Treatment Centers on Property Values

The primary residence is perhaps the greatest single investment made by an individual and the mantra ‘‘location, location, location’’ is an ever-present concern of a prospective buyer. Before purchasing a home, a savvy buyer will frequently research the community and the school system, as well as the crime statistics. When homeowners are made aware of an application for a special use permit for the possibility of an addiction treatment center being located in their neighborhood, initial concern for personal and household safety, followed by the stark realization that home values in their neighborhood may be adversely affected, almost always lead homeowners to the universal response of ‘‘not in my backyard’’ (NIMBY). The typical opposition to a proposed substance abuse treatment facility is based on two visceral concerns: an increase in crime risk and a related decrease in property values. The primary purpose of this paper is to examine the latter claim empirically, determining whether there is significant evidence that treatment centers have a negative impact on nearby real estate. Ex ante, it is not clear that substance abuse treatment centers will adversely impact neighboring real estate, which motivates our empirical examination of this externality. On one hand, there may be a priori reasons to suspect that treatment facilities will not have much of an impact on neighboring real estate. Locating addiction treatment centers in residential areas has become commonplace. 6 4 u L a R o c h e , W a l l e r , a n d W e n t l a n d Treatment centers tend to be inconspicuous and may have blackout curtains and minimal signage (or no sign). The housing is often gated and locked at a certain time of the day. Generally, clients enrolled in residential treatment programs are not allowed to interact with the ‘‘locals’’ of the neighborhood or leave the premises. Under current law (discussed in the next section), despite their challenges, residential treatment centers have relatively few limitations on where they are sited. On the other hand, like many negative externalities or NIMBY issues, there are reasons to suspect that rehab facilities may adversely impact neighboring real estate. Substance abuse is a multifaceted health issue and many patients in residential treatment have a dual diagnosis: a mental health issue and an addiction (Connery, 2011). The Substance Abuse Mental Health Services Administration (SAMHSA, 2008) surveyed 14,423 facilities in 2008 and had a response rate of 94.1%. The SAMHSA survey indicated that 39% of the clients in treatment centers had a dual diagnosis. In addition, concurrent alcohol and drug addiction accounted for approximately 45%, while clients in treatment solely for drug abuse accounted for 34%–36% and 18%–20% of the patients only abused alcohol (SAMHSA, 2008). One consequence of locating drug and alcohol rehabilitation centers in residential areas is that patients in substance abuse treatment programs frequently leave or are administratively discharged before successful completion. At some point, experts say that, ‘‘relapse is an almost unavoidable—and potentially useful—step in recovery’’ (Shaffer, 2012). For many, intensive residential treatment is a ‘‘last resort.’’ A healthy family of an addict will decline to ‘‘enable’’ negative behavior and, instead, will insist that the alcoholic/addict experience the ‘‘consequence’’ of the decision to use again and refuse treatment. In other words, the family will often not offer any form of financial support and the addict will have to fend for himself or herself. In addition to having a substance abuse disorder and possibly a dual diagnosis, those who relapse and leave treatment prior to completion often have limited job skills and perhaps even a criminal record—factors that make employment a challenge. Thus, as a practical matter, nearby neighbors may have valid concerns that the presence of a treatment center will be accompanied by additional unemployed or even homeless addicts on the street near the area in which the treatment center is located. This perception of elevated risk in these areas may then be reflected in the market prices of nearby real estate. The likely occurrence of relapse combined with the probability of criminal charges and/or convictions associated with substance abuse corroborates the argument that the presence of a treatment center may bring objectionable consequences into a community. The purpose of this paper is to use market data to assess whether there is substantial evidence of nearby real estate being adversely impacted by the presence of treatment centers, consistent with the potential risks that proximity to these facilities may bring. As a clear-cut NIMBY issue, this paper contributes to the broader literature of examining the market effects of specific externalities or environmental factors in real estate. Our study contributes to the literature by being the first to examine the effect of substance abuse treatment centers on the ‘ ‘ N o t i n M y B a c k y a r d ’ ’ u 6 5 J O S R E u V o l . 6 u N o . 1 – 2 0 1 4 surrounding real estate market and, more generally, adding to our understanding of external factors that impact home prices. u S u b s t a n c e A b u s e T r e a t m e n t : S a l i e n t I s s u e s , R e c e n t T r e n d s , a n d R e l a t e d L i t e r a t u r e It is anticipated that the impact of the July 1, 2014 changes to insurance coverage under the Affordable Care Act (ACA) will cause the number of treatment centers to burgeon and thus, a study of the effect of nearby addiction treatment centers on real estate is timely. Prior to investigating treatment centers’ effects on nearby real estate, it is crucial to understand the background of substance abuse treatment and why the current issues motivate the examination of potential real estate externalities. Although accurate statistics of drug or alcohol disorders are difficult to obtain, according to a Harvard Medical School Special Health Report, between 15% and 28% of Americans will have a substance use disorder sometime during their lifetime and this estimate does not include addiction to nicotine (Shaffer, 2012). Residential treatment has become a more common way to treat addiction and, like many areas in healthcare services, residential rehabilitation has become a growth industry. Broadly speaking, there are three types of treatment centers: intensive outpatient program (IOP), inpatient treatment, and partial hospitalization program (PHP). Typically, IOP treatment centers offer each client nine hours of group therapy, one hour of individual therapy, and one hour of case management (managing auxiliary services) per week. IOP clients either live in a halfway house or at home with strict guidelines established by their primary therapist. Although halfway houses can vary greatly, they generally have full-time house managers and mandatory, random urinalysis. Inpatient programs require clients to live at the facility in which all treatment takes place and may either be freestanding or hospital-based. PHP, also known as the ‘‘Florida model,’’ is a hybrid version of inpatient treatment and intensive outpatient treatment: individuals go to a counseling center during the day, and after a full day of therapy sessions return to off-site housing located in a neighborhood. Behavioral health technicians work at the off-site facilities around the clock. Mandatory addiction treatment (commitment) does not exist under the law. An addict must choose to be in a recovery program. It is interesting to note that all three of the substance abuse treatment models include the possibility of group housing in neighborhood settings. Projected Increase in SUD Treatment Facilities: MHPAEA and the