Gay Neighborhoods Are Seeing Huge Appreciation: Here’s Why Investors Should Pay Attention

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There’s a common narrative that gentrification happens like this: First the artists move into a cheap, blighted neighborhood. Then the hipsters start eying the neighborhood as it begins transforming from dodgy to edgy. Then the recent college grads come, eager to live downtown but unable to afford the high rents of established, chic neighborhoods. The young professionals follow, and the neighborhood drifts into the mainstream.

Whether that narrative holds true or not is open to debate, but perhaps there’s a missing piece in it. Do gay residents have a role in neighborhood socioeconomic growth?

Gay neighborhoods have skyrocketed in value over the last five years, which is not a narrative. It’s a fact.

Appreciation Around the Nation

Real estate nationwide has been kind to investors and homeowners over the last five years. Between June of 2011 and June of 2016, the average square foot of U.S. real estate appreciated by 23.8%. Fueled by employment growth, household unbundling, higher demand for rents, and artificially deflated prices following the Great Recession, real property has done well.

Urban real estate has particularly shone. Among the top 50 most densely populated zip codes, values have risen by an enthusiastic 36.75%.

Exceptional growth, by any standards. But in the words of Bachman–Turner Overdrive, you ain’t seen nothing yet.

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Enter: Gayborhoods

Trulia first noticed this trend in 2012 and started looking closer at zip codes with high percentages of gay and lesbian residents. While they followed up for a couple years with annual reports, they have not published recently, ignoring some impressive gains.

Using U.S. Census Bureau data, they identified the following five zip codes as having the highest percentages of gay men: 92262 (Palm Springs, California), 94131 (Noe Valley/Glen Park/Diamond Heights, San Francisco, California), 92264 (Palm Springs, California), 48069 (Pleasant Ridge, suburban Detroit, Michigan), and 94114 (Castro, San Francisco, California).

Below are the median square foot values (taken from Zillow, who’s more open with this data), in June 2011 compared to June 2016, and the growth in value:

Zip Code Neighborhood $/SF in 2011 $/SF in 2016 Appreciation
92262 Palm Springs $141 $225 59.57%
94131 Noe Valley / Glen Park / Diamond Heights, San Francisco, CA $583 $1017 74.44%
92264 Palm Springs $138 $204 47.83%
48069 Pleasant Ridge, suburban Detroit, MI $123 $187 52.03%
94114 Castro, San Francisco, CA $682 $1144 67.74%

The average growth in value? A whopping 60.3%, which is enough to make any real estate investor swoon.

Lesbian Neighborhood Performance

While almost all of the top five lesbian neighborhoods were different from the top gay neighborhoods, they experienced almost identical growth. With an average appreciation in per-square-foot value of 58.9%, the growth in lesbian neighborhoods almost perfectly mirrors their male counterparts. (Interesting aside: the difference between the lesbian and gay zip codes is a far cry from the average 16% appreciation difference between men’s and women’s homes.)

Here are the actual numbers:

 Zip Code Neighborhood $/SF in 2011 $/SF in 2016 Appreciation
94619 Redwood Heights / Skyline, Oakland, CA $268 $479 78.73%
30002 Avondale Estates, suburban Atlanta, GA $114 $150 31.58%
02130 Jamaica Plain, Boston, MA $290 $431 48.62%
94114 Castro, San Francisco, CA $682 $1,144 67.74%
95446 Guerneville, North of San Francisco, CA $219 $368 68.04%

San Francisco Effect?

“Sure,” the skeptics might say, “of course these figures are showing high appreciation. Several of these neighborhoods are in San Francisco, which has had plenty of help from Silicon Valley money.”

Is the effect merely a statistical fluke, an outlier caused by San Francisco’s techie invasion?

Fair question. Trulia compared each gay neighborhood’s values to its metro area as a whole, to adjust for entire cities appreciating better than the U.S. average. Among the top 20 zip codes examined, 19 of them had higher values per square foot than their respective metro areas. The only neighborhood with lower average value per square foot (Guerneville) was off by a mere 2%.

Some neighborhoods’ per square foot value was as much as 80% higher than the city at large.

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Investment Opportunity?

