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Does marijuana legalization increase property values?

Five states — Arizona, Mississippi, Montana, New Jersey and South Dakota — were the newest to legalize marijuana for either medicinal or recreational use in the recent election, bringing the total to 36 states and Washington, D.C., as of July 2021.

Even as marijuana becomes mainstream and an overwhelming majority of Americans believe marijuana should be legalized, opponents of cannabis legalization have long taken a “not in my backyard” attitude, arguing that legalization would bring with it rising crime rates and plunging property values.

However, it seems the opposite might be true.

Research in a new report, 2021 Study: How Legalizing Recreational Marijuana Impacts Property Values, suggests that in legal cannabis states, crime has decreased and property values have gone up, significantly in some areas, instead of down.

Using state tax collection data from the Tax Foundation and the Bureau of Labor Statistics, Clever Real Estate evaluated the relationship between April 2021 home values and tax dollars from 2020 recreational marijuana sales using a multiple linear regression, controlling for total state taxes collected in 2020 and population. They limited this analysis to areas where recreational marijuana sales were legal.

Consider the following findings:

  • Between April 2017 and April 2021, property values rose $17,113 more in states where recreational marijuana is legal, compared to states where marijuana is illegal or limited to medicinal use.
  • On average, home values increase by $470 for every $1 million increase in tax revenue.
  • With each new dispensary a city adds, property values increase by an average of $519.
  • Home values increased $22,090 more in cities with recreational dispensaries, compared to home values in cities where recreational marijuana is legal but dispensaries are not available.

Overall, the study found that marijuana legalization leads to higher property values and millions of dollars in new tax revenues.

The study determined that between April 2017 and April 2021, home values increased $6,333 more in states where marijuana was legal in some form.

And while home values are influenced by a number of complex factors that reach beyond the scope of legalized cannabis, there’s evidence to suggest that legalization has an overall positive ripple effect seen in growth areas such as housing demand and job opportunities.

The same research found that states that have legalized and allowed sales of recreational marijuana see the biggest increases in property values, $17,113 more than in states where marijuana is illegal or limited to medicinal use.

What’s more, home values increased $22,090 more in cities with recreational dispensaries, compared to home values in cities where recreational marijuana is legal but dispensaries are not available, suggesting legalization boosts jobs and economic growth.

States See Economic Benefits from Tax Revenue

Nearly $8 billion in tax revenue has been collected since 2014 by states that legalized marijuana, which is expected to grow as more states legalize. California alone generated $1 billion in tax revenue in 2020 from recreational cannabis, while Illinois says it generated more tax dollars from the sale of marijuana than alcohol in the last quarter of 2020.

What are states doing with all this new tax revenue?

Many states, like Oregon, are using revenues to fund education programs including pre-K and community colleges. Other states are funding health care initiatives, drug treatment and public education, transferring funds to local governments, or putting it toward transportation and infrastructure.

What Real Estate Agents Should Know

Critics of marijuana and the subsequent dispensaries, retail outlets and grow houses that accompany its legalization have long made claims about the possible negative effects on crime, home values, taxes, community safety, spikes in underage cannabis use, and public health. 

Although these are just some of the complex criteria that help determine the appeal of a particular community and answer the questions of homebuyers or real estate investors, fears of negative impact due to marijuana’s legalization have not played out. 

Nevertheless, buyers or investors may have more than the typical questions or concerns about taxes and mortgages when it comes to buying property in an area where medicinal or recreational cannabis is legal. Is it OK to buy near a dispensary? What about crime in the neighborhood? Is my future home going to lose value if a cannabis nursery opens in the town?

There’s research that shows that single-family homes within one-tenth of a mile from a cannabis dispensary increased in value by 8.4%. The same data shows that the presence of dispensaries or other retail cannabis outlets is not correlated with an increase in crime or underage use.

Real estate markets with fully-legalized recreational marijuana use may see a rise in opportunities as dispensaries and nurseries attract entrepreneurs and job opportunities and, with it, a higher home demand. Nevada, for example, could support more than 41,000 jobs and generate $1.8 billion in revenue with legalization.

National federal legalization could generate as many as one million jobs by 2025, meaning hot home markets may get even hotter as the quickly growing cannabis industry sprouts across the nation and housing and labor demands grow.

New home buyers interested in markets where marijuana has been legalized and is potentially experiencing high housing demand should make sure they’ve thoroughly researched their prospective neighborhood, are aware of the local laws regarding cannabis and how they could potentially impact their future home value.

Real estate as an investment in a post-legalization area is popular. Investors turning over properties using 1031 exchanges or interested in adding to their portfolio shouldn’t shy away from properties with close proximity to dispensaries, as they tend to have solid or rising home values.

Armed with this latest research, real estate buyers should feel confident that purchasing property in a marijuana-legal state is a good investment now and in the future.

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