What Moves the German Land Market? A Decomposition of the Land Rent-Price Ratio

Jana Plogmann, Oliver Musshoff, Martin Odening and Matthias Ritter

German Journal of Agricultural Economics, 2020, vol. 69, issue 01

Abstract: The price increases on agricultural land markets over the last decade have triggered a debate about land as an attractive investment opportunity for agricultural and non-agricultural investors. In a static environment, the rent-price ratio provides a first indicator of the profitability of an investment in land. In this paper, we apply the dynamic Gordon growth model to Western Germany and decompose the rent-price ratio into the expected present values of rental growth rates, real interest rates, and a land premium, i.e., the excess return on investment. This analysis reveals that the recent price surge on agricultural land markets was not unprecedented; that the land market rent-price ratio is rather low and varies considerably among federal states; and that (expected) premia for land are mostly negative. Finally, we find that changing expected present values of returns on land investments are the major driver for land price volatility.

Keywords: Agricultural Finance; Farm Management; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: What Moves the German Land Market? A Decomposition of the Land Rent-Price Ratio (2019)
Working Paper: What moves the German land market? A decomposition of the land rent-price ratio (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:gjagec:334161

DOI: 10.22004/ag.econ.334161

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