Dive Brief:
-
When home prices rise in a community, so does the cost of services and merchandise. That’s the assessment in a paper by the National Bureau of Economic Research and by the less-scientific observations of editors at alternative newspaper Washington City Paper.
-
City Paper calls it the $14 Cocktail Rule: In the priciest DC neighborhoods, the price of adult beverages tends to spike as the homes appreciate. The NBER study takes that notion further, linking growing demand for homes with a spike in all kinds of local retail prices.
-
One reason: Consumers who can afford to pay top dollar for their homes are “less price sensitive” because they also can afford to buy what they want in stores, even if it’s expensive, according to the paper, written by professors at New York University and the University of Chicago. In response, businesses raise prices, the paper concluded.
Dive Insight:
What the researchers call a “causal link” between rising home prices and rising retail prices, it seems, doesn’t have anything to do with the cost of producing those retail goods and services. In fact, the authors found that merchandise that was not produced locally—and therefore unaffected by local real estate prices—was also marked up when home prices spiked.