house price australia indebted north dakota

ND Sees Very Large Increase in Land Prices
cropland price wheat land rent

Dr. Steve Keen -- Home Prices to Rise With Wages

What makes people spend more or less for land? We excerpt two articles on rising land values from (1) Australia's Courier Mail, Apr 10 by E. Schwarten and (2) Farm & Ranch Guide News, Apr 3 by NDSU Extension.

by Evan Schwarten and by NDSU Extension

Westpac chief economist Bill Evans says house prices will rise roughly in line with incomes.

House prices rose 2.8 per cent across Australian capital cities during the first three months of 2013.

Conventional economists said, compared to borrowing levels of the past few decades, many Australian households could afford to borrow more than they currently do in order to purchase a new house or investment property.

However, University of Western Sydney academic Professor Steve Keen warned the recent rise in house prices had come from investors and sustained growth in the sector was unlikely.

Professor Keen said that, compared to other countries, Australian households were already highly indebted. "That is what is going to put the cap on price appreciation continuing."

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North Dakota cropland prices increased by about 42 percent during 2012.

The question is whether this huge increase has capped a 10-year rise in land prices, which has been the largest in the past 100 years, even exceeding what occurred from 1973 to 1981. North Dakota cropland values are now the highest ever, even when adjusting for inflation.

The drivers that have pushed land prices are: Grain prices from 2007 to the present have been much higher than any year prior to 2007.

Also, yields generally have been strong. For example, the three highest wheat yields ever have occurred within the past four years. This combination has provided several years of strong profit for crop producers, which has fueled their financial ability and desire to buy land.

Another factor has been low interest rates. Interest rates to finance land purchases, while returns and confidence on alternative investments have been weak.

Ten years ago, an acceptable return on land investment (cash rent minus real estate taxes divided by land value) was about 6 percent. Now it is about 3 percent. If buyers insisted on a return of just one percentage point more, to 4 percent, land prices would have to drop by one-fourth, assuming constant cash rents and real estate taxes.

Federal subsidies average about $10 per cropland acre in North Dakota. If they are eliminated, the eventual impact on average land prices could be a reduction of $200 to $300 per acre.

Land rents, as typical, did not change as much in percentage as land prices. On average, cropland rents increased about 12 percent, which was a very strong increase from a historical perspective.

Prices and rents are averages for large multicounty regions. Prices can vary considerably within a region because of soil types, drainage and location.

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JJS: If you see what lets people pay more (or less) for land, then you can see it’s not the lone owner who deserves that payment for land. No lone owner creates the demand for land, or the government subsidies, or the increase in regional income, or the drop in interest rates, and of course nobody creates the land itself. Because we all have a right to land, each of us owes the other for excluding them from our land, as they owe each of us for excluding us from their land. That’s why when we pay for land we should pay our society, and our society should not tax us for earning paychecks or buying goods or owning houses. Let’s get clear on what’s yours, what’s mine, and what’s ours. And why.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

One of the Canada's Biggest Banks Gets It

Bailouts Have Started Pushing Up Prices

US land prices back to 2003 -- except for top spots

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