Land Price Inflation Research Articles

Evolving frontier land markets and the opportunity cost of sparing forests in western Amazonia

Efforts aimed at sparing forests on tropical forest frontiers through REDD+, PES or conservation initiatives currently rely on a limited understanding of the operation of land markets and their effects on the opportunity cost of forests as frontiers develop. In this paper, we draw on a unique dataset of landholder-reported land transactions that includes post-1991 land sales-in three sub-montane frontier forest areas on the eastern slopes of the Peruvian Andes. We analyze reported land sales that took place between 1979 and 2013 among Amazonian frontier farmers and find highly active land markets in all three areas, often in the absence of formal land tenure. As frontiers developed, parcel size fell, as did the portion of remaining forest cover, and land prices rose, reflecting both forest clearing and general land price inflation as the areas became more populated and developed. Across three study districts in 2013, each additional hectare of forest cleared raised the expected price of a parcel of land by US $1371–$2587. Importantly, we estimate the opportunity cost per hectare of frontier forest rose markedly over time: by $124–$226 per year between 2003 and 2013, a rate of increase over that period of 9–27% per year. Forest conservation programs that rely on estimates of landholders' willingness to accept compensation for sparing forest need to take into account that these values change rapidly as frontiers develop.

The land grab and corporate food regime restructuring

Land grab appears to be a phenomenal expression of deepening contradictions in the corporate food regime. In particular, the end of cheap food (signaled in the 2008 ‘food crisis’) has generated renewed interest in agriculture for development on the part of the development industry, matched by a rising interest in offshore land investments, driven by governments securing food and fuel exports and financiers speculating on commodity futures and land price inflation. This paper interprets these developments as illusory solutions to a fundamental accumulation crisis of the neoliberal project. While this new (and final?) enclosure registers a restructuring of the food regime, as its geopolitical relations and productive content re-centers on Southern land and an emergent bioeconomic imperative, it is likely to only buy time (and space) in the short run for political and economic elites and a global consuming class. In the longer run, the attempt to resolve food regime contradictions by a spatial fix may well be catastrophic.

The Effect of Bank Credit on Asset Prices: Evidence from the Japanese Real Estate Boom during the 1980s

This paper studies whether bank credit fuels asset prices. The Japanese real estate boom during the 1980s provides a unique episode to help answer this question. In particular, this paper studies to what extent an exogenous shock to the supply of bank credit contributes to fuelling land prices. The decline in banks' loans to keiretsu firms beginning in the early 1980s is used as the shock to bank real estate credit. It is first shown that the evidence supports the Hoshi and Kashyap hypothesis and using keiretsu loans is a legitimate instrument. Financial deregulation allowed keiretsu firms to obtain finance from public markets and reduce their dependence on bank credit. Therefore it was a choice by firms to move away from banks. In contrast, there is no support for the good opportunities hypothesis, which would imply that banks chose to move away from keiretsu firms to real estate because of perceived good opportunities. The main part determines that banks that lost these blue-chip customers increased their real estate lending, and that increase drove up land prices. This is shown in two ways and takes advantage of the cross-sectional and time-series variation in Japan's 47 prefectures. First, those prefectures that experienced a larger loss in their banks' proportion of keiretsu loans experienced a larger increase in real estate lending which fuelled land inflation. An increase of 0.01 in a prefecture's instrumented real estate loans as a share of total loans implies a 14-20% higher land inflation rate over the 1981-1991 period. Second, the timing of losses coincides with the subsequent land inflation. From 1983 to 1993 and based on the fixed effects model, the average predicted land price inflation coming from instrumented real estate lending is close to the Japan-wide average land price inflation during this period, 6.4 percent annually.

