As recreational marijuana sales increase throughout California’s Bay Area, could the newly legal drug end up creating a bump in the real estate market?
Researchers looking at the impact of legalized recreational marijuana on Denver’s home prices found a surprising trend. Dispensaries that began selling recreational marijuana had a “large positive impact on neighboring property values.”
After recreational sales became legal, houses close to a participating dispensary saw their value increase more than 8 percent. A small study based on data was taken from only one metro area. However, the research could provide an important glimpse into the potential impact of legalization. James Conklin is a real estate professor at the University of Georgia. He also co-authored a paper called “Contact High: The External Effects of Retail Marijuana Establishments on House Prices.” Conklin stated that the project had no expectations and they didn’t know what the study would show.
“We thought maybe there would be a negative impact. I think our takeaway after working on the project was that we don’t see a negative effect — we do see results pointing to a positive effect.”
Recreational Marijuana Dispensaries
Conklin and his co-authors found a trend after recreational marijuana sales became legal in Denver at the beginning of 2014. Single-family homes located near dispensaries saw their values go up. So, homes within 0.1 miles of a dispensary saw gains of 8.4 percent relative to houses located between 0.1 and 0.25 miles away.
And these weren’t new dispensaries. They were existing medical marijuana dispensaries that expanded to recreational sales when it became legal.
That study isn’t the first to indicate a correlation between rising home prices and the legalization of recreational marijuana. However, its authors say it’s the first to do so at a highly localized level. Similarly, a report was written by two University of Mississippi professors and real estate information company FNC. They found legalization leads to an average 6 percent increase in housing values in Colorado. This study compared property gains in municipalities that adopted recreational use to those that didn’t.
In addition, realtor.com found that since the first recreational pot shops opened in Colorado on Jan. 1, 2014, the median home price in the state jumped. Home price roughly went from $248,000 in the first half of 2014 to $298,000 in the first half of 2016. Some of the increase is due to state’s population increasing almost 2 percent during that time period. On the other hand, the researchers say, home buyers are relocating there from out-of-state because of the law change.
A Real Estate Shock
Conklin and his co-authors do not claim to know why recreational marijuana might increase home values. They theorized it could be because legalization led to a surge in housing demand prompted by marijuana-related jobs, lower crime rates or the clustering of other amenities near dispensaries. They caution that other cities might not experience the same impact.
Rick Smith, president of the Santa Clara County Association of Realtors, said he was “flabbergasted” by the Colorado study. Dispensaries are prohibited from being too close to neighborhood schools, he said, adding:
“Typically things that have those types of restrictions do not advance home values.”
Oakland-based realtor Kerri Naslund-Monday said she’s seen commercial property values rise in Oakland. This is where marijuana growers are going for spaces. But she doesn’t expect residential home values to catch that buzz.
“The demand here is so high already,” she said. “Even without that element, I don’t foresee it causing too much of an effect that could be measured.”