DO POT SHOPS DEVALUE HOMES?

With the legalization of recreational marijuana in Massachusetts and the opening of shops in Newton potentially on the horizon, I am being asked if pot shops will negatively affect the value of homes in the vicinity of the shops.  The answer will surprise you – several studies on the subject all came to the same conclusion – pot shops increase the value of nearby homes. 

Almost all studies focus on Colorado given recreational sale of marijuana was legalized in January 2014, providing a good span of data to study.  But studies of states with at least 1 year of data show the same trend.

  1. Real Estate Economics, in this study, James Conklin and coauthors studied how the conversion of medical marijuana stores to recreational marijuana stores affected housing prices in Denver, CO. Their research provided strong evidence that homes located near such converted stores experienced a much higher increase in value than houses located farther away — as much as 8 per cent more.
  2. Economic Inquiry – in a recent article, Cheng Cheng and coauthors found almost similar results suggesting a 6 per cent premium in prices for homes sold in municipalities that legalized retail sales of marijuana, versus those that didn’t.
  3. Realtor.com found that since the first recreational pot shops opened, the median home price in the state jumped from $248,000 in the first half of 2014 to $298,000 in the first half of 2016. Realtor.com reports the four states with at least a year of experience with recreational marijuana sales showed a marked increase in home prices — well above the national median price.
  4. An academic study from two University of Mississippi economics professors, estimates that Colorado’s legalization of recreational cannabis and local governments’ approval of retail outlets within their jurisdictions increased housing values by an average of 6 percent.
  5. A second study, from the University of Wisconsin School of Business and economics researchers from two additional universities, focused on property values in Denver and found that homes near retail cannabis outlets — within just 0.1 miles — gained 8.4 percent more in value than houses just steps further away, from 0.1 to 0.25 miles. That big increase amounted to almost $27,000 for an average house.

SOME POSSIBLE REASONS FOR THE INCREASE IN VALUE

  1. Homes around marijuana dispensaries may have been subject to a discount prior to legalization, but that legalization with no ill effect, lifted the stigma around such homes. We’ll have to watch home values in Newton over time to know if that is happening here, but so far, that does not appear to be the case.
  2. Another is that the stores had economic effects that were highly localized and boosted the economic profiles of their specific neighborhood – more jobs, bringing customers into nearby shops, paying high commercial rents, etc.
  3. Legalization led to a surge in housing demand prompted by marijuana-related jobs. And, as existing residents become more willing to remain in place, the housing supply drops as demand rises, thus the increase in property values.

It is a different story for communities harboring grow houses.  Surrounding properties do lose value because the pungent odor the plant emits turns off home seekers.

Another concern around legalization is the claim it will encourage more crime and further reduce home values of those living near growers, manufacturers, and retailers. The FBI’s Uniform Crime Report indicates a 3.5% increase since Jan 2014.  It’s important to note, however, the city began tracking marijuana-related crimes as well, which make up less than 1% of all offenses.  Experts believe the growth is tied to population growth and and not directly tied to the sale or use of the drug.

One could see that the incidents of people driving under the influence could increase.  Particularly if they are driving to a shop to get their pot.  But I suspect that if people are the type to drive under the influence, they are already doing so.

It is highly unlikely that someone is going to mug you for the pot you have in your pocket considering it is legal for everyone over the age of 21 to grow their own pot at home.  The opioid and heroin epidemic is a far greater concern when it comes to crime.  As Realtors, we warn our clients not to leave any pain medication in their medicine cabinets as addicts have been known to come to open houses and rifle through medicine cabinets.  No one is going to come through your house looking for your pot considering they can legally grow or buy it themselves.

The biggest concern is robbery of pot shops.  Because marijuana is not legalized on a federal level, shops are not able to take credit cards or checks.  They therefore, carry a lot of cash, which makes them susceptible to armed robbery.   The shops and the federal government are looking for solutions to this problem, so this could get solved over time.

So the targets of crime are the cultivators and shops.  There is no evidence that people who live around the facilities are at a higher risk of crime.

The bottom line is that evidence so far indicates that home values increase in neighborhoods where there are recreational marijuana dispensaries.

I believe right now, the biggest risk to home values is the natural ebb of the market.   It is natural for the market to soften after several years of growth and that seems to be happening now.  Buyers are being much more selective in what they will put an offer in on.  They want move-in ready houses with new kitchens and baths, Central A/C, recessed lights, newer roof, windows, mechanicals etc.  In other words, new or like-new homes, and are willing to pay a premium for those.  Houses that do not have all this are starting to languish.  Particularly as sellers believe they are riding a wave of ever increasing prices and are pricing their homes too high.

I’ll be writing another blog entry on this topic shortly so stay tuned.

Michelle J. Lane
MICHELLE J. LANE, Realtor
Century 21 Commonwealth
CELL: 617 584-3904

 

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