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Marijuana Legalization Affect on Real Estate Prices

By Amanda Curry · Nov 6, 2016 · Real Estate

Marijuana Legalization Affect on Real Estate Prices

Image courtesy of Flicrk, Thanh Quan Du

President Obama is a proponent of legalized marijuana, claiming that decriminalizing marijuana possession would help boost the US economy by reducing incarceration costs. But, what role does the legalization of marijuana play with property values in the US?

The legalization of marijuana is a hot topic nowadays, not only in politics, but between real estate professionals and economists, too.

Right now, there are more than 50 legislative initiatives nationwide legalizing or decriminalizing medical or recreational marijuana. Some experts argue that legalizations would be good for the economy and great for real estate values, citing Denver as a success. But, is it true?

Legalized Marijuana Markets

Alaska, Colorado, Oregon, Washington state, and Washington DC have legalized recreational, as well as medical, marijuana for adults. More than 20 states have legalized medical marijuana including Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, and Vermont.

An additional 10 states are looking to legalize marijuana this year for recreational use, while six states are hoping to legalize marijuana for medical use. Furthermore, 15 states are considering decriminalizing marijuana.

This map from TheCannabist.co give a quick snapshot of US marijuana laws:

US marijuana laws

President Obama is a proponent of legalized marijuana, claiming that decriminalizing marijuana possession would help boost the US economy by reducing incarceration costs. But, what role does the legalization of marijuana play with property values in the US?

How Does Marijuana Legalization Affect Real Estate?

When we look to see if there is a tie in with a housing market and the legalization of marijuana, many people refer to Denver.

For almost three years, the housing market in Colorado has been on the upswing, but has this been due to the legalization of marijuana? Many think so.

James Paine, managing partner at West Realty Advisors, told CNN Money, ''There has been a huge bump in real estate prices due to the legalization of marijuana. It's massively pushed up raw land and industry prices.''

As one of the hottest housing markets in the country, home prices in Denver have increased by double digits and outstanding inventory has fallen for homes. Multiple offers frequently drive up the prices of homes and lead to bidding wars.

The graph below from Trulia shows that Median Sales Prices in Denver have been on the rise since 2012, when marijuana was legalized. Just within the last year, Denver median sales prices increased $32,500 (11%). The average price per square foot for this same period rose to $308, up from $276.

Sales Price

Housing Stats

Since the legalization of marijuana in Denver, the housing supply has been struggling to keep up with demand. In a normal market, Denver typically has around 24,000 listings. Recently, the number of homes for sale has been hovering closer to 4,000 - a striking difference from years past.

When properties are listed, they don't stay on the market for long. Homes in Denver typically are on market for 30 days, which has been a 30.4% increase year over year.

Home prices have not only increased for Denver, but the entire state of Colorado has seen a drastic increase in housing prices, as depicted in the graph below from Zillow.com.

Median Listing Price

You can see the major role that legalization of marijuana in 2012 has played on the entire state of Colorado. The median listing price is currently $369,000, with prices expected to rise 3.9% in the next year. In 2012, home prices were quite reasonable, hovering around $200,000.

Furthermore, this graph from Zillow shows that the median list price per square foot has skyrocketed since marijuana was legalized in 2012. Median Price

The rising home prices are out of reach for most middle income families that are looking to transport their families in order to get treatment in Denver. Marijuana has been proven to help epilepsy and cancer patients.

How Legalization of Marijuana Affects Real Estate

With the changing laws due to the legalization of marijuana, some real estate professionals are using this as a business opportunity. For example, the 420MLS is a website where people can find and post marijuana business opportunities and commercial spaces. Another similar site is PotProp.com.

Although the legalization of marijuana has made the housing industry boom in selected markets like Denver, it does present some challenges - especially for individuals in the real estate industry.

For example, one of the more popular marijuana products is hash oil, a more concentrated form of THC. This can be ingested by putting it under your tongue or taken with food. One problem with THC is that explosions can happen during production since the oil involves butane (an ingredient that is also used to produce meth). Those that are looking to rent their property should be extra careful about leasing it to someone who intends to manufacture hash oil.

Furthermore, if you are a landlord, you will run some risk of having your property seized by the federal government. If you're the owner of a shopping center where a dispensary wants to open or a landlord renting an apartment to someone that grows marijuana, this risk could become real.

In addition to any federal charges, there is also the risk of damaging your property. Smoking marijuana can leave lingering smells, well after a tenant moves out. Additionally, marijuana requires lots of water, which can contribute to mold issues. Homebuyers and landlords should be weary of this.

It's important to note that there is a negative stigma placed on grow houses and dispensaries, even when it's legal by state law. Houses that have been used to grow pot are often harder to sell because of this.

The Bottom Line

Although the legalization of marijuana can make a real estate market thrive, legalization does present some challenges.

More jobs may be offered with the influx of people and commodities to legalized marijuana markets, however, increasing property values can hurt middle class families. Furthermore, landlords will have to keep a watchful eye on their property to mitigate any damages from growing or smoking pot. Finally, it's too early to tell, however, the stigma of growing houses and dispensaries may end up hurting businesses or home values in the future.


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