Do Grocery Stores Affect Home Values?

Talia Lee-
June 07, 2024

In real estate, there’s a common saying: while you can select your house, you can’t choose your neighbors. However, you do have the power to choose your neighborhood, and what surrounds it significantly influences the value of your property, both at the time of purchase and when it’s time to sell.

Various studies over the years have delved into the effects of nearby amenities such as retail outlets, gas stations, and even specific chains like Starbucks or Walmart on property values. However, it appears that living in proximity to a grocery store has the most substantial impact on property value.

Last year, ATTOM Data Solutions conducted an analysis known as the “Grocery Store Battle,” examining the impact of living near a Trader Joe’s, Whole Foods, or Aldi on property value. The study encompassed 1,859 zip codes where at least one of these three stores was present.

Interestingly, homeowners near Trader Joe’s saw the highest return on investment, with a 51% increase over the five-year study period, compared to 41% for Whole Foods and 34% for Aldi. On average, properties in the studied zip codes experienced a 25% gain in equity.

However, these findings primarily focused on “specialty” chains rather than everyday neighborhood grocery stores. What about the influence of regional supermarket chains like Giant in the Mid-Atlantic or Publix in the Southeast? Or the proximity to smaller independent stores or bodegas? And what about areas categorized as “food deserts,” devoid of any nearby grocery options?

The impact of supermarkets on neighborhood dynamics has been a subject of extensive analysis, often discussed in scholarly studies and occasionally featured in major media outlets like the New York Times and the Atlantic. William Van Fossen, in his senior economics essay at Yale University, delved into these discussions and studies to explore how the presence of a supermarket affects property values within various distances.

Analyzing data from multiple sources, Van Fossen found that the proximity of a supermarket within a one-mile radius tends to increase property values by an average of $8,406, with a margin of error of about $1,860. Within a three-mile radius, property values still see a significant boost, averaging $6,057, with a standard error of $1,010. Even when the distance extends to five miles, properties experience an average increase of $4,145, with a standard error of $782.

Contrary to the expectation of diminishing returns, the study by the Yale economics major revealed that the introduction of more food stores actually led to higher price premiums. While the exact causes of these premiums remain unspecified, factors like convenience likely play a significant role. Proximity to a grocery store saves homeowners time and money that would otherwise be spent on transportation to more distant stores.

For instance, according to a 2016 study by the Hartman Group, the average American visits the grocery store approximately 1.9 times per week. Therefore, if a new store opens closer to a residence, resulting in a shorter commute of, say, four miles, homeowners could potentially save around $6,000 over the typical 13-year tenure period, as estimated by the National Association of Home Builders. This savings encompasses expenses like gasoline, maintenance, and insurance.

As a result of these factors, neighborhoods with a single supermarket have an average residential property value of $183,695. However, when the number of stores increases to five or more, property values nearly double, reaching an impressive $362,160.

The Yale study did not delve into the issue of gentrification in areas labeled as “food deserts,” where access to grocery stores is severely lacking. However, a study published by the National Bureau of Economics Research examined the impact of grocery stores, along with other amenities like restaurants, barbershops, and convenience stores, on gentrification. Gentrification refers to the process where households with higher incomes purchase properties occupied by those with lower incomes.

The authors of the study found that the rapid expansion of these local businesses tends to attract a younger, more educated demographic of residents to the area. They also explored whether the opening of businesses led to price growth or if rising house prices attracted more businesses. Their conclusion was that external changes in the neighborhood prompted the opening of new stores, which, in turn, encouraged property prices to rise.

I discussed this theory with two real estate agents, David Gibson of Long & Foster in Prince George’s County, Maryland, and Robert Goodman of Michael Saunders & Co. in Sarasota, Florida. Specifically, I inquired about the influence of grocery stores on property prices in their respective markets. They both indicated that determining whether the opening of a new store precedes rising prices or vice versa is challenging.

Gibson, whose market primarily comprises minority communities with varying degrees of wealth, mentioned that his local multiple listing service doesn’t isolate grocery stores. Moreover, he noted that the area is saturated with food outlets.

Similarly, Goodman didn’t find any substantial evidence suggesting that Publix, the dominant chain in his region, impacts prices significantly, as their presence is ubiquitous, with stores located within a five-mile radius of most homes in Sarasota County. He also examined the influence of Whole Foods and Trader Joe’s but found no significant effect on property values.

According to Goodman, various factors, such as nearby amenities, schools, and infrastructure, contribute to the overall value of a home or community. He believes that the relationship between grocery stores and property prices aligns with the age-old question of “which came first.”

It’s possible. Perhaps it’s not the presence of amenities but rather the scarcity of housing in general that drives gentrification. This is the conclusion drawn by the Urban Institute in a recent report, stating that “high housing costs resulting from a lack of available housing cause affluent buyers to look for homes in low and moderate-income neighborhoods.”

According to this non-partisan think tank, both nationally and in many metropolitan areas, the availability of housing, or the lack thereof, across all income levels is the primary driver of gentrification, not the introduction of new grocery stores and other amenities. And increasing the housing supply is the only effective way to slow down this process.

“When even affluent buyers struggle to afford homes, they tend to seek out properties in low and moderate-income neighborhoods,” the report explains.

This underscores the significance of another age-old real estate principle – location, location, location. To aid in this search, the Department of Agriculture offers a website where prospective homebuyers can input any amenity – such as grocery stores, indoor swimming pools, or golf courses – within a customizable radius.

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