Pubdate: Thu, 08 Mar 2018
Source: National Post (Canada)
Copyright: 2018 Canwest Publishing Inc.
Authors: Murtaza Haider and Stephen Moranis
Page: FP3


Studies show legal cannabis can boost values

As Canada moves closer to legalizing the recreational use of
marijuana, many are speculating on how the decision will affect
society and the economy. While some are concerned about health and
safety effects, others are optimistic about potential new tax revenues
and the prospect of bringing the sale and distribution of marijuana
out of the criminal sphere.

One area that few are talking about, however, is how legal marijuana
will affect residential property markets.

While retail rents are likely to benefit first, housing prices may
also get a boost, if the experiences in other jurisdictions that have
legalized marijuana are repeated.

Writing in the prestigious journal Real Estate Economics, James
Conklin and coauthors studied how the conversion of medical marijuana
stores to recreational marijuana stores affected housing prices in
Denver, Colo., where the recreational sale of marijuana was legalized
in January 2014.

Their research provided strong evidence that homes located near such
converted stores experienced a much higher increase in value than
houses located farther away - as much as 8 per cent more. Conklin and
his co- authors were meticulous in their research. They implemented
several robustness checks and falsification tests to avoid undue
influence of spurious correlation. Their results remained consistent
and stable and withstood the scrutiny of all tests.

Their results showed that single-family residences situated within 0.1
mile (528 feet) of a medical marijuana store that became a
recreational marijuana store experienced an increase of 8 per cent
relative to homes sold farther away.

However, dwellings located between 0.1 mile and 0.25 mile from a
converted store did not experience any proximity premium. The authors,
therefore, concluded that the proximity premium was highly localized.

This finding raises several questions. For instance, why would housing
prices report a proximity premium within such a small buffer zone
around the converted stores? What possible benefits could a homeowner
expect to derive from being that close to a marijuana dispensary,
other than ease of access?

Alternatively, why would a homebuyer not buy a structurally similar
house that is a little further away, that was not rising in price so
quickly? Equally relevant is the question of whether homebuyers who
purchased homes near a marijuana store were even aware of the store's

While Conklin and his coauthors were mindful of these limitations and
"agnostic as to the underlying cause of our results," it is possible
to speculate about some potential explanations.

One possibility not raised in the study is that homes around marijuana
dispensaries had been subject to a discount prior to legalization, but
that legalization lifted the stigma around such homes.

Another is that the stores had knock-on economic effects that were
highly localized and boosted the economic profiles of their specific

While t hose are only guesses, theirs is not the only research
demonstrating a strong linkage between the legalization of marijuana
and higher housing prices.

In a recent paper in Economic Inquiry, Cheng Cheng and co-authors
found almost similar results suggesting a 6 per cent premium in prices
for homes sold in municipalities that legalized retail sales of
marijuana, versus those that didn't.

Cheng and co- authors found that by August 2015, 46 out of the 271
incorporated municipalities in Colorado had passed laws enabling
retail marijuana sales. Using even a more rigorous approach by
restricting their analysis to dwellings that sold multiple times
during the study period they found similar results as Conklin and his

The Canadian government expects annual recreational marijuana sales to
be around $4 billion, which will be subject to a 10 per cent excise
tax and additional provincial sales taxes. These taxes are expected to
raise net new revenue mostly for provinces.

Whether homeowners also see a high remains to be seen.

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Murtaza Haider is an associate professor at Ryerson University. Stephen 
Moranis is a real estate industry veteran.
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