Factors affecting agricultural land prices

n the twenty years that preceded 1920 I there was a 245 percent increase in the average per-acre price of farmland (including improvements) before land values fell sharply. Today’s escalation in land values-364 percent between 1957 and 1977-prompts some pointed questions: Have land prices reached their peak? If not, when will they plateau, if ever? Will they then decline and, if so, will the descent be sudden or gradual? Answers are not obvious, but some parts of the puzzle are identifiable. Comparing the most precipitous segments of the two climbs makes the pertinence of these questions even more apparent, for values increased nearly 21 percent in just one year between 1919 and 1920, and over 25 percent between 1973 and 1974. Since 1974, average farm real estate values so far have continued t o increase, albeit at a slightly slower annual rate. The similarity in the twenty-year ascents of the two curves, 1900-20 and 1957-77, can be seen in figs. 1 and 2. Both have a significant amount of inflation as part of the value increases-especially in the steepest segments. Correcting for inflation (dividing nominal values by the GNP implicit price deflator) tempers the recent profile (fig. 2) considerably; still, the 1970’s show a 49 percent increase in real values of farm real estate. Clearly the 1970’s are not the 1920’s. The federal government is much more powerful, richer, and more thoroughly involved in the economy. Private financial institutions are much stronger and better protected by federal insurance. A descent from today’s summit would probably be quite different from that of the 1920’s, but disturbing, even so. The rise in land prices began during World War I1 and continued steadily through the 1950’s and 1960’s, apparently based on a foundation of income derived from the land, increasing productivity of the farm operation, government developmental and income-support policies, and population pressures. The 1970’s brought such rapid increases in land prices that one is compelled t o look for forces other than these basic four which might have had special impact in the 1970’s.