August 15, 2003
Land has become a source of investment as well as a means to make a living. With low interest rates, farmers may be considering adding to their land base. Before doing so, a University of Kentucky Extension farm management specialist offers some things to consider.
Despite the downturn in the economy and the stock market in recent years, land prices have continued to be fairly steady, says Gregg Ibendahl, UK farm management specialist. Farmland prices have increased in value every year except during the farm crisis of the 1980s. Typically, land prices in Kentucky have increased about 6 percent per year.
?Even when accounting for inflation, land has shown real growth in most years,? he said.
Factors affecting the continued upswing in land prices include the fixed supply of useful land. Every year the amount of available land diminishes by the development of permanent roads and buildings. There?s always more demand and a decreasing supply, Ibendahl says.
?Related to the demand factor is the residential use of land,? he says. ?Here in Kentucky, this can be a problem as more and more subdivisions are built on land that was used for farming. When this starts to happen land values generally exceed the agricultural value.?
Government farm payments also play a role in land prices.
?The current economic climate has been beneficial to landowners as well,? Ibendahl says. ?With low interest rates, financing land is much cheaper than it was a few years ago. This low financing helps to spur demand and thus bid up land prices. The poor returns in the stock market have also encouraged investors to look at other investments. Land has become more attractive to those looking for alternative investments.?
Farmers looking to buy land need to carefully evaluate the decision and not get caught up in buying something because others are.
?As we have seen before, land prices can go down,? Ibendahl says. ?Be sure to include all the potential risks as well as the potential profits into the analysis.?