According to a CNBC report, a Harvard study found that Starbucks can actually increase the value of your home. Sound hokey? I thought so, too. But then we took a closer look at what they found. The data looks pretty solid, but it also revealed an interesting tidbit about trends and housing.
Just the Facts
- A Harvard Business School study analyzed data using Yelp
- There is a correlation between a new Starbucks store and a 0.5% increase in home value within a year
- The data is part of a larger study on gentrification
- Gentrification is the process of renovating or improving a housing development or neighborhood so that it rises in value and/or “conforms to middle-class tastes”
Harvard Business School has an ongoing study of gentrification. This essentially involves improving a housing area or development to make it more attractive to middle- or upper-class residents. By its nature, that means higher home values. Unfortunately, it also often involves displacing poorer residents who can no longer afford to live there. It’s a sensitive issue and frequently results from an intentional push by city economic development teams.
One interesting data point in the study—to us—included coffee shops. In particular, the presence of a new Starbucks seems to correlate with a 0.5% annual increase in home values. The original report cites a bunch of quotes that talk about causality. While I understand their need for caution, it’s more confusing than it needs to be.
Which Came First…?
Realistically, Starbucks probably isn’t causing a rise in home values. It’s more likely that Starbucks conducts market research, sees an increase in potential customers in an area, and decides to put in a store. It’s the same process that every retailer goes through when they’re considering a move into a market.
Starbucks simply has a customer base with more disposable income. How else can you justify a $5 cup of coffee when you can make it at home much cheaper? That kind of income belongs to the middle and upper classes. Starbucks, Panera Bread, Jason’s Deli, and the like aren’t going to plop down in the middle of the low socioeconomic part of town and hope their customers move in after the fact.
Just observing our own city (located between Tampa and Orlando), Starbucks can locate on the front end of development. It’s not unusual to see them move into an area that’s in the early stages of an upswing. This draws middle-class customers as well as college students. During gentrification, a new Starbucks can signal an upswing for home values in that community. If other higher class restaurants and stores follow suit, that trend is likely to continue as long as there are no major hiccups in the overall housing market.
What’s the Takeaway?
When you see a new Starbucks come in, that’s good news if you’re ready to act. Here are 4 possible scenarios:
- Current homeowners: Property values rise, giving you a better sales price if and when you decide to move on. By making some improvements early, you’ll be helping spur the uptick in value.
- Prospective homeowners: Get in early before prices begin to rise. Consider doing some improvement work on the home in the near future.
- Landlords/property management firms: Take advantage of lower prices early on and update the home so it’s attractive to renters who aren’t in a position to buy but want to be in a nicer neighborhood.
- Developers/builders: Scoop up available lots and hang on to them while prices move up to the price point you want to build. Look for opportunities to renovate an existing home that you can turn around in a reasonable amount of time.