On January 1, 2014, it became legal to sell retail marijuana in the state of Colorado. This legislation meant that medical marijuana dispensaries, in operation since 2000 as a result of the state’s Amendment 20, could now also apply for a retail business license to sell marijuana recreationally, effectively converting from one type of establishment to another.
We know that public policies like Colorado’s retail marijuana legislation can have both positive and negative effects; measuring their impact, however, is not nearly as straightforward. One of the ways we can assess impact indirectly is by looking at house prices as an indicator of neighborhood demand. What will people pay to live next to, like a park or a community garden, or to avoid altogether, such as a prison or a power plant? Take the issue of property values and sex offenders, for example. Research shows that when a sex offender moves into a neighborhood, home prices tend to drop. If the offender leaves, property values of the surrounding homes start to move back up.
My co-authors, James Conklin of the University of Georgia and Herman Li of California State University, Sacramento, and I questioned what effect Colorado’s legislation might have, if any, on home prices for residences located near the retail marijuana establishments. We purposely avoided a debate of values or drivers around the retail marijuana legislation, focusing instead on any net empirical effects, positive or negative, that we might find during the process. Our study is the first that we are aware of that examines retail marijuana establishments and home prices at the micro level.
Using publicly available data, we limited our scope to the city of Denver for the period of 2013 through 2014. After identifying medical marijuana dispensaries that transitioned to become licensed retail marijuana establishments and those that did not, we were able to compare changes in house prices, before (pre-legislation in 2013) and after (post-conversion 2014), for residences near the shops as well as those situated farther away.
Localized impact
The results of our study suggest a significant yet very localized impact: house prices increased eight percent for those residences in the immediate surroundings of retail marijuana shops. Expanding even 0.25 miles into the periphery, the effect disappeared. To test our findings, we looked at data from additional years before and after the conversion, and the results still held. We also did not see an increase in property values in other parts of the city.
Weeding out crime
Since our goal in this study was to look at the net effect of establishment conversions on house prices, pinpointing the reason for this eight percent uptick is outside the scope of this paper. We can speculate, however, that based on current and soon-to-be published research, our data may be capturing some correlation with crime rates. Other studies have shown that crime decreases in areas close to medical and recreational marijuana shops. When crime goes down, home prices go up—a “safe neighborhood” signal to potential homebuyers. It is also in a store’s best interest to create a safe environment for customers, and police departments may be monitoring these areas more frequently to ensure greater security as well.
In summary, we caution that our results are highly localized and shouldn’t be generalized to other cities. The fact that we see this increase in house values suggests some degree of public receptivity toward these kind of laws. Finally, while we find a positive effect from a strictly financial standpoint in the areas where these businesses are located, we are not stating that recreational marijuana has only a positive effect, nor that it’s in the moral best interests of the community. Simply stated, our study aggregates the positive and negative effects of retail marijuana establishments on house prices and suggests that the positive effects seem to dominate given this particular set of conditions.
Read the paper “Contact High: The External Effects of Retail Marijuana Establishments on House Prices,” published by Real Estate Economics.
Moussa Diop is an assistant professor in the Department of Real Estate and Urban Land Economics at the Wisconsin School of Business.
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