Population Recovery in Inner Tokyo in the Late 1990s

It was not until the late 1990s That inner Tokyo started to regain population. This paper explores the extent of that shift and it is argued that population recovery in Minato Ward in inner Tokyo differs from the nature of 'gentrification' observed in Western countries.The 'bubble era' of the late 1980s resulted in rapid land price inflation, land speculation on inner city plots and involved a considerable area of land while displacing former residents. The idea that Tokyo was becoming a 'global city' supported land speculation for office and commercial demands. Inner Tokyo continued to lose population in the late 1980s as a consequence of competition with business and commercial land use. Tokyo Wards implemented various policies to prevent the further outflow of residents, which included rent subsidies to renters and the substitution of mortgage interests exceeding 2%. The Wards also leased rented housing to household renters, and issued guidelines to locate rental family-sized housing in newly-built office buildings.After the collapse of the 'bubble', however, office and commercial demands suddenly disappeared and land prices fell rapidly. The financial crisis induced firms to sell or utilize their land for housing. By the late 1990s, high rise apartments were built on such speculated land. GIS-based mapping analysis revealed that the construction of public and private housing mainly contributed to population recovery, followed by the opening of new subway stations.A questionnaire survey was conducted to examine who had moved into the newly-provided housing in the inner city. Data were collected on household type, occupation, former residential location and reasons for the move.The survey revealed that single female households and double income couples with no children predominated in the private housing sector. The main reason for the move was proximity to workplace. This reflects the fact that movers into the inner city mainly consist of households placing a higher priority on employment than on nurturing children. Couples with children would move into the inner city if they secured low cost (public) housing. Many constraints still prevent the inflow of households with children, such as high housing cost in both private rented housing and owner occupied housing, and limited nursery school capacity.The provision of public housing, which is a counter policy to the population decline, results in relatively low income households returning to the inner city. Subsequent private housing construction which was caused by the collapse of the 'bubble' attracts different types of households from a wider area. Population recovery in inner Tokyo differs from gentrification in the West in that it is not limited only to more affluent people relocating to the inner city.

An Ordo-liberal Perspective on Land Problems in Korea

Recurring land price inflation in Korea is one of the most worrisome policy issues. It frustrates people's aspirations of home-ownership, aggravates income/wealth disparities, raises business costs and requires higher costs for government of land acquisition for infrastructure. Any effort to combat this problem must consider whether this land price inflation reflects a change in fundamentals or is led by speculative bubbles. An econometric test concludes that land markets in Korea have partly been driven by speculative bubbles. Then this paper argues that bubbles are cyclically formed and are persistent due to structural differences in the rate of return between land and financial assets, which are enforced by the centrally administered economic order. Thus, to reduce the bubble element in Korean land prices, fundamental reform is necessary towards a genuine market economy. This includes financial liberalisation and land tax reform to decrease speculative demand, and reform of land-use control to increase the supply of urban land.

The Hyper-Inflation of Land and Consumption Behavior

Using the Korean date (1975-1991), this study shows that the hyper-appreciation of land prices can have a significant effect on private consumption. The Test for a structural shift in the consumption function indicates that remarkable changes in consumption behavior are due to windfall gains from land ownership. The overall finding is consistent with a modified life cycle-permanent income hypothesis in an imperfect financial environment. When capital markets are imperfect and the land price inflation is rampant, optimal consumption depends less on the traditional lifecycle variable, and more on current income and a windfall gain. [E21, E31]

Asset Prices, Financial Liberalization and the Process of Inflation in Japan

This paper examines the extent to which the Japanese asset price cycle of the 1980s was determined by monetary factors, the real business cycle, and financial liberalization. Strong evidence is found of a shift in the relationships between monetary factors and land price inflation in the early 1980s. In particular, the estimated parameters of a vector autoregression imply that the transmission of monetary factors to asset prices was greater in the 1980s than In the 1970s. A key conclusion is that monetary shocks led to more asset price inflation and less consumer price inflation in the 1984-93 period than during 1970-83.

Are Japanese stock prices too high?

This paper studies the behavior of Japanese stock prices, especially that of the price earnings ratio (PER) and the price dividend ratio (PDR) in the 1980s. It finds that movements in fundamentals such as the interest rate and the growth rate together with the widespread practice of cross share holdings between corporations fail to explain the behavior of PER and PDR in the 1980s. The sharp increases in the Japanese PER and PDR in the 1980s are due to one of the following three causes: bubbles, declines in risk premium, and expectations of land price inflation. The paper argues that the latter two may have been important features of the Japanese economy in the 1980s.

