Traditionally, rural land values have been influenced by site characteristics such as soil quality, type of crops grown, size of tract, relative accessibility, improvements and government programs. More recently, population increases and economic development have expanded urban and suburban areas, resulting in an increased demand for rural land.
Few studies have measured the effect of potential economic development on rural land values. The objective of this study is to develop a model that measures the effect of location and economic development on rural land values in southeast Louisiana. Geographical Information Systems (GIS) procedures provided insight into the spatial characteristics of this land market, guiding the selection of measures of location and economic development.
Data for this study are based on rural land market sales collected using annual mail surveys of professional realtors, appraisers and financial officers familiar with rural land markets in Louisiana. From January 1993 through June 1996, 1,811 sales were reported statewide. For this study area, a subset of the larger state data base, with 204 reported sales, was used.
The study area (Figure 1) consists of eight parishes. The primary general soils are Southern Mississippi Valley Silty Uplands, Coastal Plain and Gulf Coast Flatwoods. The area is characterized by rolling hills with pine tree, nursery crop, dairy farm and other animal production activities.
GIS procedures were used to review spatial characteristics of rural land sales data. An important feature of GIS is the ability to overlay data. Overlay is the process of stacking digital representations of spatial data so new information can be revealed, visualized and analyzed. For example, in Figure 1 the location of each sale tract is overlaid on a parish map. The overlay in Figure 1 not only provides a spatial view of the data but also suggests a positive relationship between the per acre value and proximity to Baton Rouge and New Orleans. It is hypothesized that relatively large per acre tract values in St. Tammany Parish result from the Pontchartrain Causeway that links New Orleans with this area. The bridge provides convenient access for commuters.
Relatively large per acre sales in Baton Rouge and New Orleans suggest that location has an influence in this market. GIS procedures were used to compute distance between each tract and the nearest city. These straight line distances were estimated and added to the rural land data base electronically. These distance estimates generally reflect three groups of sales: 1) north and within a one-hour commute to downtown Baton Rouge, 2) north and within a one-hour commute of downtown New Orleans and 3) a north-central section not generally considered a convenient commute to either metropolitan area.
Another feature of GIS is the ability to develop a land value contour map. Similar to topographic maps that show equal elevation above sea level, the contour map in Figure 2 depicts areas with approximately equal per acre land values. Each contour line is drawn as a continuous line identifying land values at $500 price intervals. Lines located close together indicate rapid price changes within short distances, and lines located farther apart indicate much slower price changes.
In Figure 2, rapid land value changes lie at the heart of the Baton Rouge metropolitan statistical area (MSA). Similarly, a concentration of contours in St. Tammany Parish, the northernmost parish of the New Orleans MSA, suggests that economic activity in this area has a positive influence in the rural land market. The concentration of contours on MSAs suggests that economic development has a positive influence on rural land values, implying a need to include this variable in a model of the rural land market.
The dollar contribution to total property value attributed to individual characteristics of that property are revealed to economic agents from the observed prices of different tracts of land and the specific quantity of an individual characteristic associated with each tract. Prices of these characteristics are implicit because there is no direct market for them. The implicit marginal price of each characteristic is an estimate of the amount by which the per acre land price changes, given a unit change in the characteristic.
The model analysis considered a number of agricultural and nonagricultural variables that could influence rural land value. The final model included only statistically significant variables. Variables in the final model explained 53 percent of the variation in rural land values in the study area. They were size, month of sale, percentage of timber, value of improvements, paved access, distance to nearest city and parish as part of an MSA.
Per acre land values
Marginal implicit prices are used to observe the magnitude and direction of influence of various model factors on per acre land values. The marginal implicit price for size of tract at the mean size and price is estimated to be minus $4.52, indicating that per acre land price declines by $4.52 with a one-acre increase in size at the mean (115.88 acres). The marginal implicit price varies with the size of tract, however. For example, if the mean per acre size was 150, the marginal implicit price is estimated at minus $3.49 per acre, whereas if the average size was 50 acres, the marginal implicit price is estimated at minus $10.47 per acre.
The marginal implicit price for the value of improvements was an estimated $0.00629, suggesting that $10,000 of improvements on a tract of land in the southeast Louisiana study area would increase land value by $62.90 per acre, assuming all other factors constant. The marginal implicit price for time of sale indicates that each month between January 1993 and June 1996 adds $32.76 to per acre value.
Marginal implicit prices suggest that nonagricultural factors representing economic development and location (metropolitan areas, distance to nearest city and type of road adjacent to rural property) have substantial effects on rural land value in the study area. The marginal implicit price for the MSA variable indicates that tracts located in an MSA generally sell for $1,574 more per acre than tracts not located in an MSA. The effect of location suggests that as distance to nearest city declines by one mile, the per acre value of land increases by $27.69 per acre. Similarly, the marginal implicit price for paved road access (RT) is valued at $569.26 per acre. Timber was the only agricultural variable to be statistically significant, with an additional 1 percent of timber in a tract actually reducing land value by $2.92 per acre. Most timber observations in the data set represent cutover pine timber. The model estimate reflects the cost of clearing the land for other uses.
Visual observation, using GIS procedures, suggests the existence of a spatial relationship between per acre rural land values and the distance to the metropolitan statistical areas of Baton Rouge and New Orleans for the southeast Louisiana study area. Results of a statistical model of the study area indicate that the nonagricultural variables, distance to the nearest city and location in an MSA, affect rural land prices significantly. Selected tract characteristics (value of improvements, month of sale and paved road access) also influence tract value. The only agricultural variable to be statistically significant was percentage of timber in the tract, and it actually decreased tract value as the percentage of timber increased.
The model analysis supports several conclusions. One is that the value of rural land in southeast Louisiana is greater for land located within either the Baton Rouge or New Orleans MSA. In addition to the MSA effect, distance to the nearest city also increases the value of rural tracts, the closer the tract is to the city. Results of this study also support the conclusion that agriculture does not have a significant positive effect on land values in the study area.
Taken together, these conclusions support the proposition that alternative nonagricultural uses for rural land heavily influence land prices. Residential and commercial use of rural land may be driving the price of land in the southeast Louisiana area above agricultural market levels. With continued population increases and economic growth, the long-term implication is a continual transition of agricultural land to urban and suburban use for this area.
(This article was published in the winter 2000 issue of Louisiana Agriculture.)