HOUSES ARE "HIGH" IN PRICE: Houses--specifically single-family residences--in close proximately to legalized retail marijuana stores have increased in value by almost 10%.

Author:Conklin, James

ATTITUDES toward marijuana use in the U.S. have changed considerably in the past few decades. According to Gallup polls, the percentage of adults that support marijuana legalization has increased from 12% in 1969 to more than 60% today.

State regulations also have shifted in response to these evolving attitudes. Possession of small amounts of marijuana has been decriminalized in 21 states (with recreational use legal in nine states and Washington, D.C.) and, over the past two decades, 20 states have legalized medical marijuana.

Voters, policymakers, and economists are interested in the ways in which legalizing recreational marijuana affects local communities.

A primary concern of opponents is that legalizing retail marijuana will increase crime in local communities. For instance, making it legal may lead to higher rates of driving under the influence and more theft.

Another worry is that legalization will inflate use and abuse of marijuana and other drugs, particularly among children. On the other hand, legalizing recreational marijuana could have positive effects on a community.

Legalized recreational marijuana may be accompanied by a decrease in alcohol use if marijuana is a substitute for liquor. If the negative externalities of booze exceed those of marijuana, legalization may produce a net positive effect. Additionally, by bringing black-market economic activity into legal markets, recreational marijuana even may reduce drug-related crime. Legalized recreational marijuana also may increase local governments' tax receipts, enabling them to provide more and better services.

We add to the debate on legalized recreational marijuana's effect on local communities by examining the effects of retail marijuana stores on nearby housing prices in Denver, Colo., which legalized recreational sales beginning on Jan. 1, 2014. Colorado presents an ideal environment to investigate this relationship because only existing medical marijuana facilities were allowed to sell recreational marijuana. This restriction allows us to examine the effect of what we refer to as "retail conversion"--a store's conversion from medical to retail marijuana sales.

Using publicly available data, we compare houses in close proximity to a retail conversion with those slightly farther away before and after recreational sales were legalized. Several features of legalized recreational marijuana in Denver help us identify the effect of a store's conversion on house prices.


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