Determinants of farmland prices in a dynamic error correction form : a New Zealand case

Abstract

This paper examines the effect of real net farm residual income, inflation, and the real interest rate on the movement of real farmland prices during 1970 to 1997 using a parsimonious error correction model. The empirical evidence suggests that the long run trend in the real land price can be explained by real net farm residual income to land and the real interest rate, with inflation having no statistically signifcant effect. However, the growth in the real interest rate explains about two thirds of the growth in land prices in the immediate to short-run.