Can land values go in one direction only?
Date of Article
Jun 23 2011

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At the time of writing this article the seeds of doubt are gripping the world economies. The ‘financial meltdown’ of 2008/09 stalks the world economics with uncertainty in Europe/US compared to optimism in China and India.

The events in Japan, where ‘nuclear meltdown’ is the issue, remain to be resolved within an economy that has stagnated for 20 years. Alongside this is the unrest in the Middle East where the thirst for democracy could leave an uncertain future for oil supplies which will drive the engines of recovery in the capitalist World.

Against this backdrop it is with some trepidation that one should forecast where farmland values may go in the short, medium or long term. As we sit now the demand for land is outstripping supply and some remarkable prices are being achieved particularly in the south of England. The surge in values is not reflected nationwide and some areas are fetching strong but not exceptional prices.

The reason for the interest in land is that it, together with gold are viewed as assets to hold in a time of uncertainty. Farmland, sometimes viewed as the poor cousin of asset classes, is holding its head high and its performance over the past 20 to 30 years bears positive comparison with other indices, be they cash, equities or assets.

When considering the future does history offer us any yardstick upon which to base predictions? It is with some interest that the early seventies and nineties may give us some clues. Land values trebled between 1971-73 before the crash of 1974. This heralded an economic crisis driven by excessive lending to housing and the Bank of England bailing out 30 small banks to the tune of £100m and hence the decision to maintain larger banks only! Add to that the fuel crisis after the war in the Middle East which in itself led to the three day week and to top it all off we then had a period of industrial unrest.

In the early nineties the UK economy went into recession with high interest rates, reaching 15% on Black Wednesday, and the resulting crash in house prices. Corporate profitability fell and there was a period of high labour costs. Whilst dramatic at the time the UK economy recovered reasonably quickly and was in good shape by the late nineties. In the early nineties land values had fallen back to below their value some ten years previous.

The noughties has seen land values more than double and maintain its value unlike the seventies and nineties when the period of crisis saw land values fall back before recovering and improving. The bull run in land values must have an end when some profits are taken and the return on investment is matched by other asset classes? On the other hand the world population continues to grow and land provides the medium for energy production be it for convertible crops and as sites for wind farms / solar farms and other sources of energy.

As many an older farmer will tell you “they don’t make any more of it” and perhaps that is the biggest driver of them all. So the twenty tens may end up as a period of stability after all rather than a traditional cyclical market in which prices move in more than one direction?