Using Yelp to Find the Next Hot Neighborhood

Using Yelp to Find the Next Hot Neighborhood

Investors and policy makers have historically had a tough time predicting the precise moment when a neighborhood is about to start gentrifying.

It turns out that Yelp reviews for everything from cafes to barber shops might offer a solid clue, according to researchers at Harvard University.

Pinpointing a turn toward sharply higher prices can be advantageous for a range of parties, from investors looking to cash in to city managers eager to curtail price jumps, said Michael Luca, an associate professor of business administration at Harvard, whose research focuses on online businesses.

The research, based on data provided by online review company Yelp Inc., could allow policy makers to identify earlier on the neighborhoods to target to preserve existing low-cost housing, for example.

Current tools for predicting gentrification are limited and often yield insights long after the results are obvious to anyone taking a casual stroll in a neighborhood.

U.S. Census data, which tracks home prices, rents, wages, numbers of businesses and demographic changes, often lag by a couple of years, aren’t always available at the ZIP Code level and provide limited information about the types of businesses in an area, a challenge when neighborhoods are changing rapidly.

The new research, conducted by Edward Glaeser, a professor of economics at Harvard, along with Hyunjin Kim and Mr. Luca of Harvard Business School, found that Yelp reviews can offer much earlier clues that a neighborhood is in transition. Yelp posts information about local businesses such as prices, opening hours and menus, and allows users to rate them.

The researchers found, for example, that growth in the number of Starbucks locations—and cafes more generally—is correlated with price growth in neighborhoods. The entry of a new cafe into a neighborhood signals there will be, on average, a 0.5% increase in prices above and beyond similar neighborhoods, according to the research. Growth in grocery stores, laundromats and bars also are good predictors of increases in the share of college-educated residents in an area.

On the flip side, the researchers didn’t find evidence that gentrification pushed certain types of businesses out of neighborhoods, a common complaint among neighborhood residents.

That might partly be due to limitations of the data, which simply categorize businesses and don’t distinguish between a traditional Italian barber shop offering $10 haircuts and a new hipster one offering craft beer and eucalyptus-scented hot towel service.

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