This year, Zillow CEO Spencer Rascoff and its Chief Economist Dr. Stan Humphries released a book that changes some things about the way we think of real estate trends. One of the interesting topics discussed in the book has generated a lot of conversation in the RE world, and that’s the concept of the “Starbucks Effect.” So what’s the story behind the idea and more importantly, what does it mean for Philadelphia?
Simply put, the Starbucks Effect is a term originally coined back in the late 90’s that refers to the increase in home prices that are located within a close proximity to a Starbucks coffee shop. As it turns out, before the folks at Zillow started to closely monitor and study these trends, no one had actually ever done the measurable research on this topic. Their findings were somewhat shocking- between 1997 and 2013, homes located within a 1.8 mile radius of a Starbucks saw an average increase in value by a staggering 96%. That number, compared to the national average of 65%, caught Rascoff and Humphries’ attention. By honing in on a Starbucks location, one could much more accurately assume that a home would see a notable increase in value, therefore predicting the next “hot neighborhood.” Back in the 80’s and early 90’s, this was largely determined by following the gay neighborhoods. As they were segregated to specific blocks in metropolitan cities (often more run-down and in need of repair), these neighborhoods were quickly restored and brought new commercial ventures, which brought money to the area and increased home values. As we continue to progress and elevate our way of thinking in light of gay rights, this is no longer the way ‘the next big neighborhood’ is measured. The Zillow team determined that Boston, where homes near Starbucks saw property values rise 171% in the same research time period, has the Starbucks Effect more than any other city in the US.
Philadelphia ranks 2nd in the nation with a 112.6% increase. One can likely argue that a Starbucks isn’t going to be erected in an area that doesn’t already come with a heftier price tag. Rascoff and Humphries address those arguments in Zillow Talk by stating:
“True. properties near Starbucks locations tend to start out more expensive. But as you can see, these properties appreciate at a faster rate than U.S. housing on the whole. Interestingly, they’re also recovering much more quickly from the housing bust.”
Listen to NPR’s Here and Now interview with Rascoff and Humphries here.