Here's how much the 'Starbucks effect' adds to home prices

Since Starbucks first expanded out of Seattle to march across America, the appearance of a new Starbucks store has been widely understood to indicate that a neighborhood was gentrifying.

Now, a Harvard Business School study puts a real number on that impact: a half a percent spike in nearby home prices.

“Can the entry of a hip coffee shop predict housing prices?” asked Michael Luca, an economics professor at Harvard Business School. “It’s something a lot of people talk about but there isn’t good evidence of it.”

Luca and his coauthors examined the volume of Yelp reviews for various businesses and matched them with data from the Census Bureau, Zillow and other sources to find a consistent—and fast—effect. “If a new coffee shop goes into a zip code, this predicts housing prices go up 0.5 percent in a year,” Luca said.

While a half-a-percent bump might seem minor, the numbers mount quickly—especially considering the already stratospheric real estate prices in New York, Los Angeles, San Francisco and other cities in the study.

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