A quick look over most of these zip codes should tell you that most of these areas are already “hot” and have thoroughly gentrified. The days of bargain basement prices in these neighborhoods are ancient history.

That said, neighborhoods shift in demographics and value all the time. Who’s to say where tomorrow’s gayborhood will be? If an influx of gay residents really is a harbinger for appreciation, then local shifts in gay demographics may be a bellwether to watch.

Whether gay residents have a role in the gentrification process may be too politically sensitive for most social scientists, but there’s certainly a case that gay neighborhoods appreciate faster than their straight counterparts.

Any anecdotes about the gayborhood in your city? We’d love to hear from real estate investors who have watched neighborhoods shift demographics firsthand.

Let me know your thoughts with a comment.

About Author

Brian Davis

Brian is a real estate investor and landlord with 15 rental properties, who writes fascinating articles for SparkRental.com. His rental management is almost completely automated by now, allowing him to travel the world frequently (if not always in style).

13 Comments

  1. margaret smith on

    Brain, this is fascinating stuff! Now that it is (finally!) OK to be officially and proudly GBLT, I would assume these neighborhoods would increase in number and size. It would be so cool to see if these “gayhoods” were also lower in crime- My guess is Yes! I am not gay, but have some lovely, creative and peace-loving friends who are…am thinking of moving….LOL!
    Thank you for being brave enough to give us a very intriguing article.

    • Brian Davis

      Thanks Margaret! It’s always tricky writing about social issues, because there are usually several sides eager to be offended and lash out. But if we can’t talk about social issues openly, then we aren’t much of a society, are we?

  2. John Payne

    Thanks for your post! This article actually reminds me of Grant Cardone’s podcast and another about section 8 housing. Grant talked about demographics and political ideology as indicators for behavior (in terms of tenants and spending behavior) and why he loves investing in liberal leaning areas because of their positive behaviors as tenants. He would hustle to get the best price possible in A and B Class neighborhoods while still understanding he was taking a hit in cash flow, but making it up for it in low vacancy and less cost of repairs because of the quality of the tenants. Also, these areas tend to impose more restrictions on owners and monetary factors (rent control), which for the juggernauts of real estate investing (like Cardone), reinforces steady returns. The bigger the player in the area, the more readily an investor will be able to handle any barriers to entry in that area and many legal ramifications from stricter laws. The trade off being the acceptance of greater legal footprint and exposure while having a better quality tenant with a consistent return. Conversely, section 8 investors take the trade off of guaranteed income from government assistance for greater returns (which tend to be consistent) and the typically lower-quality of tenants (strictly speaking about spending behavior, not moral or ethical behavior). The biggest factors deals with turnover and repairs. Demographics definitely should matter to an investor to understand his or her own risk tolerance. But at the end of the day, the ethics and morality of offering a win-win situation for the investor strategy/cashflow and the tenant’s safe and healthy living conditions remain crucial for long-term success in REI. While I’m still a newbie, this article helps put into perspective what I have learned and what strategy works best for my overall goals. Thanks again, great article!

      • Brian Davis

        Haha, no sorry necessary, good stuff. I enjoyed Cardone’s “The 10X Rule.” My concern about the argument you laid out above is that tenant-friendly laws make it very difficult for small landlords to make a profit, and favor larger, corporate landlords of scale. But laws aside, I agree that the larger issue is that demographics definitely matter, and investors need to understand a neighborhood’s demographics before they invest.

  3. Bob Baldwin

    I could care less about the GLBT ” Community ” Call me what you want but as an “Owner ” I reserve the right to
    CHOOSE whom I Rent to !! Sure you can submit an Application . This is one of the reasons I stay out of ” Metro Sexual ” cities

    We had a problem many years ago with 2 gay guys . Call it discrimination if you want BUT it was the neighbors complaining about them that made me feel this way

    Personally I don’t care what 2 people do in the privacy of their bedroom . But when you TAUNT the neighbors who have CONCERN for their kids and you go around Flaunting your lifestyle that is where I draw the line

