The legal cannabis market is slowly permeating the housing industry in the country. A close example on how this budding industry is affecting the real estate scene can be seen in the state of Colorado.
Demand for housing surged in the Centennial State as the cannabis industry hauls in people who work in the business.
Many of these individuals wouldn’t have come if not for the available work. But because housing scarcity is universal across all states in the country, the sudden increase in demand has pushed home prices up.Need financing?
Mortgage borrowers who are working for the cannabis businesses cannot qualify for a home loan. Banks and lenders remain reluctant to entertain them due to the nature of their occupation. They are left with no other choice but to compete for rent spaces which is also causing rent prices to skyrocket.
This creates a domino effect in the market as those who are in more traditional lines of work, seeing that rent prices are fast becoming less affordable, are now motivated to get a mortgage seeing it as the cheaper option.
This convergence of factors is firing up the housing market in the state.
“Our supply and demand has really taken a crazy turn in the last five years for lots of reasons, legal marijuana being one of them,” says real estate broker and spokeswoman of the Colorado Association of Realtors Kelly Moye.
An influential market
The recreational, medical and industrial use of marijuana all became legal in 2014. Only three years after the historic move, the industry, even in its infancy, was already able to impact the state’s housing market in a significant way.
Moye disclosed that it all started on the commercial side. As new dispensaries and cultivation labs opened, the demand for retail, growing, and storage space also surged. Then came the workers, thus crowding the demand for rentals and single-family homes.
Home sales for example, increased from just 96,067 in 2013 to 99,434 in 2014 and 107,246 in 2015. The average sale price also increased from $187,900 in 2011 to $298,000 in 2016.
Income from the cannabis business is also helping some millennials get access to homeownership, something they wouldn’t have been able to afford otherwise if not for their high-paying jobs.
Credit access issues
Medical marijuana is legal in 28 states including Washington, and recreational use is allowed in 8 states. However, the drug is still classified as a Schedule I substance under the federal umbrella which means the drug has no determined medical value and has high potential for abuse.
Being illegal on the federal level, many banks don’t want to establish deposit relationships with businesses related to the industry for fear of compliance risks. As a result, employees mostly receive cash as payments.
Although applying for a home with cash does not automatically disqualify a mortgage applicant, it is considered as a red flag among underwriters.
Will this situation remain for long?
Attorney General Jeff Sessions is bent on blocking any progress on marijuana legalization. But with more states passing votes for decriminalization, it’s seems naivete to think that the industry which rakes in millions in tax revenues in most states where they are legal will be hampered by rapidly waning federal barriers.
With the Colorado example, there’s little doubt that the marijuana industry will have a similar impact in other states which have just recently embraced it.Click to See the Latest Mortgage Rates»