Land price formation under different market mechanisms and market conditions
Final Report Abstract
Investigating patterns of land prices’ development by region and over time for the example Lower Saxony, our results show that an increase of land prices in livestock-intense regions partly transmitted to other regions but also constituted a centripetal force that inhibits further concentration of livestock production in the original livestock-intense region. We find evidence that institutional sellers in Saxony-Anhalt, Eastern Germany, shape price formation through the auction mechanisms how land is sold but also impact allocation of land according to their respective policy favouring local farmers. Non-agricultural investors were hypothesized to influence prices. We, however, cannot find any price differences between transactions depending on whether a person related to the farming business or not purchases the land in auctions. In foreclosure auctions, two opposite effects interact: the (negative) liquidity effect on the price because of the time pressure of a forced sale and other regulatory constraints, and the (positive) effect of the auction mechanism. Using data from Brandenburg, we find that the latter effect outweighs the former, on average. As a general rule, the mortgage lending value should adapted to the expected conditions of the land market in the considered credit period, where price-shaving mortgage lending values should be more pronounced in a downturn market. Investigating land rentals, we find different term structures that reflect expectations about the profitability of farmland use that go beyond the time horizon of other traded financial instruments in agriculture, for example futures contracts for commodities. From this, we conclude that a naïve price index that simply averages lease rates and ignores the time of the contract formation and/or the contract length will overestimate the increase in land rental prices at the end of the last decade, where a significant hump of the term structure has been found. In this regard, considering locational values have been proven to be relevant as well. Typically “Bodenrichtwerte” that reflect the average location value of land plots within a specific area are used. These values constitute an important source of information that contributes to price transparency on land markets and are provided by publicly appointed expert groups (Gutachterausschüsse). We find based on empirical investigations, these values tend to underestimate location values. As an alternative, we suggest advanced statistical tools (Propagation-Separation Approach). 2015: Interview with Silke Hüttel in Sparkassennewsletter “Profits Agrar“
Publications
- (2014): Forced Sales and Farmland Prices. Land Economics 90(3):395-410
Hüttel, S., Jetzinger, S., Odening, M.
(See online at https://doi.org/10.18452/3228) - (2015): Der Einfluss von Windkraftanlagen auf landwirtschaftliche Bodenpreise. Berichte über Landwirtschaft 93(3)
Ritter, M., Hüttel, S., Walter, M., Odening, M.
(See online at https://dx.doi.org/10.12767/buel.v93i3.83.g218) - (2015): Steigende landwirtschaftliche Bodenpreise: Anzeichen für eine Spekulationsblase? DIW Wochenbericht 3 / 2015: 37-43
Hüttel, S., Odening, M., von Schlippenbach, V
- (2015): The term structure of land lease rates. Paper for presentation at Agricultural and Applied Economics Association 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California
Odening, M., Ritter, M., Hüttel, S.
- (2016): Agricultural land prices and the law of one price. In: Kooperation von Forschung und Praxis - Ein Schlüssel für Wettbewerbsfähigkeit und Innovation in der Landwirtschaft? Tagungsband der 26. Jahrestagung der Österreichischen Gesellschaft für Agrarökonomie: 11-12
Odening, M., Ritter, M., Yang, X.
- (2016): How Do Institutional Market Players Matter in Farmland Pricing? Land Use Policy 59: 154-167
Hüttel, S.; Wildermann, L.; Croonenbroeck, C.
(See online at https://doi.org/10.1016/j.landusepol.2016.08.021) - (2016): Is there a term structure in land lease rates? European Review of Agricultural Economics 43(1): 165-187
Hüttel, S., Ritter, R., Esaulov, V., Odening, M.
(See online at https://doi.org/10.1093/erae/jbv010) - (2016): Windenergie: Preistreiber auf dem Bodenmarkt? Vermessung Brandenburg 1/2016: 25-31
Ritter, M., Hüttel, S.
- (2017): Estimating location values of agricultural land. SFB 649 Discussion Paper 2017-002
Helbing, G., Shen, Z., Odening, M., Ritter, M.
(See online at https://doi.org/10.18452/18586) - (2017): Testing for Regional Convergence of Agricultural Land Prices. SiAG-Working Paper 20. Department of Agricultural Economics, Humboldt- Universität zu Berlin
Yang, X., Ritter, M., Odening, M.
(See online at https://dx.doi.org/10.18452/3238)
