Recreational marijuana legalization is a hot-button topic, and the debate is now entering the real estate industry. With more states legalizing recreational use, every home buyer needs to know how housing markets are affected by this cultural shift. Opponents of legalization stress increases in crime that lead to lower property values, while supporters highlight the potential economic benefits. We decided doing a deep dive into the available MLS data and combining it with dispensary license data was the only way to settle the debate.
Three pivotal questions guided our research:
- How are home values impacted by legalizing recreational and medicinal marijuana on a city level?
- How does marijuana legalization impact crime rates, and how do changes in crime impact home values?
- How do retail dispensaries impact local home values?
Digging into Zillow's historical home price index we can shed some light on these questions (more information on our methodology can be found here).
- 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).
Recreational Dispensaries Lead to Higher Local Home Values
Public concern around legalizing recreational marijuana usually focuses on elevated crime rates. Elevated crime rates lead to lower property values and poor real estate investments, so the narrative goes. In fact, 42% of Canadian's believe a cannabis dispensary will have a negative impact on local home values according to a 2018 study.
Our research reveals the opposite is true: On average, in states where recreational marijuana is legal, cities with retail dispensaries saw home values increase $22,888 more than cities where marijuana is illegal from 2014 to 2019. Per a CATO Institute study, homes close to retail dispensaries (within 0.1 miles) increased in value approximately 8.4 percent compared to those further away. This effect appears to bring up the entire city's home values at a rate higher than the national average. Real estate agents can use this data to encourage home buyers that are scared off by retail dispensaries near their homes; based on the research, retail dispensaries don't impact home values like liquor stores.
Colorado's first retail dispensaries opened in January 1, 2014, and medical and recreational sales have generated over $948,000,000 in tax revenue. Denver has 180 dispensaries, the most of any Colorado city, and its housing market has seen unprecedented growth since recreational legalization in 2012.
Since Denver retail dispensaries opened their doors in January 1, 2014 residential property values have increased 67.8%, the most significant growth in over a two decades.
Denver is a clear-cut example of dispensaries raising residential property values, but dispensaries have helped bring up property values all around Colorado. Cities in Colorado with dispensaries have higher than average property value growth compared to the national average.
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.
While there are tax benefits to legalizing marijuana medicinally, there was not a statistically significant increase in cities where only medicinal marijuana is legal.
So, why does recreational legalization and retail dispensaries lead to homing price boosts? According to a 2017 study from the University of Mississippi, recreational legalization "attracts more home buyers, including marijuana users as well as entrepreneurs and job seekers." Businesses start to pop up, and job seekers flock to these cities, driving up the demand for housing and retail space.
Takeaway #2: The Connection Between Cannabis Legalization and Crime is Still Hazy
There's no denying it: Colorado has seen a steady uptick in crime since 2012. Violent crimes in Colorado have increased 25 percent since 2013 after an initial bump in crime in 2012.
Similar violent crime trends can be seen in Washington since recreational marijuana was legalized. And at first glance, these statistics are disconcerting.
However, these graphs are meaningless without national context. A closer look at nationwide crime statistics reveals a more nuanced picture. The crime rate (crimes per 100,000 citizens) increases in Washington and Colorado are consistent with nationwide violent crime trends since 2014. In fact, Washington and Colorado both have below average violent crime rates.
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.
Recreational Cannabis Legalization Leads to an Initial Bump in Home Values, Even Without Commercial Sales
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.
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.
Digging into specific housing markets, San Jose (Zillow's hottest housing market two years running) saw its sharpest historical two-year increase in home values, a $303,200 increase, following legalization in November 2016. Sales of recreational marijuana didn't begin until January 2018, but the housing market responded immediately.
Silicon Valley's housing market has been red hot for years, but after legalizing recreational marijuana, Silicon Valley experienced the highest percentage growth in years. Cities like Los Altos, Palo Alto, and Saratoga that experienced minor home value declines in 2016 rebounded in 2018 with record breaking home sale prices. 2018 saw the highest percent increase across the valley since 2014.
Silicon Valley's innovative tech companies are the primary driver of its housing market, recreational marijuana's impact on home prices can't be ignored. But booming tech cities aren't the only ones seeing home values rise. Even more modest cities with smaller economies like Redding, CA have seen home values jump after recreational legislation was passed. Home values increased 3.75% from November 2015 to November 2016. After the bill was approved, home values jumped 7.35% from November 2016 to November 2017.
One outlier worth discussing is Washington D.C. While the capital legalized recreational cannabis with Initiative 71 in 2014, commercial sales are not legal. Residents are allowed to grow and maintain up six plants and carry up to two ounces of marijuana, but no exchange of money or goods is allowed. There are restrictive laws on consuming marijuana: smoking in a public space is a $100 fine and smoking in a parked car can result in a DUI.
The lack of a regulated market has resulted in slower growth for the D.C. area compared to the national average. If cannabis sales aren't legal, money won't flow back into the market, and housing prices won't respond over the long term. Investors might initially jump at the opportunity, but until a legitimate market is established, true market gains can't be realized.
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.
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.
The data suggests real estate investors can find blazing housing markets in cities where recreational cannabis is legalized.
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.
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, we ran a multiple regression analysis to determine the relationship between dispensaries and housing prices. We 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.
For specific questions about our analysis email email@example.com.
- Zillow: Historical Home Prices and Values
- Zoocasa: How Homeowners Feel About Legal Cannabis
- CATO Institute: External Effects of Retail Marijuana on House Prices
- Colorado Department of Revenue: Marijuana Tax Data
- Colorado Department of Revenue: Marijuana Retail Establishments
- FBI: Uniform Crime Reporting Program