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The Starbucks Effect on home prices

Updated: Feb 5, 2019

A new study from Harvard Business School uses Yelp data to find that when a new Starbucks opens in a neighborhood, home prices will increase within the year. Between 1997 and 2013, homes closer to the coffee shop increased in value by 96%, compared to 65% for all U.S. homes.

The real crux of the study is that the opening of a new Starbucks typically occurs as a result of gentrification, an oft used term for when more affluent people move into a neighborhood at the expense of it's less affluent population. Interestingly, the study finds that Yelp is a better, more real-time assessment of the changes in a neighborhood than the Census Bureau or the Bureau of Labor Statistics. "Yelp contains metrics on things like cuisine, prices, and ratings that can be difficult to observe otherwise" (says Michael Luca, associate professor at Harvard Business School). It provides insights into how a neighborhood changes as a result of that micro-population changing. However, the exact correlation between property value and proximity to Starbucks, (Whole Foods and Trader Joe's also have a similar effect), isn’t clear. While home values may increase due to the demand to live near a Starbucks, it’s also likely that the coffee shop is choosing to open in these particular areas for a reason.

This study is a boon for the savvy investors out there. Emerging markets are a key area for investors to keep a handle on as this is an obvious area of growth. If new Starbucks stores are an indicator of an emerging market, then mapping those sites could mean a lot for your investment portfolio.

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