Trader Joe’s and Whole Foods may be contributing to rising home values.
With hundreds of locations nationwide, gourmet grocery chains like Trader Joe’s and Whole Foods are a staple of wealthy communities. But these chains have begun to pop up in many underserved neighborhoods as well. While the takeover of specialty grocers has not always been well-received, there’s reason to believe these high-end chains may actually increase the desirability of an area.
According to a new study from the real-estate site Zillow, homes tend to appreciate in value when there is a local Trader Joe’s or Whole Foods nearby. This finding comes from a wide-ranging examination of city-level data on nearly 3 million homes (single-family, condos, and co-ops spanning more than 80 locations nationwide) within a mile of a Trader Joe’s or Whole Foods. From 1997 to 2014, the value of these homes exceeded that of the median home in the U.S., according to Zillow’s calculations. And by the end of 2014, these homes were worth more than double the year’s median home value.
The idea that high-end grocery stores increase housing prices isn’t new. Back in 2007, the consulting firm Johnson Economics (formerly Johnson Reid) used hedonic modeling to estimate how urban amenities influence residential home values. Their study found that the presence of a specialty grocer nearby actually increased these values by around 17.5 percent. Although the data tended to vary widely between neighborhoods, the overall effect was more pronounced than that of book shops, fitness centers, bike stores, or even spas. In addition, after speaking to numerous developers across the Pacific Northwest, the study concluded that Trader Joe’s and Whole Foods were among the most mentioned and marketable tenants.
Even prior to the 2007 study, the “Whole Foods effect” was noticeable among urban neighborhoods like East Liberty in Pittsburgh; Jamaica Plains in Boston, Midtown Detroit, uptown New Orleans, and Logan Circle and 14th Street in Washington, D.C. Although a 2005 study of these D.C. locations detected “a whole confluence of factors” that spurred the area’s gentrification, it ultimately argued that redevelopment “was accelerated by the addition of a Whole Foods store.” In an interview on Public Radio Exchange, a D.C. Whole Foods representative implied the same; while gentrification “was well on its way by the time we showed up,” he said, “I guess we sort of helped the process along.”
These comments identify an important complication in the Zillow findings: it can be difficult to tell what comes first, the grocery store or the gentrification. Stores like Whole Foods are notorious for targeting pre-gentrifying or “up-and-coming” areas, where overhead costs are low and city governments are willing to offer generous subsidies to coax the chain to a neighborhood. According to the New School’s Rachel Meltzer, who is currently researching the effect of retail services on New York City housing prices, the promise of low rents, cheap labor, and minimal competition could be attractive to a company like Whole Foods.
But it’s no secret that Whole Food’s and Trader Joe’s are attractive to new residents as well. “The stores have become an amenity in their own right—a signal to the home-buying public that the neighborhood they're located in is desirable, perhaps up-and-coming, and definitely improving," Zillow’s chief economist Stan Humphries said in a press release. According to Humphries, "even if [Whole Foods and Trader Joe’s] open in neighborhoods where home prices have lagged those in the wider city, they start to outperform the city overall once the stores arrive."
This suggests that, even if gentrification were occurring before the arrival of a gourmet grocery store, these stores act as a catalyst for rising home values and neighborhood “upgrading.” According to the Zillow study, neighborhoods with an impending Trader Joe’s location nearby appreciated at the same rate as other homes in the city before the store’s opening. Two years after the Trader Joe’s opened, however, the median home values in the area appreciated by 10 percentage points more than the rest of the city.
Meltzer identifies the same effect in Gowanus, a Brooklyn neighborhood on the cusp of gentrification. The construction of a Whole Foods in 2013 “has certainly played a role in bringing other activity to the area that wouldn’t have come before,” she says. Still, she questions the idea that Whole Foods or Trader Joe’s could drive up housing prices on their own.
“My own research is showing that people will pay to be closer to a service like that,” Meltzer tells CityLab. “I don’t know if I believe that it would skyrocket prices in and of itself.”