Yelp Reviews Helping Home Prices?

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Will appraisals soon need to
indicate a home’s driving distance to the nearest cold-brew drive-through? Could be.
According to a new study by the Harvard Business School, when an outlet
for Starbucks opens in a community, home prices in that ZIP code rise by 0.5
within one year.

The information emerged from a larger study on
gentrification which was conducted using census data as well as data from Yelp.   

The study’s authors say that Yelp may be a potential new
tool for policymakers
to monitor gentrification, the process of rebuilding
homes and businesses in an area followed by an influx of more affluent
residents. As this is often at the expense of earlier, often less well-off
residents, it tends to be a volatile subject. 
The researchers say one big issue is the lack of consistent data to
determine the ultimate effects of the trend, positive or negative.

According to Harvard professor Edward Glaeser, it isn’t
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.

While the price increase associated with a new Starbucks is
modest, the study found that for every 10 reviews posted on Yelp there appeared
to be 1.4 percent appreciation within the ZIP code.  The paper states, “The most natural
hypothesis to us is that restaurants respond to exogenous changes in
neighborhood composition, not that restaurant availability is driving
neighborhood change,” and that gentrification is associated with increased
numbers of grocery stores, cafes, and bars.

The Business Schools Michael Luca told CNBC’s Thomas Franck
that Yelp has advantages over the government data from the Census Bureau or the
Bureau of Labor Statistics usually employed in such studies. While the app isn’t
a replacement, it can augment older methods with real-time updates on local
stores as well as ways in which neighborhoods change during gentrification. It
also provides data on things like menus, prices, and ratings not otherwise

It doesn’t really seem as though the near-by availability of
Pumpkin Spice Latte is driving home price increases, but Glaeser notes that
causality is somewhat uncertain.  Designer coffee probably isn’t causing
gentrification, but a new store may confirm the trend. In fact, he says, “This
variable is likely to be a proxy for gentrification itself.

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