Really? According to a recent research paper by two University of Mississippi professors, they found legalization of marijuana leads to a 6% increase in values in cities in Colorado compared to municipalities that did not legalize marijuana. They conclude being close to a marijuana shop makes a property’s value increase more than other properties. How is this possible? Are they correct?
Who smoked too much before writing this report! Why would just marijuana increase property values as opposed to a liquor store? Colgate university did an extensive study showing a direct correlation between liquor stores and property values; in lower income areas; “transaction prices fall upon the opening of an additional outlet and rise when an outlet closes” This is just the opposite effect of what the authors of the recent study say.
Are marijuana dispensaries really increasing prices? Unfortunately, the researchers are drawing conclusions that just aren’t there. Marijuana is not the driver of higher prices. If you look at the map above of marijuana dispensaries in Colorado they are clustered around certain areas. Ironically, these are the same areas with high education levels (see below). Education levels are the leading driver of house appreciation/ growth both in the US as a whole (see US map showing the correlation and in Colorado. The lighter areas of the state (lighter yellow) have seen considerably less appreciation than the darker areas. These lighter areas are also many of the same areas that banned marijuana. Marijuana didn’t cause lower values, the lower education levels did.
The researchers got it backwards! Marijuana is not the driver of house appreciation. Education is the driver and marijuana dispensaries are an effect (see what Colorado city will grow the fastest by 2050). Looking at the map above, the dark green areas (highly educated) also have the largest percent of marijuana dispensaries. The areas in dark green are also traditionally more liberal leaning recently (Democratic) and therefore more likely to support marijuana policies (according to a Washington post poll, Democrats favored marijuana by 72% to Republicans around 50%).
Why is this important? As other states legalize marijuana drawing an inference that marijuana will cause property values to increase is just plain wrong. There is no correlation that shows putting in a marijuana dispensary will increase values any more than a liquor store. Marijuana legalization is the result of education levels and other policies that are the real drivers of appreciation.
Marijuana does not cause properties to increase in value just as liquor stores don’t increase property values. With anything new there is always considerable “hype” about the effects on both sides of the aisle which needs to be vetted. Regardless of your political view on marijuana, it is important to focus on the facts surrounding legalization and not smoke and mirrors. I would caution the professors of this study not to “smoke” and theorize relationships that don’t exist in real life.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).