If you’re weighing whether to buy or rent a home in a particular neighborhood, you would be wise to take the time to calculate the price-to-rent ratio. Or, you could just count the number of new Starbucks shops in the area.
It turns out the addition of a Starbucks coffee shop — as well as cafes in general — to a given neighborhood is indicative of local housing price growth, among other measurements of improving neighborhood quality.
Harvard Business School researchers confirmed this when they studied whether data from the business review website Yelp could be used to measure certain economic changes in a neighborhood in real time, which is generally not possible with data from government sources.
They found that the addition of a single Starbucks in a given year is associated with a 0.5 percent increase in housing prices. That’s 0.5 percent per new Starbucks shop, so the addition of more than one Starbucks would mean a higher increase in housing prices.
So, for a $250,000 home in an area in which two Starbucks shops recently opened, that would amount to an increase of 1 percent or $2,500.
Harvard researchers studied five large cities as part of the study:
- Boston
- Chicago
- Los Angeles
- New York City
- San Francisco
Study co-author Michael Luca, an associate professor of business administration at Harvard Business School, also noted the Starbucks effect in a CBS MoneyWatch report:
“It’s a big effect considering that this is kind of a small signal.”
The study notes, however, that it is unclear whether the opening of a new Starbucks shop causes housing prices to rise. For example, it’s possible that the company opens locations in areas where the local economy has already started to swing upward.
Also, coffee shops are not the only type of businesses associated with an increase in local housing prices. The Harvard researchers connected the addition of vegetarian restaurants and wine bars with nearby housing price increases as well.
To learn more about what you should look for in a new hometown, check out “20 Tips for Buying a Home in the Best Location, Location, Location.”
What’s your take on this study? Have you noticed a connection between Starbucks and housing prices in your area? Let us know by commenting below or over on our Facebook page.
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