The Farmer's 401(k)

A quick thought for today regarding the law of supply and demand and how it relates to the plan of many, if not most, large landholders on the edge of growth areas to turn their land into its own own final harvest. 

In nearly every community we work in that has substantial amounts of rural area, we always experience a struggle between the rights of a property owner to develop their land and the zoning regulations that inhibit free exercise of that right. We could post on that struggle every day for the next year and not exhaust the subject, but for this post I want to get beyond the argument over rights and focus on the financial implications of the claim.

Many property owners on the edge of growth see their land as their retirement package. They have seen others around them sell their land at prices much higher than can be supported by agricultural use and they plan to likewise cash out when the time comes. As I said; the final harvest.

Based on nothing more than the empirical observation that nearly every farmer I know in this situation (and that is many) is either at or very near retirement age, I challenge our readers to consider the implications of such an approach. Even if the housing market were not depressed today, is there really any way possible that there is market demand for all of the land around our small towns?

I am in the process of updating the City of Emily's comprehensive plan, which we wrote back in 2002. At that time we did a buildout analysis based on the new growth plan (which was controversial at the time for its restrictiveness). The buildout showed that, at the new, more restrictive densities, the city with a population of 850 could swell to over 16,000 without the need to rezone a single property. For context, the twenty year population projection for Emily would be around 1,000 residents.

In other words: the supply of land is DRAMATICALLY greater, not just in the near-term demand but in any conceivable long-term demand. By the law of supply and demand, the supply is near infinite and now that the demand is near zero, the land should have no development value.

This is not realized in the market, and in fact never would fully be. Some land is obviously worth more than other land - shoreline property for example. But in general, there really is no way around the notion that the development prices of land are not real. They simply can't be. For small towns across the country, the supply is simply too great.

The land continues to have value based on the agricultural, forestry or recreational returns, but not development returns.

So where does that leave our near-retirement farmer? The people that sold out early got the windfall from a distorted market. Almost all of the rest are going to soon be facing the reality that the last harvest they had planned was decimated by a saturation of sellers and a drought of buyers.