Marijuana legalization increases home values, report finds

KEY TAKEAWAYS

Cities that allow retail dispensaries saw home values increase $22,888 more than cities where marijuana is illegal from 2014 to 2019 (controlling for population and initial home values)
CATO research supports our findings, suggesting homes close in proximity to marijuana retail dispensaries increase in value
For cities where only medicinal marijuana is legal, home values increased at a comparable rate to cities where marijuana is illegal; a statistically significant increase in home values could not be attributed to medicinal marijuana legalization
States that legalize recreational cannabis see an immediate bump in home values following legalization, even without retail dispensaries opening up. From 2017 to 2019, cities where recreational marijuana is legal saw home values increase $6,337 more than cities where marijuana is illegal (controlling for population, initial home values, and GDP).
The report’s findings are consistent with those of prior studies, such as those here and here.

A new report from Clever Real Estate shows that in a 5 year span, states who legalize medical marijuana see increases in property values.

Using housing data from Zillow for all cities where recreational marijuana is legalized and the state population estimates in 2018 from the U.S. census, they ran a multiple regression analysis to determine the relationship between dispensaries and housing prices. They then compared the home value increase from 2014 to 2019 between cities where dispensaries can sell recreational marijuana and cities where recreational selling from dispensaries is illegal, while controlling for population and initial home value for each city in 2014.

The data suggests real estate investors can find blazing housing markets in cities where recreational cannabis is legalized.

Colorado and Washington, the first states to legalize cannabis for recreational use, have both seen above average home values since opening their first dispensaries in 2014. Colorado homes have increased by 58%, and Washington home values have increased 57% in the five years since legal commercial sales began.

Homeowners and buyers might become spooked by cherry-picked statistics about rising crime rates in areas where cannabis is legal, but rising crime rates haven’t impacted home prices in the states where marijuana has been legal the longest.

While the changes in crime rate are consistent with national averages, one point worth noting is both Washington and Colorado saw increases in violent crime from 2016 to 2017, where the crime rate slightly dropped nationwide. 2018 will be a pivotal year in the debate over whether legalizing cannabis has an impact on crime rates, but more data is needed.

The increase of crime in these areas (regardless of attribution) does not have an impact on housing prices. Legalizing cannabis for commercial sale allows for taxation and measurable economic growth, and investors and the housing markets respond accordingly.

Using Colorado and Washington as case studies, it’s clear that the market benefits from marijuana legalization outweigh the potential costs in terms of home values. Further research in different markets over longer time tables is needed to determine true causality between marijuana legalization and crime (this study will be updated when 2018 crime statistics are released).

While the correlation between cannabis and crime remains hazy, the positive effect on housing markets can’t be denied.

In addition to higher home values, home sellers in Colorado and Washington have enjoyed fewer days on market compared to the national average, particularly in the last few years. Following legalization in 2012, there was a significant decrease in days on the market for both states.

California, Maine, Massachusetts, Michigan, and Nevada all approved recreational marijuana legislation in 2016, but only California, Nevada, and Maine allow for commercial sales.

Interestingly, all of the states that legalized in 2016 saw above average home values immediately after their respective bills were passed.

This suggests simply legalizing marijuana recreationally leads to an initial bump in home values, regardless of the economic and tax benefits. States that legalize recreational cannabis see an immediate bump in home values following legalization, even without retail dispensaries opening up. From 2017 to 2019, cities where recreational marijuana is legal saw home values increase $6,337 more than cities where marijuana is illegal. Investors see the opportunity to enter a new market, and home values respond.

The report concludes investing in a housing market after recreational legalization is a safe bet. Real estate investors should look for areas where commercial licenses for marijuana have been requested, as homes within close proximity to dispensaries tend to have higher home values. Of course, bureaucratic red tape can slow progress and delay property value growth.

Another key finding is that marijuana has a clear impact on property values immediately after it’s legalized for recreational use. Given the slow nature of the American political system, bills take time to become law, and it can be years before the first recreational dispensaries open their doors. Many states that approved recreational marijuana still haven’t passed measures to have regulated and legal markets for commercial sales.

Using housing data from Zillow and the state population estimates in 2018 from the U.S. census, we ran a multiple regression analysis to determine the relationship between legalizing marijuana and housing prices. We compared the home value increase from 2017 to 2019 between cities where marijuana is legalized recreationally, cities where marijuana is legalized medicinally, and cities where marijuana is illegal, while controlling for population and initial home value for each city in 2017.