Michigan recently became the 10th state to legalize recreational marijuana, while a recent study shows that the move may potentially be the answer to improving home values in the state. Though the state recently witnessed a 7.1 percent uptick, Michigan currently holds the title of the 11th-lowest median home value in the country, according to Zillow. In fact, the state’s average home value is a low of $148,100 – nearly $80,000 under the national average. However, a new study published by the CATO Institute indicates that may change given the state’s recent passage of Proposal 1, which allows for the sale and use of recreational marijuana.
According to the study, dubbed “Contact High: The External Effects of Retail Marijuana Establishments on House Prices,” property values increased by 8.4 percent – nearly $27,000 – on homes within a 0.2 mile radius of a retail marijuana establishment in Denver (after the state legalized the substance back in 2013.) Another study published in Economic Inquiry in May, suggesting that home valued increased slightly less statewide, roughly 6 percent or $15,600 per property.
While Contact High’s researchers suggest a number of factors that could be driving this increase, there is nothing currently concrete. “Potential explanations include, but are not limited to, a surge in housing demand spurred by marijuana-related employment growth; lower crime rates; and additional amenities locating in close proximity to retail conversions [medical dispensaries converted into recreational ones],” the researchers stated. ‘Identifying and determining the underlying mechanism driving the relationship between retail conversions and house prices remains a puzzle that we leave to future research.”
“These increases in house values, however, can also have a secondary effect that leads to an increase in property tax revenue, which can add significantly to the local government’s revenue from marijuana sales,” the researchers concluded.
On the other hand, a recent report from the National Association Realtors shows real estate agents are seeing a mixed result. 10% reported an increase in home values in states that legalized recreational marijuana. Another 12 to 14% reported a decrease. Commercial real estate agents were more confident in legalization’s positive effects, while nearly 20 percent saw increased values on properties near dispensaries. Almost 25 percent reported an increase on properties near growing land.
Though, as Steve Cook, Homes.com real estate consultant and contributor, explains, there’s still plenty more research that needs to be done.
“Since the legalization of marijuana for recreational use has only been in effect for six years, very little empirical research has been conducted on the question of property values, and the studies have been addressing early stages of legalization and not long-term impact,” he said. “The full story may not yet be in.”