The influence of urban sprawl on farmland prices in Belgium

Since over half a century, Europe has been undergoing periurbanization; this phenomenon is similar to suburbanisation or ìurban sprawlî in the U.S. Hence, for each plot of land, there is competition for land use (agriculture, urbanisation). We here study the effect of urban sprawl on the price of farmland in Belgium. Using a set of very traditional urban economics variables, we show that the determinants of residential prices also explain the spatial variation of farmland. Indeed, the prospect of conversion from agriculture to residential land uses are high in Belgium, which is a densely inhabited country characterized by a tight urban network and where, moreover, land zoning is permissive. Therefore, urban sprawl largely dominates residential choice since over 40 years leading to fragmented landscapes where agriculture coexists with housing. We here use the Capozza & Hesley (1989) model that was recently developed by Plantinga & Miller (2001) and Cavailhés & Wavresky (2003). This model aims at analyzing urban growth from a microeconomic point of view, where agricultural land is converted in residential plot. Until conversion, the price of farmland is equal to the capitalization of the agricultural land rent; after conversion it is equal to the capitalization of the residential rent. It basically depends upon the commuting distance and the anticipated date of conversion (other determinants are also discussed: Ricardian land fertility, number of inhabitants of the township, income, border effects leading to discontinuities, etc.) A hedonic log-linear equation is used where spatial autocorrelation is controlled by Anselinsí method (1988) and the multicollinearity (if any) by partial least squares (PLS). The same econometric equation is estimated for both developable and agricultural land price. Data were aggregated at the level of the 589 municipalities and made available for an 11 years period (1995-2005). Data are mainly provided by the Belgian National Institute of Statistics (SPF …conomie - Direction Générale Statistiques): for all communes we know the price, surface and the number of transactions per year, for both developable land (but not yet developed) and farmland (meadow and arable land). Distance between the centroÔd of a commune and the centroÔd of the closest hub-city is the shortest road distance computed on the real road network (see Vandenbulcke et al., 2007, for more details). Econometric findings show that R2 values are slightly better for developable land (R2 = 0,92) than for farmland (R2 = 0,86), but that the partial R2 value associated to urban influence variables is better for farmland (0,85) than for developable land (0,38)3. The explanation of this paradox can be theoretical (combined effect of distance and anticipated land conversion date), as well as empirical (due to data imperfections: data are aggregated by municipalities). Results also reveal that agricultural prices decrease with distance from job centres and increase with the demographic size of the commune, with population rate of increase, householdsí income as well as with the contiguity to the coastline. The same variables enter the regression estimated with residential land price. Figure 1 (provisional results) shows the relationship between the slope of land price according to distance to urban centres (CBD) in the 25 urban areas, for farmland as well as developable land. Explaining farmland slope (dependent variable, y-axis) by developable land slope (explanatory variable, x-axis) indeed leads to a high determination coefficient (R2 = 0,62)

Option values in the market for periurban developable land

We study the developable land market in French periurban and rural areas under urban influence. Theoretical aspects and empirical results are derived from urban economics to analyse the main determinants of the price of developable land: distance from the urban centres, population, inhabitantsí income, etc. We focus especially on option values that come from irreversibility of development of farmland into residential plots, with uncertainly and inflow of information from the market. The classical option value, due to temporal price volatility (ìprice riskî), is introduced into an econometric model. The novel contribution of the paper is to introduce also uncertainly regarding the spatial volatility of the demographic evolution in a spatial buffer around each transaction (ìpopulation riskî), which generates a second option value. We use three individual data sets that describe the market of developable land: a very complete database available for the North department3 (31551 observations from 1989 to 2003); comparisons are made with two others database available for the CÙte-díOr department (3303 observations) and the Toulouse region (10293 observations). We use an econometric random effects model: random variables capture the effects of unobservable or omitted variables characterising each commune (level 2 of the French Local Administrative Units) or urban areas (commuting or shopping zones). Price uncertainly is introduced from the classical approach of a Brownian movement with drift (Dixit et Pindyck, 1994; cf. discussion in Cunningham, 2006): the conversion decision is made from the observed variability of the residential land price during the preceding months. We model in the same way the ìpopulation riskî: it depends on population evolution in neighbouring communes between the population censuses of 1982 and 1999; the price of waiting for more information from migrations when population is fluctuating turns into an option value capitalized into the price of developable land. The findings show, on the one hand, the decreasing slope of the price of developable plots according to both distance from urban centres and distance from the centre of each commune, the role of population and of its evolution, etc. On the other hand, significant option values appear. They are linked, first, to the ìprice riskî. In the Nord department, when the standard deviation of the price of developable plots during the six previous quarters rises by a standard deviation, the land price increase by 7.4% during the downward period of the real estate cycle (1989-1997) and in 15.3% during the upward period (1998-2002). Option values also are linked to the ìpopulation riskî: prices significantly rise with population volatility. In the Nord department, during the upward period, an increase by one standard deviation of the standard deviation of 1982-1999 population variation entails an increase by 6% of the developable land price