Restriction of Farm Ownership as Rent‐seeking Behavior: Family Farmers Have It Their Way

Abstract. Restriction of foreign ownership of U.S. farmland has an obvious cost of foregone capital gains to farmers Yet their push to achieve state regulation of foreign investment in agricultural land has a sound economic basis. If required acreage expansion and high prices for land combine to force small, family farmers out of business, the value of their accumulated human capital falls precipitously, since it is soil specific With a large foreign demand for farmland which induces a tremendous rate of land price inflation, capital gains on their land swamp potential human capital losses. However, marginal participation in the U.S. farmland market by foreigners creates capital gains on land which are insufficient to compensate farmers for lost human capital, and creates a rationale for regulation The empirical results demonstrate that the pattern of legislative restrictions against foreign ownership of farmland is a function of the relative political power wielded by family farmers.

Reducing the Cost Effects of Local Land Use Controls

Abstract This article discusses the inflationary effects of local land use controls, and proposes a monitoring system for measuring the demand for and supply of residential land. By monitoring the demand for and supply of land, local land use planners can adjust land development regulations to avoid substantial land price inflation. The steps for creating a local land monitoring system are outlined, and a hypothetical case is presented. The article ends by discussing why local communities would be willing to adopt a land monitoring system.

Some Questions of Value and Scale in American Agriculture

A most revealing characteristic of an economic system is the value it places on land. The modes by which that value is expressed and the methods of its reckoning are identity criteria of fundamental significance. In a market economy, the linkage between this value structure and the income flows that support it provide a trend indicator that is akin to body temperature in the human anatomy. Using this parallel, we must conclude that the American agricultural economy is feverish. For the forty-eight contiguous states, agricultural land values tripled since 1967, with over 80% of that increase occurring since 1972. The increase has not been uniform among states, with the greatest increases centered in states of the Corn Belt, and in North Dakota, Montana, Pennsylvania, and West Virginia. The smallest increase occurred in California, and increases were below the national average in Arizona, New Mexico, the southern Great Plains and Mississippi Delta states, and all states of the Southeast except Georgia, South Carolina, and Virginia (U.S. Department of Agriculture 1977a, p. 22). In broad terms, cash-grain crop producers have benefited most from recent land value changes, while producers of cotton, fruits and vegetables, other specialty crops, and animal products have lagged behind. Farm expansion buyers have been the dominant force in this recent upsurge of land values, accounting for 63% of all purchases for the year ending 31 March 1977. In Corn Belt counties (for example, in southwestern Minnesota) this figure approaches 80% (Christianson, Nelson, Raup, p. 19). With some exceptions in areas adjacent to large urban centers, these high farm land prices are not the result of an invasion of the farm land market by nonfarm buyers. The principal strength in the current land market is provided by farmer demand for tracts of land to add to their holdings. This is a reflection of the financial capacity created for existing farmers by the windfall gains of land price inflation. If a farm is debt free or burdened with only a small mortgage, an established farmer can spread the cost of additional land over his entire acreage and bid this advantage into a higher price offer for any land that comes onto the market. A recent study of Illinois farms shows that, if the farmgate price of corn is $2 per bushel, it would have required the income-producing capacity of approximately three acres to finance the purchase of one additional acre, at 1976 production costs and land prices (Scott). This provides a rough measure of the extent to which land prices have been inflated by the demand from farm expansion buyers. A farmer who is not in the top segment of farm income receivers, and who does not own a substantial acreage of debt-free land, is virtually priced out of the current land market. The danger in this situation lies in the threat f land market instability. For two years we have experienced the phenomenon of falling farm product prices and rising land values. One interpretation of the current land market is that it exhibits many of the characteristics of a inflationary boom that is nearing its bursting point. To assess this possibility we need data that we do not have on the nature of the total demand structure for farm land. The component of that structure for which we have the most copious data is the demand for the products of land. In a recent discussion, Gardner has suggested that perhaps the demand curve facing American producers of farm commodities has become much more Philip M. Raup is a professor in the Department of Agricultural and Applied Economics, University of Minnesota. Paper 1694 of the Miscellaneous Journal Series, Agricultural Experiment Station, University of Minnesota. This paper is an expansion of testimony presented at a Hearing on Obstacles to Strengthening the Family Farm System: Competition for Land, conducted by the Subcommittee on Family Farms, Rural Development and Special Studies, Committee on Agriculture, U.S. House of Representatives, at Marshall, Minnesota, on 15 October 1977.