Does Marijuana Legalization Lead to High Times for Real Estate?
The house in a Denver suburb was a modest brick ranch. The listing agent, Matthew Barry, with HomeSmart Cherry Creek Properties, described it as having an “amazing location…close to bars, restaurants and shopping.”
It was also close to a marijuana dispensary, but that wasn’t included in the description. At any rate, it went under contract on the first day on the market, for above asking price.
If a new study from Clever Real Estate is to be believed, its location near a dispensary might have helped increase its sales price.
"With more states legalizing recreational [marijuana] use, every home buyer needs to know how housing markets are affected by this cultural shift," writes Luke Babich, author of the report, How Legalizing Recreational Marijuana Impacts Home Values. "Opponents of legalization stress increases in crime that lead to lower property values, while supporters highlight the potential economic benefits."
Clever's researchers gathered available MLS data and compared it with dispensary license data to determine whether marijuana legalization had an impact on property values. They found that since Denver retail dispensaries opened for business in January 2014, residential property values have increased 67.8 percent.
A Budding Issue
Clever's findings follow research by the National Association of Realtors released in late 2018. NAR's report,Marijuana and Real Estate: A Budding Issue, presents survey data from its members in states where marijuana is legal. One-tenth of real estate professionals in these states reported they had seen an increase in values. That said, 12 to 14 percent had seen a decrease in residential property values near dispensaries, and the remainder had not seen a change.
Jessica Lautz, NAR vice president of demographics and behavioral trends, says the NAR plans to do more analysis this summer. She notes that the industry is adjusting to the new reality; many MLSs in states where marijuana has been legalized have added a field related to cannabis on home listings. About a third of landlords in states with legal marijuana have added provisions to their leases restricting marijuana use on properties.
Matthew Barry, who has been selling real estate in Denver since 2008 (recreational marijuana was legalized in 2012) remains unconvinced that homes near dispensaries are appreciating more than those that are not. He sees correlation, not causation, in that dispensaries tend to be located in vibrant areas with other amenities, such as restaurants and bars, that offer a selling point.
"I’ve certainly never had anyone tell me they wanted to live close to a dispensary," he says, adding that he had on occasion worked with clients asking for homes that could accommodate grow facilities. However, Colorado laws have since changed to cap the number of plants that can be grown on residential property to 12, and Barry says he has had fewer clients seeking grow areas as a result.
The Long View
Phil Shell, managing broker with RE/MAX Alliance, in Arvada, Colo., says he has seen a lot of ups and downs on Colorado's Front Range in his 40-plus years in the industry. "In 2013, the real estate market was starting to chug," following the recession, he recalls.
"The initial reaction in the brokerage community, we thought [marijuana] was helping. A bunch of money was coming in, and you couldn't find a warehouse in the city; that market was very tight. But by 2015, corporations were starting to come in, and they were not coming for the pot."
Similarly, he thinks the spike in real estate values in other states following marijuana legalization can more likely be attributed to the national economy rebounding following the Great Recession.
Barry believes that the legalization--particularly of medicinal marijuana--led to a surge in Colorado's population in the immediate aftermath, but that has since died down. The recent migration to Colorado in the last five years or so is "mostly a result of our strong economy," he says.
But a naysayer, he is not. "It's been nothing but positive for real estate."
However, the impact of marijuana legalization is a complicated topic, and it could be years before its effects are fully evaluated. Research by the Tenth District of the Federal Reserve Bank has focused on the employment impact as well as tax revenue. The laws of supply and demand, being what they are, have resulted in marijuana prices falling from the initial days of legalization, which has complicated matters.
The impacts on real estate remain hazy for some. As for the team at Clever Real Estate, based in St. Louis, they'll be ready for an influx of homebuyers if Missouri legalizes recreational marijuana.