Lonnie R. Vandeveer, Steven A. Henning, Huizhen Niu and Gary A. Kennedy
A growing population with added economic activity in urban areas influences rural land markets at the rural-urban fringe. With more rural land acres being converted at the urban fringe, buyers, sellers, planners, appraisers, tax assessors, lenders and others are expected to have an increasing need for information about the effect of location and economic development on rural land values.
Research results from a spatial econometric study of the rural land market in southeast Louisiana provide an indication of the factors that influence rural land values in this area and the magnitude of these factors in this market. Factors studied include site characteristics, tract location and economic development activity.
Site characteristics hypothesized to influence per acre rural land values in this analysis are size of tract and the dollar value of improvements. The size of tract is expected to have a negative relationship with per acre selling price because fewer buyers compete in markets for larger tracts and many buyers compete in markets for smaller tracts. Value of improvements is expected to have a positive influence on per acre values.
Three hypothesized relationships are included as measures of location and economic development. These include travel time to nearest city, distance to nearest town and paved access road. The travel time and distance variables are expected to have a negative influence on per acre rural land values. Location theory generally suggests an inverse relationship between distance to markets and per acre selling prices. Paved road access is expected to reflect development potential and accessibility and have a positive influence on per land values.
The effects of economic development and other factors are measured by four variables. These variables include location in the New Orleans metropolitan statistical area, commercial reason for purchase, recreational reason for purchase and month of sale. Location in the New Orleans metropolitan statistical area and month of sale are expected to have a positive influence on per acre values, and a recreational reason for purchase is expected to have a negative influence on land values. The location of a tract in a metropolitan statistical area is expected to be influenced by economic development.
Data for this study are based on rural land market sales from southeast Louisiana as determined through a mail survey. The rural land market survey was mailed to state certified appraisers, officers in commercial banks, Farm Service Agency personnel, Federal Land Bank personnel, Production Credit Association personnel, members of the Louisiana Chapter of the American Society of Farm Managers and Rural Appraisers, and members of the Louisiana Realtors Land Institute. Each respondent was asked to provide rural land sales of 10 acres or more in size including attachments to the surface such as buildings and other improvements and sales outside the boundaries of towns and cities.
The study area includes the metropolitan statistical areas of New Orleans and Baton Rouge. Each symbol in Figure 1 represents the location of each of the 237 rural land sales from 1993 to 1997. Data indicate a clustering of relatively higher per acre sales in a commuting area north of New Orleans and another clustering of such sales north of Baton Rouge.
Marginal implicit prices presented in Figures 2 and 3 are used to observe the magnitude and direction of influence of various factors on per acre land values. For convenience, marginal implicit prices are evaluated at mean values of per acre price and of the characteristic. A positive marginal implicit price suggests that an increase in that characteristic results in an increase in the per acre price of rural land, other things constant. Conversely, a negative marginal implicit price resulting from a negative coefficient has a depressing effect on per acre land prices.
Marginal implicit prices for continuous model variables indicated that both the value of improvements and time of sale have a positive influence on per acre land value (Figure 2). A $1,000 increase in improvements increases per acre value by $4.24. Similarly, the time of sale estimate indicates that, starting in 1993, each additional month adds $18.93 to the per acre value of a tract of land.
Three continuous variables were estimated to have a negative influence on per acre values. A one-acre increase in size decreases per acre price by $4.19. The distance to nearest town variable indicates that a one-mile increase from the nearest town decreases per acre value by $17.87, while the travel time variable indicates that, for each minute increase in travel time from the nearest city (Baton Rouge or New Orleans), per acre land value decreases $17.30.
Implicit marginal prices for discrete model variables suggest that a tract located in the New Orleans metropolitan statistical area sells for $1,758 more per acre than a tract not located in this area; a tract purchased for commercial purposes sells for $979 more per acre than other tracts (Figure 3). Similarly, the marginal implicit price suggests that a tract with paved road access sells for $421 more per acre than a tract that does not have this access. Land purchased for recreational purposes sells for $379 less per acre than a tract purchased for other reasons. This generally reflects marginal land purchases that are primarily suitable for hunting and fishing.
Land Value Contours
Rural land value estimates from the spatial econometric model along with Geographic Information Systems (GIS) procedures are used to estimate rural land value contours, which reflect effects of location and economic development on per acre rural land values (Figure 4). Similar to topographic maps that show equal elevation above sea level, the Louisiana land value contour map depicts areas with approximately equal per acre land values. In this analysis, tract size, improvement value and time variables are held constant in developing predictions, while travel time to nearest city, distance to nearest city, paved road access, New Orleans metropolitan statistical area, commercial reason for purchase and recreational reason for purchase variables were allowed to vary.
Results presented in Figure 4 illustrate the effects of New Orleans and Baton Rouge metropolitan areas on per acre rural land values. St. Tammany Parish, directly north of New Orleans, is in the New Orleans metropolitan statistical area. This parish also is connected to the New Orleans area via the Pontchartrain Causeway. Results indicate that the effects of location and economic development cause land values to vary from $500 to $4,000 per acre in this area. In Figure 4, rural land values vary from $3,700 per acre for areas close to Baton Rouge to $500 per acre as distance increases from Baton Rouge.
(This article appeared in the spring 2001 issue of Louisiana Agriculture.)