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Economic Impact of Casinos on Home
Prices
Literature Survey and Issue Analysis
NAR Research
Introduction and
Summary
This paper
summarizes the key issues associated with casino gambling, focusing primarily
on the impacts of casinos on home values. In general, externalities of
congestion and other social costs appear to have a negative impact on home
values in the immediate area of a casino. The other impacts from the
introduction of casino gambling to a community generally vary, depending on
population, urban/rural location, and mix of patrons. The literature on the
economic impacts of casinos is voluminous; there continues to be substantial
disagreement on the measurement of costs, benefits, and impacts from gaming.
The impact of any
specific casino proposal appears to be strongly driven by site-specific
conditions. Accordingly, this paper outlines a number of important issues for
consideration in evaluating the impact of a casino on housing and the
community. The paper has been prepared in conjunction with the REALTOR®
Association of Pioneer Valley and makes reference to the proposed casino for
Springfield, Massachusetts. The conclusions are preliminary given ongoing
disagreements concerning costs and benefits but do outline important issues for
consideration in analyzing the desirability of a casino proposal.
As is the case
with other types of commercial or industrial properties, the siting of a casino
produces externalities producing positive and negative impacts on residential
property values. Las Vegas is reported
as a clear case of destination casinos—a situation where casinos have brought
long-term prosperity to an area. Some other cases of casinos with a lesser
degree of success as destination casinos are reported in the gambling literature.
However, the impact of casinos on the surrounding communities in many cases has
been evaluated as minimal or negative--particularly when infrastructure and
social costs are considered.
• Casinos are
likely to have negative impacts on nearby home values. Commercial
properties—such as casinos, shopping centers, and infrastructure projects-- can
produce both positive and negative externalities. The positive externalities
such as enhanced amenities and benefits need to be evaluated in relation to the
negative externalities such as increased congestion, traffic, noise, etc. The
overall impacts are site specific, generally negative near the casino.
• A casino
drawing most of its patrons from outside the local area can have positive
impacts on government tax revenues and the local economy. The key issue
is whether a casino is similar to a restaurant (attracting money from the
surrounding area by serving local patrons) or a factory (bringing in money from
outside the local area by exporting products—in this case gaming services as a
destination casino).
• In the case of Springfield, Massachusetts, a significantly level
of sustained patronage as a destination casino appears unlikely given the
saturation of gaming venues in the New England and New York region (e.g.,
Foxwoods, Mohegan Sun, Twin River Casinos, Newport Grand Jai Alai, casino
cruise ships, race tracks, possible additional casinos in New Hampshire and
Connecticut, and a variety of other gambling opportunities).
• Indian
casinos in very rural areas are frequently cited as generating significant
local economic benefits, largely due to the depressed nature of the local
economy. This has not generally been the case for urban casinos.
• Distances
between casinos appear to be important. Casinos that are close to each other
tend to split the available business, reducing profitability. There are
a significant number of casinos relatively close to Springfield.
• Casinos
generate jobs, but many of the jobs created by the introduction of a casino are
reported to be minimal wage/low paying opportunities, with a few
experienced gaming professionals filling the management positions.
• Major
social costs are frequently mentioned as associated with casinos—e.g.,
increased bankruptcies, crime, traffic, and congestion among others. These
costs are frequently excluded from cost/benefit evaluations due to measurement
problems. The inclusion of the social costs along with possibly other negative
externalities reduces the net level of economic benefits from a casino or may
even turn them negative.
• The impact
on home values appears to be unambiguously negative. In the case of
Springfield a casino would appear to have a significant negative
externalities/nuisance value. The impact of negative externalities can be very
significant, ranging in the neighborhood of 4 to 10 percent as outlined in the
report and Appendix.
The gambling
industry is substantial in size. According to Mallach, in 2008 casinos were
operated by 233 Indian tribes in 28 states generating nearly $26 billion in
gross gambling revenues, based on information from the National Indian Gaming
Association. In addition, 445 commercial casinos and 44 “racinos” (racetrack-based
casinos) in 20 different states generated another $39 billion in gambling
revenues, according to information from the American Gaming Association 2009.
All gambling is
local, and the gambling literature cites a wide variety of economic outcomes
and impacts from gambling that appear to vary from jurisdiction to jurisdiction
depending on local and site-specific conditions. However, in general the impact of casinos
on residential home prices in the vicinity of a casino appears to be negative.
