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Jul 9, 2017

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Attitudes to marijuana have changed dramatically over the last 50 years.  In the 1950’s only 12% of people interviewed approved of marijuana, but in recent Gallop polls that number has increased to over 60%.  Now there is a majority of adults in the U.S. support the legalization of marijuana, and as opinions have shifted over the last couple of generations so, slowly, have regulations especially on the State level.  As of time of publication, there are 28 states plus Washington D.C., that have legalized medical marijuana, although on the federal level marijuana is still classified as a Schedule 1 drug and deemed illegal to possess or consume.

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As medical marijuana has become legal, some states have begun to legalize recreational marijuana.  Currently (as of time of publication) there are eight states plus Washington D.C. that have legalized recreational marijuana, and the first two to do this were Colorado and D.C.

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While the standard pros-and-cons arguments have not changed – opponents claiming that marijuana is a gateway drug, proponents arguing that removing it from illicit trade will reduce crime – no-one has really conducted any empirical research yet on the impact of legalization simply because, until recently, there has been no data to analyze. 

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Effect on Home Prices

The current study adds to the debate by addressing a very specific question:  What happens to home values (single family residences) in the neighborhood of a store that converts from being a medical marijuana store to one that is permitted to sell for recreational purposes.  What makes this paper’s results so important is that in examining the impact on single family homes values, what the study does is to flatten out the positive and negative effects of having a recreational marijuana store nearby, and to examine the net effect on home prices.  In other words, home prices changes likely capitalize the overall impact of bringing a store to the neighborhood by accounting for the impact of both negative and positive effects.

Denver, Colorado provides a good location to examine because, one, it was one of the earliest to legalize recreational marijuana so has the longest history for this that can be studied, and, two, Denver provides a rich source of publicly available data.  For other states and cities considering legalizing recreational marijuana, the results of the current study provide a finding that might be of use in making legislative decisions about whether to approve.

The study’s objective, therefore, was to study whether or not there is an impact on a neighborhood’s home values, and, if there is, to what extent is there an impact…

Marijuana in Colorado

Background.  In Colorado in 2000 the state legalized medical marijuana but kept the industry very small to limit early growth.  This changed a few years later and the state started to relax legislation allowing for the industry to start to flourish, and by 2012 it had become so widely accepted that when Amendment 64 to legalize recreational marijuana in the state’s constitution was put on the ballot, it passed.  This allowed for the beginning of recreational sales to start in the beginning of 2014, a little over a year later. 

As the state developed a process for managing the expansion it became clearer where these retail marijuana stores were going to be located.  By the end of 2013 precise locations that would get licenses to sell recreational marijuana had been identified, and those locations were to be a subset of existing medical marijuana stores.

In December 2013, when the list of approved sales locations was released, the researchers looked at these locations and drew circles starting at a 1/10th mile radius and moving outwards at incrementally greater distances.  A tenth of a mile is about a city block – so, at this distance, the impact on a single location would encompass approximately a four-block area (one block in each direction).  

House Prices Shoot Up 8%

What the study found was there is a benefit on home values on a very localized basis.  Homes within a one tenth mile radius of a newly designated recreational marijuana store go up roughly 8% more relative to homes situated further away; homes situated further away experience neither a negative nor a positive effect. 

Why Do Prices Go Up?

From a statistical and methodological perspective, the result shows a strong causal effect: Convert a medical marijuana facility to a recreational one, and home prices within a block radius will shoot up relative to homes situated further away. 

What the study does not do is explain why that happens.  Why do you think it might happen?  Is it:

  1. Because crime is seen to go down due to enhanced store security systems
  2. Single people from out of state move in wanting to live closer to recreational marijuana stores
  3. Store owners and other ancillary industry participants purchase in the immediate vicinity
  4. Something else perhaps? What do you think?

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Implications:

The researchers had anticipated a negative effect going in to the study, so were surprised results that so confidently show a positive effect on home values.  As the debate advances in other states as to whether to legalize recreational marijuana, the results of this study should point to at least one positive impact where, in all likelihood, there is a tendency to erroneously predict a negative one.  For those ‘not-in-my-back-yarders’, understanding that their home values could go up substantially might help in taking a different view on the possible impact.

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