Denver Home Prices Not High on Pot

August 30, 2017 | Buying

Denver Home Prices Not High on Pot

Coloradans may or may not be getting high more often due to legalization of marijuana but the once banned weed contributes almost nothing to quickly rising residential real estate values.

One frequently sees claims to the contrary. We spotted the assertion again last week in a post on Trulia entitled Why Is Everyone Moving to Denver? The owner of a brokerage firm purportedly told the Trulia.com reporter:

“You can’t ignore legal pot. It’s driven our economy here … because the industry is taking over old warehouses for grow houses and the tech supports systems that go along with it.”

While the claim is frequently made, we’ve never seen data to support it and a quick analysis easily refutes the contention that legal cannabis has much impact on the economy or home prices.

One compelling argument that decriminalized pot is not a big factor in rising home prices is timing. The first legalized marijuana sales began in January of 2014 and it was 2015 before significant sales were made. Homes prices started their relentless upward march in January of 2012, well in advance of any possible influence from the pot industry.

Another persuasive line of evidence is that the dollar volume of pot sold is quite small compared to the overall economy.

The Trulia article reports over a billion dollars sold in “Denver” in 2016, citing Fortune Magazine as the source. The article in Fortune was about sales in all of Colorado, not just Denver, and was through October 2016. In February 2017, Westword reported statewide sales of $1.315 billion for 2016, with $875 million being recreational and $440 million coming from medical marijuana sales.

We could not find data on how much of the total was due to sales in metro Denver only. Let’s be generous and say that the metro area accounts for a billion dollars of the total. This is just 0.56% of the “Gross Metro Product” (GMP) for Denver, which is $180 billion according to the Metro Denver Economic Development Corporation website. GMP is a measure of the value of all the goods and services sold in a metropolitan region, in this case the 7-county metro Denver area.

It’s hard to imagine how something that is barely a half percent of all economic output in metro Denver can have “driven the economy”.

The Trulia article notes that craft beer sales were $1.15 billion, a number comparable to pot sales. Interestingly, we’ve never heard anyone claim that the micro brewing industry is a key driver of our thriving economy and escalating home prices.

The picture is much the same for “Mary Jane’s” impact on the governmental sector. Tax revenues from pot sales were $200 million last year. This is only 0.7% of the State of Colorado’s $28.5 billion budget for the 2017-2018 fiscal year.

Apart from positive economic contributions in terms of sales and tax revenues, the negative cost of any economic activity must also be considered. Imagine a hail storm that creates $500 million in roof damage. The hail storm is a boom for roofing manufacturers and contractors but a bust for home owners and insurance companies. The net economic benefit is zero.

Does legalized marijuana create any offsetting economic drawbacks or “externalities” as the economists like to call them? The issue is hotly debated. Opponents say legalization has attracted homeless people from other states, caused higher law enforcement and healthcare costs and degraded test scores for high school students.

Proponents claim evidence for increased homelessness and lower test scores are anecdotal, with no statistically valid studies conducted to date, and that some tax revenues from pot sales go to schools. While acknowledging higher costs for certain police agencies and healthcare facilities, advocates claim offsetting cost reductions since medicinal marijuana minimizes health effects of certain diseases and frees the legal system from the need to arrest and prosecute marijuana drug crimes.

While disagreement over the costs and benefits of marijuana decriminalization is possible, no one can dispute that its impact on home prices is, basically, non-existent. Home prices were escalating in advance of pot sales and pot industry’s overall contribution to the economy is small.

 

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