The impact on home prices needs to be factored into the evaluation of the
impact of the establishment of a casino along with the potential positive
impacts—job creation, higher local incomes, and the potential negative
impacts—such as social costs and possible increases in crime—in arriving at an
overall evaluation of the economic impacts of a proposed casino.
We estimate that assessed home values will most likely be
negatively impacted by $64 to $128 million from the introduction of a casino
into Springfield, although there are many variables that could shift the price
impact to be either more or less severe. In addition, pathological gambling
could result in social costs of $8.4 million per year, possibly significantly higher.
Additional foreclosures could produce costs of $5 million per year. Finally,
there would probably be a negative impact on local retail businesses as local
consumer expenditures were diverted to some degree to casino gaming, and a need
for additional government expenditures to provide needed public services
(police, fire, medical, etc.).
. . . .
The Impact of a
Casino on Home Prices in the Vicinity of the Casino is Generally Negative.
Site-specific studies show the
negative impact of casinos on home prices. The studies work with a variety of
databases, using several types of approaches including input/output models and
econometric analyses.
Henderson,
Nevada: Clauretie et. al. analyzed the
effects that the location of casinos has had on residential property values in
Henderson, Nevada, a town located approximately ten miles from the Las Vegas
“strip”. The town has a variety of
gaming establishments of various sizes located close to residential areas,
varying from taverns with a few slot machines to large casinos with live table
games. The patrons of the suburban casinos are generally area residents rather
than tourists. Many of the gaming facilities are located in close proximity to
residential developments. The authors used home price transaction information
to estimate the effect that casinos have had on residential home values.
•
A price/distance regression analysis examined the impact on home values from
the siting of a casino, allowing for variables such as distance from the
casino, and physical and neighborhood characteristics.
The
study found that casinos were a nuisance that negatively impacted nearby
residential properties within one mile. In the case of large casinos, the value
of each home fell by 4.6%.5 In illustrating the impact of a casino, the authors
estimated that with 400 residential properties located within a mile of a
proposed casino with an average value of $200,000, a large casino would have a
possible negative aggregate impact of $3.7 million, exclusive of any other
costs or benefits typically cited in conjunction with the siting of a casino. They noted that the “lights, noise, and
traffic that accompany casino operations” were a negative associated with
casino operations. For a somewhat larger city, such as Springfield, the
immediate negative impact would probably be larger.
Indian Casinos,
Nationwide: Baxandall and
Sacerdote6 used a database covering 365 Indian casinos located in 156 different
counties in 26 separate states to examine the county-level impacts of an
Indian-owned casino. One problem with the study was that the level of analysis
was at the county rather than the Census tract level, so they obtained mixed
conclusions. Median home prices in counties with casinos were approximately 2
percent higher than those in non-casino counties. However, this effect appears
to have been bifurcated by county size. Casinos appear to have brought increased prosperity to
low-population, rural counties, resulting in home price increases—probably due
to rising incomes in depressed areas. However, in comparisons among
high-population/urban counties with and without casinos, the authors found no
difference in home price changes. Recognizing the level of negative
ambience around a casino, this would seem to imply a negative price impact of a
casino on nearby properties.
Indiana Riverboat
Casinos: Landers presented regression estimates
of changes in housing values around Indiana’s ten riverboat casinos.7 The data
used covered the time period 1990 to 2000, with comparisons focused on the
differences between census tracts with and without casinos. He concluded that casinos had a
negative impact on the annual growth rates in housing values during the 1990s
in the range of .5 to 2.1 percent. Even under circumstances of an
extremely tight housing supply, the negative price impacts of casinos were not
eliminated.
Nationwide
Analysis: Michael Wenz performed an econometric
analysis of the net impact of casinos on residential property values, using
data on 358 casinos operating in 28 states, excluding Nevada. The study was subject to several limitations,
which raise questions about the accuracy of the conclusions. First, the home
price variable was based on respondents’ estimates of how much the property
would sell for if it were for sale; whether a homeowner can accurately estimate
the market is debatable. Second, Wenz noted that there is substantial
heterogeneity across casinos, markets, and local economies, indicating that
some of the estimates may have been due to market differences.
According to Wenz, there was a
positive 2 percent effect on house values for homes in the area of a casino,
and positive spillover effects to neighboring in-state regions. He noted that “A particularly
important finding for policy makers is that the benefits associated with a
casino depend inversely on population density. Casinos are more likely to
create net benefits in areas where population density is low.”
