The effects of potential land development on agricultural land prices

doi:10.1016/S0094-1190(02)00503-X

Journal of Urban Economics

Volume 52, Issue 3, November 2002, Pages 561-581

https://doi.org/10.1016/S0094-1190(02)00503-X Get rights and content

Abstract

We conduct a national-scale analysis of the determinants of agricultural land values. The theoretical basis for the study is a spatial city model with stochastic returns to future land development. The empirical model of agricultural land prices is estimated with a cross-section on approximately three thousand counties in the contiguous US. The results provide evidence that option values associated with irreversible and uncertain land development are capitalized into current farmland values. For each county, we decompose the current agricultural land value into components measuring rents from agricultural production and rents from future land development.

References (35)

D.R. Capozza et al.
The fundamentals of land prices and urban growth
Journal of Urban Economics
(1989)
D.R. Capozza et al.
The stochastic city
Journal of Urban Economics
(1990)
D.R. Capozza et al.
Optimal land development decisions
Journal of Urban Economics
(2002)
D.R. Capozza et al.
The risk structure of land markets
Journal of Urban Economics
(1994)
P.F. Colwell et al.
The structure of urban land prices
Journal of Urban Economics
(1997)
N.E. Coulson et al.
Transportation costs and the rent gradient
Journal of Urban Economics
(1987)
J.G. Kowalski et al.
The impact of location on urban industrial land prices
Journal of Urban Economics
(1990)
D.E. Mills
Growth, speculation, and sprawl in a monocentric city
Journal of Urban Economics
(1981)
R.B. Peiser
The determinants of nonresidential urban land values
Journal of Urban Economics
(1987)
S.S. Rosenthal et al.
Redevelopment and the urban land price gradient
Journal of Urban Economics
(1994)

J.D. Aiken, State farmland preferential assessment statutes, RB 310, Department of Agricultural Economics, University...

L. Anselin

Spatial Econometrics: Methods and Models

(1988)

T.C. Bailey et al.

Interactive Spatial Data Analysis

(1995)

D.L. Chicoine

Farmland values at the urban fringe: An analysis of sales prices

Land Economics

(1981)

S.-H. Cho, J. Wu, W.G. Boggess, Measuring interactions among urban development, land use regulations, and public...

R.L. Elad et al.

Hedonic estimation applied to the farmland market in Georgia

Journal of Agricultural and Applied Economics

(1994)

W.A. Fischel

The urbanization of agricultural land: A review of the National Agricultural Lands Study

Land Economics

(1982)

Cited by (188)

