Does having nearby retail stores affect the value of homes? Surely it does, but just as surely it depends on the type of retail stores. If your neighbourhood has a lot of payday lenders, pawn shops, and discount liquor stores, that is quite different from a neighbourhood that has health stores, pet stores, and premium wine shops. So, one way of measuring whether a community prefers to have more (or less) of particular retail stores is to measure the effect on house prices. If, when a new retail store opens, local house prices increase, then the community believes that store is a good thing. If, on the other hand, local house prices decrease, then the community believes that the store is a bad thing.
This relies on hedonic demand theory (or hedonic pricing), which recognises that when you buy some (or most?) goods you aren't so much buying a single item but really a bundle of characteristics, and each of those characteristics has value. The value of the whole product is the sum of the value of the characteristics that make it up. For example, when you buy a house, you are buying its characteristics (number of bedrooms, number of bathrooms, floor area, land area, location, etc.). As part of the location, you are buying the fact that there are a number of retail stores of different types in the local neighbourhood. So, controlling for all of the other characteristics of houses, comparing the price of houses in areas with some types of retail stores with similar houses in neighbourhoods without those same types of retail stores, provides one way of determining how the community views those retail stores.
As part of my ongoing research on alcohol outlets, I have toyed with the idea of performing this analysis for house prices and alcohol outlet locations in New Zealand. However, there are a bunch of other outlet types that we may be interested in, like vape stores. And, if New Zealand ever gets around to legalising marijuana, it would be interesting to see the effect of retail marijuana stores on house prices.
That's more or less exactly what this 2020 article by James Conklin (University of Georgia), Moussa Diop (University of Wisconsin-Madison), and Herman Li (California State University), published in the journal Real Estate Economics (ungated earlier version here, and research brief here), did. Conklin et al. look at what happened to house prices in Denver when Colorado legalised retail marijuana on 1 January 2014. Interestingly, the Colorado policy change allowed existing medical marijuana stores to become retail stores. So, the analysis doesn't compare retail store with no store, so much as what happens when an existing medical marijuana store becomes a retail store. However, this is important, as:
...since only existing medical marijuana stores were allowed to conduct recreational sales, we avoid the potential endogeneity of store location. Given the opportunity, retail marijuana stores would likely choose to locate in certain areas based on neighborhood characteristics that would also affect house prices. However, since only existing medical stores were allowed to sell retail marijuana, the siting decision was made before implementation of [legalized recreational marijuana].
Conklin et al. use a difference-in-differences approach, comparing the difference in house prices (controlling for various house characteristics) between single-family houses within 0.1 miles of at least one retail marijuana store and single-family houses between 0.1 and 0.25 miles of at least one retail marijuana store, before and after the legalisation of retail marijuana. Their initial analysis, based on properties sold in 2013 (before the law change) and 2014 (after the law change) finds that:
...being located near at least one medical facility that converts to retail in 2014 is associated with an 8.4% increase in sale price after the retail conversion occurs.
You may be worried that the number of retail marijuana stores in the neighbourhood matter, but Conklin et al. also show that the results are similar for houses where exactly one store became a retail marijuana store in the local neighbourhood (in fact, a slightly larger 11.4% increase). The results are also robust to alternative definitions of the control groups, but expanding the treatment group to include houses further away from retail marijuana conversions reduces the effect (which should be no surprise - those houses were in the control group in the original analysis).
Overall, we can conclude that local communities in Denver like retail marijuana stores. Or, more correctly, local communities in Denver prefer retail marijuana stores to medical marijuana stores (since we don't know how they feel about the medical marijuana stores, and house prices went up after those stores convert to retail). This is consistent with other evidence (as I discussed in this 2018 post), showing that legalising marijuana increased house prices across all of Colorado (rather than just Denver) by about 6 percent. The downside of this, of course, is that if you are in favour of legalising marijuana in New Zealand, one trade-off may be that house prices go up even further than they already have.
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