The debate over whether the legalization of recreational marijuana can have negative or positive effects on communities is a heated one and now real estate experts, too, are joining in on the conversation. So a recent study was carried out to determine how legalized marijuana affects property values.
Taking a look at housing data from Zillow, three types of locations were compared to find property value trends:
- Cities where recreational marijuana is legal
- Cities where medicinal marijuana is legal
- Cities where marijuana is illegal
The study found that cities where retail dispensaries are legal witnessed an increase in property values greater than cities where cannabis is illegal. There was a difference in appreciation of $22,888 between 2014 and 2019. States that legalize recreational use were to found to experience an almost immediate increase of $6,337 in property values more than places where it’s illegal (from 2017 to 2019). This was even before dispensaries were opened up and operating in these locations.
When looking at property value changes in cities where only medicinal marijuana is legal, the study found that the changes were similar to cities where it’s illegal. Essentially, only recreational marijuana legalization seems to have a significant impact on property values.
In Denver, CO, for example, residential property values saw a massive increase of 67.8% since 2014 when the first dispensaries were opened. In the state of Washington, one of the first states to legalize cannabis, property values increased 57% in the 5 years since legal commercial sales began.
Why do property values get such a boost? Another study from the University of Mississippi found that the legalization of marijuana attracts more property buyers ranging from users to entrepreneurs in the industry thereby driving demand for real estate.
The study, in a way, disproves the common fear among homeowners and real estate investors about the legalization of marijuana- with it comes increased crime rates which inevitably leads to lower property values. Even though crime rates did increase in some cities across the states of Washington and Colorado, it was more in line with national crime rate trends, according to the study.
Why This Study Matters to Real Estate Investors
There are a lot of different factors a real estate investor looks into when choosing a location to buy investment property and appreciation of property values is one. While cash flow should be your main reason for investing in real estate, you should also aim to buy in locations where the appreciation will be significant in the near future. As the study shows, cities where the recreational use of marijuana has been legalized may just make for the best cities to invest in for real estate appreciation. However, keep in mind that more studies will have to be conducted on the relationship between crime rates and marijuana legalization as you should always aim to invest in cities with low crime rates.
Looking for an investment property in a city where marijuana is legal? Start your search here.
Sign Up to Mashvisor to stay up to date on the US housing market.