Opioid Crisis and Local Economic Pain: Evidence from Commercial Real Estate Loan

This study examines the local economic impacts of the opioid epidemic by focusing on the performance of commercial real estate loan. We establish causal identification by leveraging plausible exogenous variation in primary physicians per capita and staggered adoption of state-level Opioid Misuse Prevention Legislation. Our findings indicate that opioid abuse decreases net operating income and increases vacancy rates, leading to a surge in loan defaults. We present direct evidence for economic channels showing that opioid abuse disrupts local economies through reduced business sales and eroded neighborhood desirability, which decreases net operating income and lowers occupancy rates of commercial real estate properties, ultimately leading to higher default rate. The effect is more severe in residential and retail properties, areas with weaker economic conditions, communities with higher proportions of Black and Asian populations, younger individuals, and Republican states. Our study underscores a new negative externality of the opioid crisis on local economies and its spillover effects on financial markets.