Friday, 25 September 2009

Agricultural land values

Posted by FarmerJohn at HousePriceCrash, this tempting offer:

Unique Forest in Bude for Sale

According to Bidwells, a UK agency specialising in various property services from sales of houses and land to estate management, a large forest, the territory of which counts more than 1,700 acres has been put on sale for more than £1.3 million.

Bidwells agents, responsible for the sale of Rhubodach Forest, which is currently privately-owned and located at the north end of Bute – a magnificent island of the west coast of Scotland, say that the forest is located in a “dream and magical” place, yet, still represents a wise “green and tax efficient investment”...

It is worth noting that one of the entrances to the Rhubodach Forest is 800 away from the the Rhubodach ferry slipway. Apart from the beauty and amenity of the forest, the site also offers great commercial use, as it has been noted already. According to the selling agent, forestry is considered a safe yet profitable type of investment these days.

Bidwells professionals claim that all forestry businesses in the UK are totally free of inheritance tax, and, moreover, are exposed to very low capital gain tax. As for commercial forestry, particularly – timber business – it is exempt from income tax.

Right, £1,300,000 divided by 1,734 acres = £750 per acre.

OK. I happen to know that the annual profit to be made per tree is about £1 (i.e. a fifty year old tree once chopped down goes for about £50), let's imagine the trunks are spaced ten yards apart, so you can fit 60 trees per acre, so the gross profits per acre are £60 per annum. It's not clear how much you get from the "Single Payment Scheme" but it must be at least £25/acre, so that's £85 per acre x 1,734 = so that's a nice steady income of £147,000 per annum for your investment of £1,300,000, a gross return of 11%, which is income tax-free as well so that's also your net return.

Hmm. Where's the catch ... ah ...

"... it should be noted that the place is a Site of Special Scientific Interest (SSSI). A number of important and rare bird populations, such as golden eagles, merlin, hen harriers, and black grouse, as well as several ancient woodland sites are located on the territory of the forest."

In other words, the NIMBY & Greenie Lobbies will prevent you from doing the obvious thing and building a nice little wind-surfing resort or nature retreat or whatever it is that people are prepared to pay for, instead, the owner has to tippy-toe gently through his own forest doing somebody else's bidding (at unknown cost).

Now, contrast that £765 per acre with Knight Frank's Q2 2009 survey of residential land values:

Typical land values outside London now range from around £250,000 per acre for more peripheral sites in cheaper regions to over £1m per acre for the best sites in the South East and East of England. London prices are far more variable – over £3m per acre is typical in inner boroughs, but over £15m per acre is achievable in prime locations.

So to talk of "land value" is one heck of a misnomer, actually. Pure "land" in the UK is worth next to nothing, it's the planning permission that makes up ninety-nine per cent of the cost/value. And the value of the planning permission is in turn only a function of the value of all the amenities that are within reach (primarily job opportunities and spending opportunities, i.e. transport infrastructure, offices, factories, shops, schools etc and not just natural amenities like parks, beaches or a nice view).

Now, who created the value of that great rag-bag of amenities? To whom does the value of that huge great rag-bag of amenities belong? Anybody in particular or society in general? Why is there such a cliff edge between the value of "£250,000 per acre for more peripheral sites in cheaper regions" and agricultural land of a couple of thousand pounds on the other side of a fence? Who wins and who loses from all this?


DBC Reed said...

These figures rather suggest that Vince Cable would have been better calling for a progessive tax,not on houses,but on sites within the I million pound category- an argument that did nt occur to me when writing my rather constipated letter to the Guardian.
Have you read Martin Wolf in FT 24.ix.09 accessible via Google as something like: Cable's mansion tax is right?We can rest our case; the man's done it all for us .Nothing more to be said really.

DBC Reed said...

PS I meant I Million pound per acre
category.see above

Ross said...

It would be interesting to track the long term trends in house prices compared with the introduction of green belt laws and the like.

I know that in the US the surge in house prices that ultimately let to the "affordable housing" movement, relaxed lending standards and then to the sub prime crisis was largely confined to areas where the supply of land for building houses had been artifically restricted since the 70s.

JuliaM said...

"In other words, the NIMBY & Greenie Lobbies will prevent you from doing the obvious thing and building a nice little wind-surfing resort or nature retreat or whatever it is that people are prepared to pay for, instead, the owner has to tippy-toe gently through his own forest doing somebody else's bidding (at unknown cost)."

Well, given they will prevent you from living in your house for a technical infringement of planning rules, yet allow you to rent it out to tourists, nothing surprises me anymore...

Mark Wadsworth said...

DBC, I have posted a link.

Ross, the correlation is almost exactly as you would expect. The handy thing about the land market is that one variable - supply - is absolutely fixed and so quantity is not responsive to price. Price changes are thus driven purely by "demand" changes (which includes subsidies and so on).

JuliaM, well spotted.

dearieme said...

"in Bude" does not equal "on Bute". Tits.

Mark Wadsworth said...

D, that whole "Bute" and "Bude" confusion nearly threw me as well.

neil craig said...

Though it is about 40 miles from Glasgow it is only accessible by sea. If we cut tunnels in the way Norway has done it (£7 mill/km) & the rest of the west Highlands would become a short car drive from central Scotland & our tourist airports. This would make it possibly the best place in Britain to live. Obviously this is not allowed.

Anonymous said...

To answer your question, the landed aristocracy do. Marginal land at the edges of their estates has kept them going /baled them out time and time again . Land is a great investment , they don't make it anymore!

Donny B

Mark Wadsworth said...

NC, until a few decades ago, the whole of the UK was only accessible by sea.

Anon, they are one group that can benefit by getting planning and selling off dribs and drabs, I suppose.