Organic foods may be costly in more ways than one.
Recent data suggests the presence of upscale grocers like ALDI, Whole Foods — owned by Amazon (AMZN) — and Trader Joe’s significantly boosts the value of other real estate in the neighborhood, fueling a heated debate about gentrification and a lack of affordable housing.
Recently, data provider ATTOM Data Solutions and real estate company Zillow (Z) looked at home values across the U.S. in order to see if the organic, trendy grocers “are driving skyrocketing real estate prices, or are building on larger trends of gentrification.”
And what the firms found in their joint study was a relatively strong correlation between home prices and the grocer’s location. Home sellers near a Trader Joe’s saw an average return on investment of 51%, while those near a Whole Foods saw a 41% increase, the study found
According to Zillow, houses near Trader Joes or Whole Foods began to appreciate more quickly after those stores moved in than before — and that they appreciated twice as quickly as the average home in the United States.
‘Chicken or egg question’
Having a fancy grocery store in the neighborhood adds to a debate about gentrifying neighborhoods, where upscale establishments increasingly cater to an influx of higher-income residents — all of which puts upward pressure on housing prices.
“We have the Trader Joe’s downstairs in our building we are selling at 100 West 93rd Street [in New York], and a Whole Foods a few blocks away,” said Susan Fishman, an agent at Warburg Realty.
After a year, she said, the price per square foot for an apartment located by Trader Joe’s rose by more than $300.
Yet in a city that’s as expensive as New York — where affordable housing is in short supply and residents all across the five boroughs lament surging prices — it’s unclear clear how much of rising prices can be linked to just the presence of an upscale grocer.
“People would pay more to live near a nicer grocery store. But, I think this might be more of a chicken and egg question,” said Steven Gottlieb, another agent at Warburg Realty.
“People of means are more likely to demand nicer neighborhood amenities and higher end market chains are attracted to more expensive/upwardly mobile areas,” he added.
Meanwhile, local resistance to gentrification, and the rise in housing costs that go along with it, has created heartburn for some grocers.
Back in 2014, Trader Joe’s pulled out of its plans to build a store in the Northeast of Portland, Oregon because of local activists who argued that the store would drive up rents and displace locals.
The debate prompted one urban policy expert to call Whole Foods “the Lewis and Clark of gentrification” in 2013, in large part because of the company’s ability to disrupt neighborhood status quo in Chicago and Pittsburgh.
The dynamic recalls what urban theorist Phillip Clay said in 1979 was four “waves” of gentrification, the first being a “creative class” of artists and bohemians moving to a neighborhood.
The emergence of a Whole Foods or a Trader Joe’s is probably somewhere between the second or third wave, when the middle class begins to move in and then begins to outnumber the original population.
In certain ways, the grocers become an avatar for neighborhood change that changes the character of the area.
“This was a sleepy section of the Upper West Side [before Trader Joe’s moved in] that now has new restaurants, a fancy pet spa, a new burger place, and soon to be brand new Starbucks and CVS and a new gym,” Fishman said.
“I would say the foot traffic on this block, TJ's has multiplied by the thousands. The streets used to be kind of empty around here on the weekend and now it is filled with people with their TJ's bags,” she added.
Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.