Does interstate trade of agricultural products in the U.S. alleviate land and water stress?
2024, Journal of Environmental Management
Interregional free-trade of agricultural products is expected to transfer embodied (virtual) water from more to less water-productive regions. However, irrigation in semi-arid to arid regions may significantly push up agricultural productivity but cause local water scarcity. This may result in a puzzle: inter-regional trade may save overall water consumption but lead to more severe local water scarcity. An analogous puzzle may exist for farmland, for instance, trade may save farmland but not address farmland scarcity. To test the existence of these two important puzzles, we applied environmentally extended multi-regional input-output models to obtain the inter-regional virtual agricultural water and land transfer across 48 states of the conterminous U.S. and estimated their agricultural land and water footprints in 2017. Such a detailed analysis showed that while the land-abundant Midwestern states exported a sizable amount of virtual farmland to other densely populated areas and foreign nations, the water-stressed Western U.S. and Southwestern U.S. states, like California, Arizona, and New Mexico, exported considerable amounts of water-intensive crops such as fruits, vegetables and tree nuts to the Eastern U.S. and overseas, thus worsen the local water scarcity of those water scarce states. Our analysis highlights a critical dilemma inherent in an economic productivity-focused incentive regime: It frequently leads to increased withdrawal of scarce water. Therefore, resource scarcity rents need to be reflected in inter-regional trade with the support of local environmental policies.
Moving to the country: Understanding the effects of Covid-19 on property values and farmland development risk
2023, Journal of Housing Economics
As human populations grow, one strategy for meeting housing demand is through the development of agricultural land and other open space, which can generate negative externalities. This may be addressed at local, state, or federal levels with land-use planning, including farmland preservation policies. Efficient land-use planning in the presence of competing land uses requires knowledge of development risk, housing preferences, and the full costs of farmland loss. We conduct a national scale hedonic analysis using the ZTRAX program U.S. housing transaction data to investigate how COVID-19 has affected property prices in suburban and rural areas with farmland at high risk of development, for the purpose of understanding the effects of COVID-19 driven shifts in housing location preferences. Our analysis demonstrates that the pandemic caused differential price impacts across the 33 states that we analyzed. Furthermore, our estimates suggest heterogeneous price effects driven by the characteristics of nearby urban areas, with prices appreciating faster on land at risk located near smaller urban areas than those near larger urban areas. Our analysis finds that the spatial pattern of development pressure on agricultural lands, as measured through transaction prices, changed in the aftermath of the COVID-19 pandemic.
Constantine – Algeria- informal expansion, private lands value at stake. Towards a preventive approach to informal land use
2023, Land Use Policy
In this paper, we examine the informal expansion of Constantine from the perspective of land as a property asset and a regulation target and what it involves in terms of stakeholders’ interplays. The study was conducted on the southeastern expansion by drawing a parallel between land use regulation and the actual land use on large private landholdings. A qualitative survey was conducted to investigate the informal production and use of urban land through semi-structured interviews with relevant public and private stakeholders. The study shows that informal land use lies in the conflict between urban planners and landowners over the conversion and allocation of large private landholdings and the financial stakes it involves. Land transactions are engaged in the informal market when land use regulation does not converge with the owner’s logic of land value maximization. The informal land market allows the latter to circumvent land use regulation and to capture land added value on hypothetical uses, whether by informally converting agricultural lands or allocating urban ones. As to the resulting informal land use, it is not limited to housing issues but also meets the needs of private actors for tertiary real estate. It is also pointed out that land use policy and regulations failure in countering the phenomenon lies in ignoring the informal land market upstream of informal land use and urbanization. Finally, the study suggests that a preventive approach should address the conflict over land use with land management oriented towards local approach and consensus seeking with the private stakeholders. In this sense, we propose a tool to assess the likelihood of the emergence of informal land market as a decision aid for urban planners and policymakers in terms of land use.
The impact of preferential farmland taxation on local public finances
2023, Regional Science and Urban Economics
Preferential taxation of farmland, which typically takes the form of use-value assessment (UVA), is a staple of local property tax systems in the United States. Under UVA, farmland is taxed according to its hypothetical value in permanent agricultural use, as opposed to its full market value, which may include capitalized future development returns that have yet to be realized by the landowner. A common criticism of UVA is that the preferential tax treatment of farmland adversely affects local property tax revenues, with other landowners footing the bill. We leverage the staggered timing of UVA adoption across states to estimate how these policies have affected various sources of local government revenue. Results broadly indicate that UVA adoption led to net reductions in property tax revenue, which were offset by transfers from state to local governments. At the state level, we find suggestive evidence that transfers were funded through increases in state-levied tax revenues, including sales taxes and corporate income tax rates, and reductions in state highway spending.
Farmland sales under returns and price uncertainty
2022, Economic Modelling
This paper investigates the observed heterogeneity in the liquidity of agricultural land markets. We adopt a real options model to determine the value of an opportunity to sell farmland and derive the optimal disinvestment triggers. A proportional hazards model is applied to estimate the duration between land sales in Germany and test the implications of the real options model. In contrast to expectations, we find an ambiguous effect of returns and price volatility on the optimal timing of land sales. There is no evidence that non-agricultural investors buy and sell land more frequently than farmers. Our results contribute to the current discussion on land market regulations, one major point of which is capping land prices. According to our results, such policies could increase the rent–price ratio and thus discourage land sales. In turn, the land supply would be reduced, causing further price pressure on farmland markets.
Agriculture's transformation and land-use change in a post-urban world: A case study of the Stockholm region
2022, Journal of Rural Studies
Citation Excerpt :
From the figures, it is evident that agricultural land prices in Sweden are under strong influence of urbanizing factors as prices in city regions and in areas with good accessibility conditions, surrounding the three metropolitan areas in Sweden (Stockholm, Gothenburg and Malmö), are generally much higher than elsewhere. High prices in these areas reflect a higher demand for land in city close regions, which is tied to possibilities for future gains after land has been converted to urban uses, and to its current agricultural use or value (Capozza and Sick, 1994; Plantinga et al., 2002). Fig. 3a and b shows the average price of pasture at the municipality level (aggregated from the sales data) indicating that the price of pasture is also under the influence of urbanizing factors in that prices are high in the urbanized regions and in areas surrounding the city regions.
The purpose of this paper is to address the hypotheses of complete urbanization and the post urban world with an emphasis on the agricultural sector. The paper studies spatial and temporal changes in land-use and agricultural activities in one rapidly growing metropolitan region, the Stockholm region. We explore the number and size of agricultural firms, changes in their main activity and trends of diversification and land prices for various types of land and location, all in a disaggregated spatial dimension. The results contribute to a deeper understanding of agriculture's function in metropolitan regions and shed new light on the possibilities of the agricultural sector to transform in a world where the traditional urban-rural relations are ceasing to exist.

View all citing articles on Scopus

¹: A.J. Plantinga is an Assistant Professor of Agricultural and Resource Economics, Oregon State University.

²: R.N. Lubowski is an Economist with the US Department of Agriculture, Economic Research Service.

³: R.N. Stavins is the Albert Pratt Professor of Business and Government, John F. Kennedy School of Government, Harvard University, and University Fellow, Resources for the Future.

View full text