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?