Whither The Price Of Land?

Press, Volume CVII, Issue 31440, 5 August 1967, Page 12

Whither The Price Of Land?

In January last year I wrote about the high price of land at that time. The threat of the European Economic Community was nicely tucked away in the background. Lamb and wool were buoyant and butter was selling quite well. There was a reasonable amount of mortgage money about and farms were selling freely at the highest prices ever recorded. Land was scarce, farming an attractive way of life and the demand for land supported the constant price increases.

The accompanying article on the price of land hat been written by M B. Cooke, senior lecturer in rural valuation and farm management at Lincoln College.

It is a different picture today. Perhaps France is helping New Zealand to an unknown extent In keeping Britain out of the E.E.C. Butter and lamb are down and no

one really knows what is In store for New Zealand in the coming wool sales. The very real threat of synthetics, while partly responsible for the present wool price, could well prove to have a greater and more lasting impact than we realise. There is no doubt about the reduction in income for the dairy farmer and the sheep farmer. The mixed cropping farmer has had a cushioning effect from crops, but he, too, has to accept a lesser return.

This tale of gloom should surely mean a fall in the price of land—but has it? As yet there is no real evidence to support this. Many people think there should be, but in some cases this is wishful thinking. Farms are hard to sell and the number selling has dropped considerably. The overall effect has been to keep many farms off the market, and this alone helps to retain the price for an already scarce commodity. Why do farmers buy land? Partly because farming is a way of life and the only way they know. A farm is an investment and it provides an income. If wool remains low and if the predictions of some people in their writings to the paper prove true, then the income-earning ability of many farms could drop still more. This must take away much of the attraction of this way of life. But these moves take time and perhaps time could be on our side. The Wool Commission and the Government seem to be optimistic about the price of wool In the future. It is to be hoped that they are right

In his heart the farmer is an optimist and so he is still ready to buy land—but what price is he paying? I have

heard of three recent sales, two of them low and one below the Government Valuation. I have also heard of two large farms sold recently at high prices. But these are just the situations that have always been with us. I would expect that some farmers who bought in five years ago may have considerable difficulty with flat mortgages falling due this year. I have not heard of any spate of mortgagee sales and these would not be in the interest of the Government, the farming community or the country generally. There is no doubt that the credit squeeze is very real and its effect, added to the drop in farming revenue, must have serious effects in some quarters. What is the result of all this on the value of land? A valuer has to answer this question. “What would a farmer, who was in no way forced to act, have to pay for this farm to a farmer who could sell or not as he pleased?” If the valuer looks only at the immediate return for primary produce—if he accepts the predictions on the future of wool—he might be inclined to say that the farm had no value at all, but that is quite unacceptable. Now a valuer realises that he does not make value. His job is to interpret prices into value. For this he needs the evidence of sales. If he gazes into a crystal ball

and sees only dark shadows he may feel that the value of land must come down. Again valuation is a matter of opinion, but it is an opinion based on the facts judiciously interpreted. The facts are evidence of sales—not just one sale but many sales. I admit that one or two sales may indicate a trend and this trend must be watched and, if continued, followed. In the Immediate future the answer lies in the freedom of action available to the seller. He does not have to sell. He is intelligent, well-informed and prudent. He may put the farm on the market with a reserve in keeping with prices over the last two or three yeara. If this price is realised he sells—if not he waits. He can afford to do so and time is on his side, although in doing so he may lose the other farm he wished to buy. This immediately introduces the element of compulsion, and the basis of valuation lies In the freedom of action of both buyer and seller. During the last twenty years we have seen very few forced sales. There has always been the odd one—enough and no more—to show the effect of a forced sale on the price of land, and in a buoyant market this was not always apparent either. We will still see farms being sold because of ill-health, family circumstances or because of the death of the owner, just as we have seen these over the years. The proportion of these sales to other sales over the 1960-66 period was small and so they were not significant in fixing land prices or values. Today there will be a similar number of such sales because there is no alternative in most cases. Consider these in relation to the present normal sales and the proportion is much higher.

That should not mean that they are suddenly more significant. They are no more evidence of value trends today than they were in 1960 to 1966, but they are taking place on a suppressed market. Like all sales they must be examined and considered by farmers and valuers alike. What will be the position if we see a significant number of sales forced by the financial position of the mortgagor? Much will depend on the prices realised but we must not forget that such sales leave little room for the vendor to operate. He cannot sell at the best time of the year or when he can have the farm in really good order—he has to sell at the dictates of someone else. No-one wants to see any of these sales and I sincerely hope that we will not The prices these farms would realise will depend on the availability of mortgage finance and the climate of confidence in the farming world. This is dominated by the financial squeeze and the present drop in prices for our produce and both could be temporary. Have we lost confidence In the future of farming?—has land as an investment lost its appeal and will there be no more appreciation in land values? The answer can only be no to both questions. We may see a recession in land prices and values if all the gloomy predictions come true. The long-term answer lies in the scarcity of land and the ever increasing world population that must be fed and clothed. We may see changes in production programmes with new technologies and greater incentives. We will without doubt see a return of confidence in the farming climate.