Impacts of Consumptive Demand on Rural Land Values

Abstract

justified based solely on returns to agricultural production. An extensive body of literature has arisen to explain the discrepancy between the agricultural productive and market values of rural land. Various explanations have been offered. Some authors have emphasized effects of government tax, credit, and income and price support programs on land values (Reinsel and Reinsel, Harris, Boehlje and Griffin). Others have proposed that high rural land values may be explained partly by expectations of increases in commodity prices or annual net returns to land (Klinefelter, Chavas and Shumway). Melichar suggested that expected capital gains in addition to net returns from agricultural production should be considered, and Castle and Hoch point out that capitalized rent explains only about half of real estate values both in the 1970s and over the longer 1920-78 period. The remainder can be explained by the capitalization of capital gains, including real gains or losses from price level changes (p. 8). Brown and Brown recently proposed that it is optimal for each seller to have a reservation price in excess of the value attaches to the future stream of income attributable to owning the land if thinks that some potential buyers may be more optimistic than he (p. 164). Although the above explanations account for much of the discrepancy between the agricultural productive and market value of rural land, this paper concentrates on the proposition that land is not only an input into agricultural production but is also an important argument in many individuals' utility functions. There is a consumptive value associated with ownership of rural land, reflecting innate desires to own land, live in a rural environment, obtain or maintain the lifestyle of a farmer or rancher, engage in outdoor recreation, get back to nature, and partake of any other real or perceived benefits of rural land ownership. Many investors seek an investment t' -y can touch, feel, experience, and enjoy. They may al o expect to be able to sell the land to other investors who have similar feelings for the land.