1 / 25

Land Resource Economics

Land Resource Economics. Wednesday, Feb. 16. Characteristics of Land. Unique – fixed in location Heterogeneous in topography, geology, hydrology, fertility Room and Situation (Hite) U.S. ~2.3 billion acres, 37% publicly owned MI ~ 37 million acres, 21% publicly owned. Private land market:.

napier
Télécharger la présentation

Land Resource Economics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Land Resource Economics Wednesday, Feb. 16

  2. Characteristics of Land • Unique – fixed in location • Heterogeneous in topography, geology, hydrology, fertility • Room and Situation (Hite) • U.S. ~2.3 billion acres, 37% publicly owned • MI ~ 37 million acres, 21% publicly owned

  3. Private land market: • Land allocated among alternative uses based on demand for those uses and cost of providing those uses (supply) • Opportunity cost • Rent • Different parcels earn different amounts of rent in different uses

  4. Why rent varies: • Fertility/productivity • Topography/hydrology • Location • Institutions

  5. Why is it important to know rent earning potential? • Allocation among competing uses • Consider uses A and B • Trees vs. Crops • Crops vs. office park • Margin of transference • That point at which rents from use B become just as attractive as rents from use A • Bid/rent function (rent gradient)

  6. Rent to Undeveloped Use (Agriculture) Margin of Transference Rent $ Rent to Developed Use Distance from population center

  7. Why is it important to know rent earning potential? • Basis for development decisions • NPV for existing use • NPV for alternative use • Account for costs of changing the use, e.g. costs of construction, etc. for development

  8. Why is it important to know rent earning potential? • Calculate land values • Capitalization of future rents • PV = present value • FV = future value • r = discount rate • n = number of years until future value is realized

  9. Capitalization of rents into value: • Agricultural use, average $200 rent/acre per year • After 10 years, sell for $10,000/acre V=$7143.75

  10. Capitalization of rents into value: • Agricultural use, average $200 rent/acre per year • V=a/r • a = annual rent • r = discount rate V = 200/.06 = $3333.33

  11. Why is it important to know rent earning potential? • Determine contract rental payment • Important for selecting among alternative leases • Actual payments may depend upon other opportunity costs – e.g. wages for non-farm work

  12. Contract rental payment • Lease land for agriculture • If annual rent is $200, would not pay more than $200/month for lease • else cutting into returns to labor and capital costs • Lessor/Lessee consider other opportunities • Off farm jobs

  13. Rights of property in land • Envision property rights in land as a bundle of sticks. • Each stick represents a right. • Different forms of ownership are different collections of sticks.

  14. Private property in land • Rights and limits to rights are clear • Rights are enforced • Rights are transferable • Rights are exclusive

  15. Most common type of private ownership is fee simple. • Right to possess and use • Right to sell • Right to lease • Right to mortgage • Right to subdivide • Right to grant easements • Right to devise

  16. Property in land is exclusive but it is not absolute.

  17. Rights reserved for government: • Right to tax • Right to take for public use (eminent domain) • Right to control the use of (police power) • Right of escheat

  18. Taxation • Property tax • Based upon value of real property • May have a personal property tax • Revenues generated to serve enforcement role and provide public services • Taxation may impact use • e.g. use value taxation in agriculture • Taxation may impact value

  19. Fair market vs. use value taxation • Agricultural use, average $200 rent/acre per year • If, after 10 years, could sell for $10,000/acre • V = $7144 • If development is not an option, remain in farming • V = $3333 • If taxes are assessed at $.02 per dollar of value • Property taxes are $142.88 at fair market value • Property taxes are $66.66 at ag. use value • Lower taxes, eventually land values climb

  20. Eminent domain • To take for public use • to generate a good • Requires compensation

  21. Police Power • Control of land use to protect public health, safety, morals and general welfare • to prevent a bad • Based on common law doctrine of nuisance • No compensation required

  22. The “Takings” Issue • Eminent domain requires compensation. • Taking land to generate a good without compensation is a “taking” • Police power does not require compensation. • Do not have to pay people to prevent a bad • Are there “regulatory takings”? • when use is restricted? • when all economic use is prevented?

  23. Rights of property in land have been redefined: • Deed restrictions or covenants • Fee Tail • Life estates • Easements • Wetland regulations • MI Land Division Act • Subdivision control • Zoning When sticks are shortened or removed from the bundle

More Related