early initiatives have included enforcement sweeps at known drug hot spots and a mandate that city-provided drug paraphernalia be handed out only alongside referrals to counseling and recovery services.
The mayor’s proposed budget cuts, which entail eliminating about 1,400 City Hall positions, have drawn protests from concerned critics.
But Lurie highlights progress under his initiatives, including a nearly 30% reduction in overall crime, car break-ins dropping to a 22-year low, and street encampments at their lowest number since 2019.
Steven Huang, founder of Ascend Real Estate and president of the San Francisco Association of Realtors, says the improvements are noticeable in the city.
“We're definitely starting to see progress,” he says. “Some of it is visible today, and I would say that even in downtown, in Union Square, our famous shopping district, you're definitely going to see a lot more foot traffic already, but it's just the beginning.”
Return-to-work and AI boom are key for San Francisco real estate
Among large cities, San Francisco perhaps suffered the most from the rise of remote work, due to its tech-centric economy, in which many high-paying jobs can be performed from home.
Now, as more companies call workers back to the office, the city stands to gain an influx of new residents.
“What we're hearing and seeing is that workers, especially tech workers, now actually want to be in the office,” says Huang. “Partly, it's because they are worried about a potential downturn in our national economy, and they want to have more face-to-face time with their supervisors.”
Still, data from Placer.ai, a company that tracks foot traffic using cellphone data, indicates that office visits in San Francisco remain about 50% below levels seen in 2019, suggesting room to grow remains.
Tech leaders say that the artificial intelligence gold rush, with hundreds of billions of dollars on the line, will play a major role in continuing to woo workers back to San Francisco.
"It's because of AI that San Francisco is back," said Nvidia CEO Jensen Huang last month at The Hill & Valley Forum.
“Anybody who lives in San Francisco, you’ll know what I’m talking about. Just about everybody evacuated San Francisco,” he said, “Now it’s thriving again. It’s all because of AI.”
