Analysis of Variations in Farm Real Estate Prices Over Homogeneous Market Areas in the Southeast

This article presents an analysis of factors influenc- markets, but no universally accepted method or sysing farm real eatate prices in the southeastern United ter has emerged. 2 Population density and topographic States. The first step in the analysis is the use of a mul- and climatic factors are commonly used to provide tivariate criterion to segment the regional market into some homogeneity of agronomic conditions (Harrell homogeneous land resource components. Segmenta- and Hoover; Spurlock and Adrian; Herr; Vallink). tion of the regional market reflects the view long held Schuh and Scharlach used regression residuals to clasby land economists that the aggregate farm real estate sify counties in Indiana into 4 submarket areas. Corty market really comprises a conglomerate of smaller, used population density to group the 48 contiguous differentiated submarkets (Barlowe; Crowley; Sco- states into 11 markets. Clifton used a multivariate crifield). These economists use regression analysis to ex- terion to classify U.S. counties into a set of homogeamine the importance of various factors on land prices neous farm real estate submarkets. The latter study within each homogeneous market identified in the in- employed county data from the 1969 Census of Agriitial phase of the research. It is hypothesized that the culture and the 1970 Census of Population to analyze magnitude of and relationships between determinants factors affecting land values within each submarket. of land prices are uniform across market areas subject to different levels of urban influence. Identification of the magnitude of these factors influencing land prices CONCEPTUAL FRAMEWORK in homogeneous areas and the relationships between them may provide an improved understanding of the Though we speak of the land market in a spatial sense functioning of the farm real estate market. (states and regions), the market as a unit of inquiry is Previous studies have statistically explored the im- not easily delineated. Land viewed either as a producportance of various factors in determining land values tive or consumptive good does not conform to the (Castle and Hoch; Herdt and Cochrane; Klinefelter; Marshallian definition of an economic good. Parcels Maier, Hedrick and Gibson; Reynolds and Timmons; of land are heterogeneous and fixed in location with Tweeten and Martin). These include net farm income, relatively few buyers and sellers in local areas. Each government transfer payments, farm enlargement, parcel of land constitutes its own unique market. population density, capital gains, expectations, and Therefore, the conceptual focus of this analysis is more technological change. However, most previous empir- properly directed toward "market area classification" ical studies and existing theoretical analyses have dealt than "market classification" per se. primarily with macrodata or aggregate market analy- Assuming the local economic supply of farmland to sis. be perfectly inelastic, market areas can be defined on Structural variables in an aggregate market context the basis of demand relationships. Areas which exhibit may undergo periodic change and specific coefficients similar demand characteristic effects on land should may vary in magnitude and direction among submar- experience similar land values, given the absence of kets. Earlier studies conducted by Christensen and Raup supply effects. For example, farmland adjacent to urin Minnesota and Johnston in California provide sup- ban areas, which often provides needed space for urport for this hypothesis. Regional analysis of land prices ban and industrial activities, should be expected to must therefore identify relatively homogeneous land experience high land prices relative to similar land sitmarket areas while at the same time ensuring that the uated in a predominately rural area. In the urban area, size of the submarket areas are large enough for reli- nonagricultural demands such as accessibility, timing able statistical analysis. of development, and intensity of use combine with farm Several classification systems have been proposed factors to influence the earning expectations of land to identify conglomerates of smaller homogeneous owners. Generally, in the rural area expected net ag