Land Prices And Values

Press, Volume CV, Issue 30977, 5 February 1966, Page 10

Land Prices And Values

The scarcity of land previously mentioned is one factor in forcing up the price. This is the law of supply and demand and farmers know that they are faced with competition at every auction. They will pay for a farm exactly what it is worth to them for an income, a home, and a way to live. They feel justified in paying that price for all the benefits of ownership over the years. In valuation circles this is regarded as the warranted price to the individual owner.

It raises the thought that there are two factors in connexion with land—price and value. The first is the available market price of land—the amount the property will bring on the open market The vendor is entitled to ask the highest price he can get for the farm for the highest and best use for the land. The buyer on the other hand is entitled to at the lowest possible amount He takes into consideration his own ability to increase production and to obtain a greater net return from the farm than the previous owner. This appears to be one of the basic principles of a purchase and is part of the faith the farmer has in his ability. Fortunately this faith is well justified and, coupled with an ever-present optimism, enables farmers to carry on year after year in spite of adverse seasons and prices. That too is part of the way of life. So farms are continually being sold and bought and most of the buyers are genuine farmers, who must be reasonably satisfied with the price, or they would not buy the farm.

Let us leave the price now and look at value for a while. Does the very high sale fix the value of all land in the district? This is a common thought in the minds of a large number of people in cities as well as in the country. It is of course quite untrue. Valuers as a whole are fully aware of the available market price of properties. They are aware that that price has been pushed up by the demand—by the special appeal that this property makes to the ultimate buyer and the fact the buyer has probably been waiting some considerable time to buy just this particular type of place. That is price. What is value? The Valuation of Land Act defines the capital value in a rather long phrase but it. can be reduced to this: “The capital value is the sum that the owner’s interest in the land would realise if put up for sale’ on such reasonable terms and conditions as a bona fide seller might be expected to require.” This is the selling value. The bona fide seller is

a man who is acting in good faith. It presumes a buyer who is actig equally in good faith. Neither of these are presumed to be forced to act of necessity. The seller does not have to sell and the buyer does not set out to pay the highest price for a block of land, as that would be contrary to the definition of capital value. In New Zealand as in other parts of the world valuation is based on the concept of the willing-seller and the willing-buyer, and this can be explained simply as follows—“WTiat would a man

(This is the second and final part of an article bn the high price of land and its effect on land values, written bg Mr M. B. Cooke, senior lecturer in rural valuation at Lincoln College. He says that the views expressed are his own and are not necessarily those of the college or of the New Zealand Institute of Valuers, of which he is president ]

willing to buy but not desirous of buying have had to pay for the property on that day to a seller willing to sell but not desirous of selling?” This places a different view on the question of value. It is the selling value between two people who are free agents. Now take tl.at a step further and look at the back pages of “The Press.” You will see a number of farms advertised for sale. Obviously some would appeal to many buyers, too many for the few really good farms available. If you conform to the willingbuyer member of the farming fraternity you would go to the auction or make an offer for the farm of your choice. Without question you would find that someone else is pushed by necessity, by the law of supply and demand and will give a very much higher price for the place. Therefore the willing-buyer does not get the farm. He is too far below the market price. This helps to show the relationship between the capital value under the Valuation of Land Act and the willing-seller / willing-buyer concept. It also shows the distinction between value and available market price. If value is to be interpreted correctly, valuers, at least, must realise this distinction. On this basis value must always be below market price in times like the present. If we look closely at this we can see that the buyer is free to buy or to withdraw. He is neither determined nor forced to buy. He may like to buy that place if he possibly could, but the definition makes it very clear that there must be no compulsion of any

sort. The seller is willing to sell, but he also is free to withdraw if he wishes. He can wait until he thinks prices will improve. During the depression the price of land dropped and dropped until it reached rock bottom. There were very few, if any genuine sales of land. Nearly all were mortgagee or forced sales, or sales of farms abandoned to the creditors. As the world emerged from the depression we saw the return to the normal sales of land again. After this, values too, began to rise. Then for a period during and after the Second World War, the sale of land and its price were controlled by the Land Sales Act. When this was lifted in 1951 there was an immediate rise in price and in the number of sales. This was probably inevitable as land had been controlled for so long. The boom price for wool at the same time did not help matters either. Valuers had to follow suit but they took some time to overcome the fixed ideas of many people. Many felt that the values were ridiculous, just in exactly the same way as they say the same thing today. Prices today are very high and valuers have no option but to apply them. These values are still below the actual sales that are taking place. A number of counties have been revalued in recent months and the new valuations have been gazetted by the department. These show considerable increases in the values of individual farms and of the counties as a whole. Perhaps in many cases the revised value of the property comes as a shock to the owner of the property. However I submit that very rarely would the revised value placed on the property be anywhere near as much as it would bring if put on the open market at the time that the valuation was gazetted. It seems to me that this increase in the price of land has come to stay unless we experience another depression and none of us want to see that again. The price of land may hold for a while but it will rise when the overall economy returns to normal, or when mortgage finance becomes more readily available. The climate of confidence will return to the farming world and farms will continue to change hands at these higher and higher prices. The Oxford dictionary defines value as “a fair and equivalent return.” The typical buyer of farm land seems to agree with this statement or he would not buy. Under the principles of valuation followed in New Zealand today the value of land must be allied to these prices.