In
the case of low density areas, it appears based on the Wenz study that gambling
has brought prosperity, rising incomes, and possibly higher home prices. Wenz
has noted the inapplicability of the conclusion to urban areas. Accordingly, the Wenz study seems more
relevant to the impacts on incomes in rural areas (gaming appears to have a
positive impact where not a lot else is happening and day trippers are bringing
some money) rather than the impact of gaming on home prices.
Foxwoods Resort
Casino: Carsteensen et.al. reported
that the Foxwoods Resort Casino has had a positive impact on property values. 9
The analysis of the impact of the Foxwoods Resort Casino in Connecticut on
property values in adjacent towns (Ledyard, North Stonington, Preston) was
determined by comparing the housing price trends in the towns with the trend in
a broader geographic area (Hartford Labor Market Area--LMA). In comparing
growth rates in home prices over the time period 1990-1999 for properties sold
in the three towns adjacent to Foxwoods in comparison to growth rates in the
Hartford LMA, the properties adjacent to Foxwoods experienced a sales price
growth rate that averaged 0.57% annually, compared to a negative 1.16% annual
growth rate for the Hartford LMA during the same time period. The use of area
level rather than census tract level data shows the impact of a casino on
incomes more than on housing prices.
Foxwoods is frequently cited as a
major success story for the introduction of gaming operations in a rural area.
It appears that as local employment and incomes increased, so did home values.
However, the impact on home values prices was for the area; the analysis does
not measure the impact on home prices based on location relative to the casino.
The Foxwoods luster has now dimmed. Slot
machine play has been off 12 percent year over year, and the casino management
warned of impending layoffs in March 2013. The focus has been on debt
restructuring and reorganization. Foxwoods appears to have suffered from a slow
economy, an increase in the number of available casinos, and financial
problems.
Windsor, Ontario in the 1990s was an economically depressed
area: a city of 200,000 people with population growth below the Canadian
average and an unemployment rate 3 percent above average. Chadwick Jeffery
examined home price behavior resulting from the announcement of the proposed
development of a casino. Prices fell for
approximately one year near the proposed casino site after announcement of the
proposed development, presumably people selling out and moving away due to
potential location of the casino. This is illustrative of the potential
negative impact on home values from a casino. Subsequently, prices began to
rise a year after the determination of the casino site, apparently with a view
towards commercialization of the properties.
Las Vegas: As a destination site, Las Vegas has been
noted as a gambling success. Christopher Miller examined the impact of casinos
on home prices in Las Vegas. He
concludes that home prices and incomes are correlated, with an upward trend.
What he appears to have demonstrated is that gambling produces major advantages
for the Las Vegas economy: There is a relationship between consumer payrolls
and employment, home prices, home sales.
Detroit (Retail
Property): Wiley and Walker 13
performed a regression analysis to analyze the effects of casinos on retail
property values in the Detroit urban area. They reported that casinos had a
significantly positive influence on retail property values. The effect was
stronger within a 5-mile radius of the casinos, suggesting that casinos had a
complementary, rather than substitution, effect on other businesses. Bringing a
casino to Detroit brought some increase in spending power to a very depressed
area. In some cases, a casino facilitates growth in the retail sector, and in
other cases pulls money out of retail and into the casino.
Conclusions: In depressed rural areas a casino may
help the economy by bringing in some money from day trippers. However, in
general casinos appear to have a negative impact on home prices in the vicinity
of the casino. The effect of casinos on commercial property is mixed: in two
cases—Detroit and Windsor—were positive. However, there are references in the
literature to decreased levels of retail spending from what it would otherwise
have been when the casino patrons are predominantly local. In such cases, a
casino could have a negative impact on local retail operations and property
values.
Obviously, Las Vegas could be cited as
a commercial property success. Other studies have suggested that the degree to
which casinos have a favorable overall impact on commercial property is
dependent on the patron mix. If a casino draws heavily from local areas, buying
power may be siphoned from local establishments to the casino. However, if the
bulk of patrons are from outside the local area, then additional buying power
drawn to the region may flow over to other commercial businesses. Given the
growth of casino locations, the probability of bringing dollars into the region
on a consistent and extended basis seems to have declined. For example,
Foxwoods—previously cited as a major success—has had financial difficulties.
