Factors which affect the prices paid for farmland: an analysis of a selected group of buyers in Canterbury

Abstract

This thesis was formulated with the objectives of outlining and discussing the possible returns from farmland which are most likely to be considered by a buyer, describing characteristics of buyers and discussing various aspects of the purchases they made, and to explain, with the help of statistical analysis, the prices which were paid.

Following these aims, the thesis was separated into four parts. The First part incorporated a brief outline of basic economic concepts about land and of the factors which affect the overall demand for farmland. Part Two included discussions on the various returns from farmland expected to be considered by a typical buyer. These returns were broadly categorised as the cash income, increases in capital value, and non-monetary returns. Part Three incorporated a description of some of the results from a study of a selected group of farmland buyers in Canterbury. Included in this section was an outline and analysis of attempts made by developing land- price models to explain the factors affecting the prices which were paid, The final part summarised the major results and conclusions arising from the thesis.

Several major conclusions were drawn from the results of the empirical study. Many different reasons for buying farmland existed, and these reasons were not always expressed in monetary terms. The length and intensity of the search to buy farmland varied. Full-time farmers who were investing all of their available capital into the block they were buying tended to look longer and more intensively than other buyers. Expectations of future income increases appeared to be correlated with plans to increase future production levels through farm development.

Personal aspirations with regard to future retirement plans and plans to hand over ownership rights were related with age and family characteristics of buyers. Older people who had sons old enough to have exact ideas on their future occupational plans tended to have definite views on retirement and future ownership. Most buyers saw definite advantages in farming as an occupation. The values associated with these advantages tended to vary, but some buyers valued nonmonetary advantages in monetary terms.

For the 58 sales studied, variables specified for the planned production level, the house, the locality, the area of the block bought, and the condition of pastures and fencing were able to explain 74 per cent of the variation in prices paid per hectare. These variables were able to explain as much as 95 per cent of the variations in price per hectare for various subgroups within the total group of buyers. Sub-groups were separated into those who were buying land which added to existing farmland holdings those buying whole- farm units, and those buying whole-farm economic units.