  4. Michael Woodward

    Brian,

    I think this is a perfect example of making the data look the way you want it to look. It’s insulting to try to make your conclusion look like a scientific, data-driven fact. To say that the data supports your theory of appreciation is ridiculous. How did those same cities fair when the market was headed down? Detroit?? California?? Really?? Detroit and most of California fell like a 50,000 mph comet when the market collapsed! Of course they’re going to show strong gains during the recovery! That’s what’s happening now. The farther and faster a market falls, the faster it recovers. Your attempt to make this a demographic-driven event is just ludicrous (and intentional). Did you look into the data on any of the other groups in those areas? Isn’t it unfair that you didn’t consider the effect of hikers, bikers, joggers, singles, couples, twins, golfers, puzzlers, musicians, actors, cops, robbers, pedophiles, felons, rock climbers, socialists, constitutionalists, foodies, groupies, athiests, christians, muslims, meditators, mediators, greenies, etc, etc, etc?? Did I just ask a ridiculous question….. yes….. that’s the point!

    Real estate markets are driven by the economy (jobs and income) not by social groups. Especially very small social groups.

    How about we just stick to real estate and leave social politics out of it. I think we’ll all be a lot more relaxed without having this sort of thing forced into the conversation.

  5. Monique Dubois

    Thanks for the thoughtful article Brian. I grew up in Guerneville, have gay and straight friends in Oakland and visit SF often so I have first hand experience with the gay community. It was the gay community that came into Guerneville, the river area in general, and cleaned it up, started businesses and made it a great place to live and vacation. Gay men and women, in my experience, are leaders in the community and pour tons of money into not just their homes, but gardens too and lift up the entire neighborhood. My father in law was just telling me about a gay housing community built in Sonoma County that sold out before it was finished. Isn’t that interesting?! I’ve had many gay neighbors over the years and have been close to all of them. Communities that are marginalized, in my opinion, are the most kind and sensitive people because they know what it’s like to be an outsider. I love gay neighbors. I’m sorry there are still those who scapegoat gays, but your article made lots of sense to me and I welcome you to write more. Thank you.

  6. Michael Williams

    I am a straight male that has worked with men and women of the LGBTQ community and I can understand this trend very well. I just recently helped a partner create a project that caters to the LGBTQ community so I have been working close with many of them. They are some of the most honest, proud and purpose driven people I have met. Why wouldn’t they want to build their own communities to get away from the ignorance that many in our society can display. This article is on point and makes a lot of sense. The couple that lives near me have the best looking yard and the best looking house on our block. They have a great sense of design and style that brightens the neighborhood. I’ve met very few that were not money savvy, and I’ll bet they are excellent with money management and credit issues.

    While working on my project I noticed something that very few are noticing about them, They are together on issues, that benefit them as they should be. This is why you should pay attention to this article: The LGTBQ community is made up of Black, White, Hispanic, Asian, old, and young. They are a diverse culture that hold positions in huge corporations, heads of state, and judicial offices. When they pull together, and the project we completed this summer will help them do that, they will be a powerful force in the housing market among others.

  7. i don’t mean to stereotype, but these are some observations i’ve made regarding homes purchases by gay people.

    gay people like to beautify things. that could be their homes, their gardens, or their neighborhoods. gay folks also tend to be community improvement minded.

    i’ve observed this also in condo buildings. their unit will often be very stylish, and will push the board to give the lobby, building, or grounds a facelift.

    just my two cents. but i think this article does have some merit from an investment point of view.

  8. Hannah Diment

    This trend makes complete sense if you think about the mind set and circumstances of LGBTQ renters and buyers. While this is a historically oppressed group it is at the same time an extremely educated, many times wealthy (two disposable incomes more often than not) and above all community driven group of people. I think you will see this trend time and time again, whenever I visit or move to a new area, this ‘neighborhood’ is the one I strive to stay/live/spend time in, because it’s constituents are intelligent, loving, caring people who are meticulous stewards of their community and space (‘pride’ extends past sexual preference). The entertainment industry, high end restaurants and services also are in abundance in these areas, which attracts not only gay men and lesbians, but young hipsters and hungry entrepreneurs. I’ve lived in downtown Minneapolis, West Hollywood and Seattle and I can see why these neighborhoods rise in value. They’re NICE, full of amenities, and young intelligent people with plenty of spare cash on hand. The perfect storm if you ask me.

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