{"id":753,"date":"2021-07-26T12:48:06","date_gmt":"2021-07-26T19:48:06","guid":{"rendered":"https:\/\/blogs.ubc.ca\/ubcowatershed\/?p=753"},"modified":"2021-07-26T13:16:57","modified_gmt":"2021-07-26T20:16:57","slug":"land-economics-and-alr-changes","status":"publish","type":"post","link":"https:\/\/blogs.ubc.ca\/ubcowatershed\/2021\/07\/26\/land-economics-and-alr-changes\/","title":{"rendered":"Land Economics and ALR Changes"},"content":{"rendered":"

The British Columbia government recently made changes to the rules governing the Agricultural Land Reserve (BC Gov News<\/a>).\u00a0 Chief among these is allowing ALR property owners to have secondary accommodation that is not restricted to be used for farm help or family housing.\u00a0 The press release suggests that this is meant to help farmers.\u00a0 Does it?<\/p>\n

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https:\/\/infotel.ca\/inwine\/young-farmers-pursuing-leases-for-expensive-okanagan-farmland\/it79887<\/p><\/div>\n

To analyze this, I think we first need to decide who a farmer is?\u00a0 Is a farmer someone who owns agricultural land?\u00a0 Is a farmer someone who uses agricultural land to produce an agricultural product, regardless of whether or not they own the land?\u00a0 Within my profession, economist, the latter definition is generally used, with the person who owns the land being the land owner.\u00a0 Farmers are often land owners, but land owners are not always farmers.\u00a0 I am one of these land owners myself, and have leased the agricultural land I own to farmers, who use it to grow crops.\u00a0 Does this policy change help all farmers, or only those who own land?<\/p>\n

Here in the Okanagan we have quite a history of rapidly increasing property values.\u00a0 These are largely driven by the rapid population growth in the region.\u00a0 Our economy is heavily dependent on continued development of land with new housing to accommodate\/attract immigrants to the area.\u00a0 What will this policy change do to the price paid for agricultural land?\u00a0 What will it do to the likelihood that land owners will lease their land to farmers?\u00a0 What will it do to the rent that those owners expect to get for their land?<\/p>\n

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by Thomas Phillips, oil on canvas, circa 1821<\/p><\/div>\n

Economists have long studied the factors that determine the price that can be commanded for a piece of land.\u00a0 David Ricardo noticed that land owners are monopolists with respect to the land they own, able to charge up to the amount a prospective tenant could get by farming ‘free’ land at another location (Law of Rent<\/a>).\u00a0 There is no free land left in most of the world.\u00a0 Ricardo’s insight has evolved into the recognition that the price of a piece of land is not based on what it is used for, but what it could be used for.\u00a0 This is the principle of ‘highest and best use’, which is used by BC Assessment to come up with an estimate of the value that a piece of property could be sold for (Highest and Best Use<\/a>).\u00a0 While assessed values do not exactly predict the price that any property trades for, they are on average not that far off.<\/p>\n

BC doesn’t have a lot of agricultural land, and most of it is located near urban centers where development pressures are high.\u00a0 The purpose of the agricultural land reserve was to protect the ability of BC to provide at least some contribution to provincial food sovereignty.\u00a0 Why BC should strive to produce some share of its food needs is a topic of debate, which I have explored in several other posts (Kelowna’s Agricultural Plan<\/a> and subsequent posts).\u00a0 That we have an Agricultural Land Reserve with broad popular support suggests that many in this province do want to see agriculture continue in and near their communities.\u00a0 Taking this as given, my question is whether the policy changes to the ALR do in fact help strengthen farming.<\/p>\n

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https:\/\/vancouversun.com\/business\/real-estate\/kelowna-council-votes-to-end-urban-sprawl-with-limit-on-new-homes<\/p><\/div>\n

The ALR restricts what land owners can do with their land.\u00a0 These restrictions, in many parts of BC, prevent land owners from ‘growing’ the most valuable crop, houses.\u00a0 To be fair to owners of land in the ALR, BC Assessment assesses agricultural properties that are being used for agriculture at a value roughly consistent with the value of the crop that land can produce.\u00a0 That means that property owners who have their land farmed – by themselves or leased to others – pay less, sometimes far less, in property taxes than non-agricultural property owners.\u00a0 These properties typically sell for far more than the assessed value.\u00a0 Land that has the potential for future development will sell at a price reflecting this potential.\u00a0 Land that has an attractive location for a country estate will sell based on this value.\u00a0 Land sells at the value of the services the land provides that can be captured by the owner.\u00a0 This value would include the rental income that can<\/strong><\/span> be generated from the property, not the rental income that is actually being generated.<\/p>\n

