What moves the German land market? A decomposition of the land rent-price ratio

Jana Plogmann, Oliver Musshoff, Martin Odening and Matthias Ritter

No 05 (2018), FORLand Working Papers from Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation"

Abstract: The price increases on agricultural land markets in 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 compared to other markets and varies considerably among federal states; and that (expected) premia for land are mostly negative, rendering investments in farmland unprofitable for financial investors. Finally, we find that changing expected present values of returns on land investments are the major driver for land price volatility.

Keywords: Agricultural land market; rent-price ratio; Campbell-Shiller decomposition; dynamic Gordon growth model (search for similar items in EconPapers)
JEL-codes: C32 G12 Q15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: What Moves the German Land Market? A Decomposition of the Land Rent-Price Ratio (2020)
Working Paper: What Moves the German Land Market? A Decomposition of the Land Rent-Price Ratio (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:forlwp:052018

DOI: 10.18452/19486.2

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