Thursday, July 16, 2009

Why it Pays to Find Communities with Bohemians and Gay People

If you're a real estate investor - or even an employer that depends on innovation for that matter, it may pay to locate your business in communities where artists and gay people congregate. At least that's according to McKinsey Digital:

We found that the presence of these populations had direct effects on housing values as well as other locational variables (like income and human capital), making these places more attractive to other populations and demographics. In other words, the presence of these groups not only made housing values rise, it made incomes rise as well.

Why would this be? Our theory is that bohemian and gay populations capitalize on two distinct factors of high-value housing. The first is an aesthetic–amenity premium. Artists and bohemians not only produce amenities but are attracted to places that have them. As selective buyers with eyes for amenity, authenticity, and aesthetics, they tend to concentrate in places where these things abound. The second is a tolerance or open-culture premium. Regions with large bohemian and gay populations possess low cultural barriers to entry, allowing them to attract talent and human capital across racial, ethnic, and other lines. Artistic and gay populations also cluster in communities that value open-mindedness and self-expression.
If their thesis bears true, it also suggests that markets take care of their own. Discrimination doesn't pay. Setting aside the fact it's impossible to legislate everyone getting along, this thesis should also extend to corporate cultures where populations that "possess low cultural barriers to entry" as evidenced by their demographic diversity are also ones that can create the most value. On a somewhat related note, Andrew Breitbart notes how markets can have a far greater effect than legislation in combating racism (Washington Times via Instapundit).

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