For pretty much the entire history of the ALR, owners of agricultural land have argued for adjustments that would increase their ability to generate income from the land they own.\u00a0 These arguments have typically been framed as changes to help farm families.\u00a0 Some changes, such as allowing enterprises that increase the value of what is produced on the land – farm retail, wineries, cideries, etc. that use products produced on the farm – would seem to support farming.\u00a0 The value of these options will depend on the ability of the land to produce the crop.\u00a0 However, the current change doesn’t do anything to increase the value generated by the crop.\u00a0 If anything, it makes crop production more costly.<\/p>\n

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http:\/\/www.orchardandvine.net\/articles\/coral-beach-wins-controversial-right-to-farm-case\/<\/p><\/div>\n

Allowing rental housing to be built on agricultural land increases the income earning potential of that land, and will therefore increase the price at which that land trades.\u00a0 It will encourage land owners to build houses on agricultural land.\u00a0 It will encourage land owners to change the agricultural practices (crops grown, how the crops are grown, etc.) on their land to maximize the value of the rental income they can earn.\u00a0 Farmers renting land for agriculture typically pay annually less than what a tenant of a small rental home pays per month!\u00a0 Agricultural parcels will become more expensive.\u00a0 Less land will be available to farm.\u00a0 Land owners will pay more attention to the undesirable aspects of the agriculture that could be practiced on their land, which might reduce their ability to earn rental income (e.g. frost fans, spraying, helicopters, etc. associate with growing cherries).\u00a0 Farmers who own the land will benefit, through a higher price that they can sell their land for, and earning rental income before doing so.\u00a0 Farmers who don’t own the land are likely to be worse off, with less land available to farm and more restriction on that land.\u00a0 Since these changes don’t increase the value of what is produced from the land, while increasing the price of agricultural parcels, it will take longer for young farmers to earn enough by farming to become land owning farmers.\u00a0 The trend for farming in the Okanagan becoming a ‘hobby for retirees’ will continue, as those who can purchase farmland will have to bring money from somewhere else to afford to buy the land.<\/p>\n

If our goal is to support farming, then we should look at the needs of farmers, whether or not they own the land they farm.\u00a0 Farmers invest in the productivity of their land.\u00a0 Some crops require large up front investments and years before any revenue is generated.\u00a0 Even annual crops rely on good soil management, which requires investment in the ’tilth’ of the soil.\u00a0 Certifying land for organic production requires years without conventional inputs before certification is granted.\u00a0 Farmers require security of tenure if they are going to make these investments.\u00a0 Owning the land is one way to get this security.\u00a0 Long term leases are another way.\u00a0 Long term leases put limits on what the owner can do with the land, and like the ALR generally, will reduce the price at which the land can be sold.\u00a0 Perhaps a better approach to modifying the ALR is developing a modification to the tax system that encourages long term leases.\u00a0 At present, the agricultural land assessment is based on a threshold for annual income from the land that must be passed to sustain status.\u00a0 It has no connection to the length of time the land will be in agricultural production.<\/p>\n

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http:\/\/whatcom.wsu.edu\/ag\/<\/p><\/div>\n

Would a point based property tax reduction system work for BC (or local governments in BC)?\u00a0 Watcom County in Washington State has a point based system, where property owners earn points towards a reduction in their property tax bill based on open space ‘services’ they provide (Watcom County<\/a>).\u00a0 Perhaps we could adopt something similar – either provincially or by adapting legislation to encourage local governments to do so – where the points awarded include points for the land being in a long term lease to an agricultural producer.\u00a0 Farmers who own their land would receive the full available points for the land they are farming, while owners leasing their land would receive points on a sliding scale, with no points for one year leases (pay same tax as residential), and full points for some lease length threshold (e.g. ten years).\u00a0 In Watcom County, points are also awarded for providing environmental benefits and public access, something that might be a good idea here in BC.<\/p>\n

The recently announced changes to the ALR are good for agricultural land owners.\u00a0 They are likely to be bad for farmers who are not land owners.\u00a0 Rather than focussing on what is good for land owning farmers, if we want to encourage farming, no matter who owns the land, we should focus on policy changes that support farming.<\/p>\n","protected":false},"excerpt":{"rendered":"

The British Columbia government recently made changes to the rules governing the Agricultural Land Reserve (BC Gov News).\u00a0 Chief among these is allowing ALR property owners to have secondary accommodation that is not restricted to be used for farm help … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":16392,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-753","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/posts\/753","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/users\/16392"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/comments?post=753"}],"version-history":[{"count":8,"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/posts\/753\/revisions"}],"predecessor-version":[{"id":766,"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/posts\/753\/revisions\/766"}],"wp:attachment":[{"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/media?parent=753"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/categories?post=753"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.ubc.ca\/ubcowatershed\/wp-json\/wp\/v2\/tags?post=753"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}