John Steward of Jesus
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Land values

November 12, 1980

Raw land has two sources of value:

(1)    As a territory to occupy at the exclusion of others, whether for residence, occupation, or recreation.

(2)    As soil to cultivate for the growth of crops.

Factors affecting territory value are neighboring facilities, roads, view, cultural opportunities, etc.

Factors affecting soil value are climate, topography, soil composition, etc.

In a time of currency stability (no inflation) the soil value is a function of (1) the anticipated value of the crop produced, as determined by supply and demand relative to other commodities; (2) the anticipated change in the number of man hours needed per unit of crop; and (3) the anticipated value per hour (or year) of the required labor for production.

Thus, land values, in times of currency stability, increase if the potential buyer (farmer) anticipates either (1) that the relative value of his crop will increase, or (2) that he can farm more efficiently (per man hour), or (3) that the cost of farm labor will decrease.  Land values decrease or stabilize for the opposite reasons.

If there were such a thing as uniform inflation, such as all prices rising eight per cent per year, then land would rise as all other prices. Because interest rates would also include this factor, there would be no incentive to borrow for speculative buying.

Because rising prices hit different areas of the economy at different times, the feeling that relative prices of land are high or low will affect values.

When interest rates linger behind the inflation rate, the leveraged use of cheap money is encouraged. As land is sought as security for such borrowing, prices rise.

In a time of accelerating inflation, land prices reflect speculative value as investors project a new level of price increases.

When inflationary expectations decrease, land values must decrease to a stable value reflecting territory and soil value. This decrease in values can generate its own momentum as owners seek to sell at high prices and buy later at lower prices, or seek to sell because debts generated at higher speculative prices cannot be serviced. Such momentum may force prices below normal territory or soil value before prices stabilize.

The family farmer maximizes the use, and value, of land, because he combines territory and soil value.