US Economy

After a Starbucks opens in town, housing prices tend to rise, Harvard study finds

Key Points
  • A new Harvard Business School paper uses Yelp data to find that the entry of each Starbucks into a ZIP code is associated with a 0.5 percent increase in housing prices within a year.
  • "The presence of a Starbucks is far less important than whether the community has people who consume Starbucks," the paper found.
  • The economists say the study is the first of its kind to track gentrification using a platform such as Yelp, a potential new tool for policymakers hoping to monitor housing prices.
A Starbucks store pictured at night.
Newscast | UIG | Getty Images

Each new Starbucks boosts the value of housing prices in a neighborhood. And not by an insignificant amount.

This data point is revealed in a broader study on gentrification by the Harvard Business School that relied on information from Yelp, the online restaurant review platform, and the United States Census.

A new Starbucks introduced into a ZIP code is associated with a 0.5 percent increase in housing prices within a year, the paper found.

It's not clear whether housing prices are rising due to the Starbucks opening itself or simply because more affluent customers that would go to the coffee chain have moved into the area.

Harvard economics professor Edward Glaeser said Yelp data reveals it may be the latter. The study found that each 10-unit increase in the number of reviews is associated with a 1.4 percent increase in housing prices in the ZIP code.

"The most natural hypothesis to us is that restaurants respond to exogenous changes in neighborhood composition, not that restaurant availability is driving neighborhood change," the paper concludes.

This is the broader point of the paper, which surmises that gentrification is "strongly associated" with increases in the numbers of grocery stores, cafes, restaurants and bars.

We went inside Shanghai's massive Starbucks
We went inside Shanghai's massive Starbucks

New data tool

A hot topic in policy debates worldwide, gentrification is defined as the process of rebuilding homes and businesses accompanied by an influx of middle-class or affluent people at the expense of earlier, often poorer residents. One big issue is the lack of consistent data to determine the effects of the trend — positive or negative.

The Harvard economists said their study, the first of its kind using Yelp data, shows there are new, more accurate ways to analyze the emotional issue.

"Government data from statistical agencies such as the Bureau of Labor Statistics and Census Bureau have long been used by economists for analyzing policy and the economy — these data sources are invaluable but come with important limitations," Michael Luca, an associate professor at HBS, told CNBC in an email.

The use of Yelp, Luca continued, compliments the existing data by providing real-time updates on local stores as well as an insight into how neighborhoods change during gentrification.

"Yelp data has the advantage of being more up to date than most official government statistics," the economist added. "It also contains metrics on things like cuisine, prices, and ratings that can be difficult to observe otherwise."

What remains uncertain, though, is any idea of causality, Glaeser wrote.

"Yet, it seems true that Yelp establishments from 2007-2011 predict changes in education levels over the next five years, but education from 2007 to 2011 does not predict increases in the number of Yelp establishments, once we control for the initial level of Yelp establishments."

So Starbucks may not be causing gentrification, but its arrival may confirm the gentrification trend.

"The presence of a Starbucks is far less important than whether the community has people who consume Starbucks," Glaeser writes in the paper. "Consequently, we think that this variable is likely to be a proxy for gentrification itself."