The Reverse Starbucks Effect

Some years ago I wrote about the so-called “Starbucks Effect.” discovered when economists had crunched some numbers and found that houses located near a Starbucks coffee shop appreciated more than houses far away from the nearest Starbucks. The open question was whether the finding was the result of causation–i.e., that the decision to locate a Starbucks caused house prices to climb–or simple correlation.

Now, perhaps, we’ll get to see if there is a reverse “Starbucks Effect,” because the ubiquitous coffee chain is closing 16 stores–one in Washington, D.C., one in central Philadelphia, six in the Seattle area, six in the Los Angeles area, and two in Portland–because of personal safety concerns reported by employees. Many of the safety concerns, set forth in “incident reports” Starbucks employees submitted to the company, apparently involve drug use issues and encounters with customers and the general public.

A news article in the Philadelphia Inquirer about the closure of the Philadelphia location reports that the Starbucks and other businesses in the Center City District had persistent problems with drug users in bathrooms, and that Starbucks has changed its policies to empower store employees to close restrooms and even entire stores in response to safety concerns. The Inquirer article noted that the drug use problem at the Philadelphia Starbucks was so significant that the store installed blue light bulbs in the bathroom, which are supposed to deter intravenous drug use by making veins less visible, In addition, the article reported that the store was the source of a number of “calls for service” to the Philadelphia police, primarily for individuals fighting.

It’s sad to think that coffee shops have become such unsafe spaces in some cities, but you can’t blame Starbucks for closing locations where there is a pattern of safety concerns that raise obvious liability risks. And you also have to wonder how people in the neighborhoods where the Starbucks stores are closing feel about the decision. What kind of message does it send if your area is deemed too unsafe for a Starbucks?

The Starbucks Effect

Often you see news stories that combine odd facts and statistics, and you wonder:  is the story reporting causation, or just correlation?

Consider the so-called “Starbucks Effect.”

If you’ve bought a house recently, you’ve probably used Zillow, a real estate website that provides lots of useful information about houses on the market with just a few keystrokes.    Zillow’s CEO and its chief economist, Spencer Rascoff and Stan Humphries, wrote a book called Zillow Talk: The New Rules of Real Estate that addresses the economics of home buying and home owning and attempts to answer questions that have long bedeviled home owners — like, should I remodel my kitchen, or my bathroom?

One chapter addresses the “Starbucks Effect.”  After crunching the numbers, they found that homes located near a Starbucks appreciated far more than homes located farther away.  From 1997 to 2014, houses in a Starbucks zone increased 96 percent, versus 65 percent for Starbucks-deprived residences.  And the closer to that green sign the better:  in five years, houses within a quarter-mile of a Starbucks went up 21 percent while houses a quarter-mile to a half-mile away increased only 17 percent.  (If you live in one of 20 large American cities, you can track the specific “Starbucks Effect” in your home town here.  Unfortunately, Columbus isn’t one of the 20.)

So, is this quirky statistic reflective of causation, or correlation?  Rascoff and Humphries conclude that a neighborhood Starbucks does drive up home prices, although they’re not sure exactly why.  Perhaps people equate a Starbucks with neighborhoods that are safe, monied, and thriving, or perhaps they really like the convenience of walking only a few blocks for their morning brew, or perhaps a nearby Starbucks makes them feel like urban hipsters.  Others wonder if the statistics are simply showing a correlation, because Starbucks must carefully analyze the economic conditions at potential locations for its stores.  In short, Starbucks isn’t going to try to peddle high-end lattes and frappucinos on Skid Row, and therefore it’s not surprising to see Starbucks ‘hoods outperform others.

It’s a chicken-and-egg type argument:  which came first, rising home prices or the Starbucks?  Some questions are unaswerable, and this is probably one of them.  I’m happy to report that we live very close to a Starbucks, although its presence had nothing to do with our decision to buy our house.  After reading about the “Starbucks Effect,” though, I’m hoping that it never closes.