AI is driving up housing costs and flooding listings with fake images

Artificial intelligence is driving up housing costs and complicating the homebuying process through both market dynamics and misleading online listings. The technology’s rapid expansion is creating new competition for residential real estate while flooding property searches with AI-generated content that often misrepresents homes.

The big picture: AI’s influence on housing extends far beyond simple automation, fundamentally reshaping market dynamics in ways that disadvantage average buyers.

• The rapid growth of AI companies in San Francisco has intensified competition between tech workers and other residents, driving average rents up 6% in the past year to $3,315 monthly—just behind New York City’s $3,360.
• AI data centers are competing with residential homes for capital, power, water and even sonic space, creating neighborhoods kept awake by machine-cooling systems rather than serving human residents.

Why costs are rising: The infrastructure demands of AI development require massive capital investments that directly compete with housing.

• AI data centers and related infrastructure cost hundreds of billions of dollars of capital each quarter, according to Jason Thomas, head of global research at Carlyle, a private equity firm.
• This creates a situation where high interest rates are clearly crowding out interest-sensitive sectors like residential housing sales.

The listing problem: AI-generated content is making it harder for buyers to assess properties accurately.

• Real estate listings increasingly feature AI-manipulated images that remove power lines, add trees or replace grass with a pool, creating potentially deceptive representations of properties.
• While photo editing and staging are standard practice, these AI-generated creations are causing clients and professionals to ask themselves if this is a straight-up deceptive practice.

What supporters say: Some industry experts argue AI can streamline the homebuying process when used appropriately.

• AI will narrow the information gap between buyers and markets, making for a more efficient process, Hannah Jones, senior economic research analyst for Realtor.com, told Newsweek.
• Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, noted that AI can cut down on the time and clutter that can very quickly consume a hunt for a new home.

The realtor challenge: Traditional real estate professionals face pressure to adapt as clients increasingly turn to AI-powered tools.

• The simplicity of feeding all your housing desires into AI prompts can be seen as vastly more efficient than working with human agents who pride themselves on personalized service.
• However, experts warn that relying too heavily on AI can result in feedback loops that could amplify error or bias.