As more states relax marijuana laws, the more property values are affected, according to a random sample of 76,000 NAR members who practice residential and 76,000 members who practice commercial real estate.
The “2019 Marijuana and Real Estate: A Budding Issue” survey was conducted via email in 2019, revealing that REALTORS® have noticed the legality of marijuana making an impact on markets in various ways. In states where marijuana is legal in some form, 9% to 23% of REALTORS® polled said they believe residential inventory is dwindling for a few reasons, including the marijuana industry’s all-cash purchases.
Although the number is slight, between 7 to 12% of REALTORS® noted that they’ve seen an increase in residential property values near dispensaries. However, 8 to 27% also reported that they’ve seen a decrease in these property values.
HOA Laws on Growing Marijuana
The changes in legality have also caused homeowners associations (HOAs) to scramble to create new regulations for residents.
“As marijuana has become legal in a number of states, HOAs are looking at where an owner can both smoke marijuana and grow marijuana,” Dr. Jessica Lautz, vice president of demographics and behavioral insights for NAR, said in an email. “Many HOAs are restricting smoking and growing in common areas, or private yards without fences, and even within homes.”
While most respondents mentioned HOAs needing to create new regulations on using and growing marijuana in homes or common areas, only 3% specified that HOAs in their area allow growing or smoking in homes and common areas.
Most REALTORS® reported never having sold a grow house (about 75%), but of those who have, 27% in recently legalized states had difficulty selling, while 25% in states legalized before 2016 reported having difficulty selling.
“Selling a home or even leasing to a new tenant could be difficult if there are lingering moisture issues or [a] smell that is hard to remove,” Lautz noted.
NAR’s study also revealed the marijuana industry’s positive impact on commercial property demand, and in some areas, commercial property value. More than 40% of REALTORS® saw an increase in property values near dispensaries in states where marijuana is legal for recreational and medical use.
Commercial practitioners are finding increased demand for land, warehouses, and store fronts for marijuana. Residential practitioners are navigating an environment of marijuana being used within rental properties, homeowner associations creating rules about consumption and growth, and title questions selling a home where the product has been grown and consumed.
The report is broken down by how long marijuana has been legal within the state. The legality was based on laws that were in place at the time the survey was deployed in fall of 2019.
States where medical and recreational marijuana have been legalized for more than three years have seen more increases in demand for commercial properties—specifically for 42% saw an increase in demand for warehouses, 27% an increase for storefronts, and 21% an increase for land.
In states where it is legal before 2016, 21% had increase in the value of commercial properties near dispensaries, but 18% reported a decrease
Thirty-two percent of states where in medical and recreational marijuana was legal the longest did have lease addendums regarding growing of marijuana.
Thirty percent in states where medical and recreational marijuana was legal the longest did have lease addendums regarding sales of marijuana.
The most frequently cited concern of commercial members was the smell when leasing to marijuana related businesses, followed by theft of cash on property, moisture issues, and fire hazards.
Ripple impact to residential
Residential practitioners are navigating an environment of marijuana being used within rental properties, homeowner associations creating rules about consumption and growth, and title questions selling a home where the product has been grown and consumed.
Impact on residential side:
In states where marijuana was legal the longest, 27% had seen a decrease in residential property values near dispensaries and 12% had seen an increase.
The majority of respondents reported that homeowner associations often had rules and restrictions against smoking and growing in home or common areas.
One-quarter of residential members in states that legalized recreational more than three years ago had sold a grow house in the past.
One-quarter of members who sold a grown house in states where marijuana was legal the longest had a hard time selling the home.
Half of those in states that legalized both medical and recreational marijuana prior to 2016 had seen addendums added to leases which restrict growing on properties
The most common issue was the smell, followed by moisture issues.
In states where recreational marijuana is legal, 58 to 67 percent of residential property managers have seen addendums added to leases which restrict smoking on properties.
Sources: NAR and Inman News