Page 1
Texas Association of Appraisal Texas Association of Appraisal DistrictsDistrictsAustin, TX -- February 25, 2003Austin, TX -- February 25, 2003
Charles E. Gilliland Charles E. Gilliland Ph.D.Ph.D.Research EconomistResearch EconomistReal Estate CenterReal Estate CenterTexas A&M UniversityTexas A&M University
Page 2
THE OUTLOOKTHE OUTLOOK
Current Land MarketsCurrent Land Markets
Future of Rural TexasFuture of Rural Texas
Implications for Land MarketsImplications for Land Markets
Page 3
CURRENT DEVELOPMENTSCURRENT DEVELOPMENTSHAPPY DAYS ARE STILL HAPPY DAYS ARE STILL
HEREHERE
2002 Another Good Year -- 2002 Another Good Year -- MostlyMostly
Inventories TightInventories Tight
Real Land Prices RiseReal Land Prices Rise
Page 4
TEXAS RURAL LAND PRICESDollars/ Acre
0
200
400
600
800
1,000
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Nominal
Real or Deflated
2001 2002 Change
Real $212 $215 +1.4 %
Nominal $945 $972 +2.9%
Volume 4,713 4,723
2001 2002 Change
Real $212 $215 +1.4 %
Nominal $945 $972 +2.9%
Volume 4,713 4,723
Page 5
VERY IMPORTANT BUYER VERY IMPORTANT BUYER MOTIVES MOTIVES FALL 2001FALL 2001
67
39
9
9
15
12
12
21
39
15
3
0 20 40 60 80
recreation (hunting and fishing)
recreation (other)
hold for appreciation
1031 exchange
agricultural production
preserve environment
preserve wealth
second home
primary home
ranchettes or homesites
water rights
mineral rights
Percent (% )
Page 6
TEXAS LAND BUYERSTEXAS LAND BUYERS
Producers Must Compete For LandProducers Must Compete For Land
Prosperity Supports Recreational Prosperity Supports Recreational
UsersUsers
Non-Consumptive Recreation GrowsNon-Consumptive Recreation Grows
Eager BuyersEager Buyers
Page 7
VERY IMPORTANT SELLER VERY IMPORTANT SELLER MOTIVES FALL 2001MOTIVES FALL 2001
18
45
3
30
6
21
27
9
9
3
0 10 20 30 40 50
financial stress
estate settlement
fear of environmental regulations
retirement, age or health
fear of market declines
profit from capital gain
poor agricultural markets
finance the purchase of other goodsor assets
lost interest in property
moved from area
Percent (% )
Page 8
TEXAS LAND SELLERSTEXAS LAND SELLERS
Estate SettlementEstate Settlement
RetirementRetirement
Poor Agricultural MarketsPoor Agricultural Markets
Tight SuppliesTight Supplies
Page 10
0
50
100
150
200
250
300
350
400
450
500
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Year
Acr
es
Small Tracts
Typical Tracts
Large Tracts
Texas -- Overall
MEDIAN TRACT SIZE FOR TEXAS RURALLAND MARKETS 1966 -- 2001
Large Properties
1966-1982 385 acres
1983-2002 430 acres
Large Properties
1966-1982 385 acres
1983-2002 430 acres
Small Typical
50 acres 144 acres
Small Typical
50 acres 144 acres
Note: Figures based on regional median tract sizes
Page 11
0
300
600
900
1,200
1,500
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Dollars
per
acr
e
Texas -- Overall Small PropertiesTypical PropertiesLarge Properties
TRENDS IN UNADJUSTED TRENDS IN UNADJUSTED MEDIAN TEXAS LAND PRICESMEDIAN TEXAS LAND PRICES
2001 2002 Change
Small $1,317 $1,448 +10 %
Typical $897 $871 - 3 %
Large $590 $676 +14 %
Typical: First decline since 1991
2001 2002 Change
Small $1,317 $1,448 +10 %
Typical $897 $871 - 3 %
Large $590 $676 +14 %
Typical: First decline since 1991
Page 12
0
200
400
600
800
1,000
1,200
1,400
1,600
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Dollars
per
acr
e
Small Tracts
Large Tracts
Weighted Median Prices Per Acre
Texas Rural Land 1966-2001
Page 13
0
200
400
600
800
1,000
1,200
1,400
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Dollars
per
acr
e
Small Tracts
Difference (Sm - Lg)Large Tracts
Weighted Median Prices Per Acre
Texas Rural Land 1966-2001Difference as percent of large
tracts
1966 64 %
2002 114 %
Pressure to Split Up Properties?
Difference as percent of large tracts
1966 64 %
2002 114 %
Pressure to Split Up Properties?
Page 14
-13
-10
-7
-4
-1
2
5
8
11
14
17
201966
1970
1974
1978
1982
1986
1990
1994
1998
Year Acquired
Perc
ent
3 YEAR INVESTMENT
5 YEAR INVESTMENT
10 YEAR INVESTMENT
Zero
Net of Inflation Capital Gain ReturnsTexas Small Properties
Average Since 1993
3 Year 5.7 %
5 Year 5.2 %
Since 1991
10 Year 4.2 %
Average Since 1993
3 Year 5.7 %
5 Year 5.2 %
Since 1991
10 Year 4.2 %
Page 15
-18
-15
-12
-9
-6
-3
0
3
6
9
12
151966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Year Acquired
Per
cent
3 Year Investment
5 Year Investment
10 Year Investment
Zero
Net of Inflation Capital Gain ReturnsTexas Typical Properties
Average Since 1993
3 Year 4.9 %
5 Year 4.8 %
Since 1991
10 Year 3.7 %
Average Since 1993
3 Year 4.9 %
5 Year 4.8 %
Since 1991
10 Year 3.7 %
Page 16
-20
-15
-10
-5
0
5
10
15
201966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Year Acquired
Perc
ent
3 Year Investment
5 Year Investment
10 Year Investment
Zero
Net of Inflation Capital Gain ReturnsTexas Large Properties
Average Since 1993
3 Year 3.4 %
5 Year 3.6 %
Since 1991
10 Year 1.7 %
Average Since 1993
3 Year 3.4 %
5 Year 3.6 %
Since 1991
10 Year 1.7 %
Page 17
FOURTH QUARTER 2002 FOURTH QUARTER 2002
Leveling Off?Leveling Off?
Most Local Markets Still IncreasingMost Local Markets Still Increasing
Statewide:Statewide:
44thth quarter $972 quarter $972
Last year $945Last year $945
33rdrd quarter $934 quarter $934
Page 18
FOURTH QUARTER 2002 FOURTH QUARTER 2002
Size Returning to NormalSize Returning to Normal
Amarillo Area Increased 55 PercentAmarillo Area Increased 55 Percent
Buyers Skipping Over High Priced Buyers Skipping Over High Priced
AreasAreas
Timber Woes Hitting East TexasTimber Woes Hitting East Texas
Page 19
TAKEAWAYS TAKEAWAYS The Party Continues The Party Continues
Current Uncertainty A Plus?Current Uncertainty A Plus?
Recreation – Investment DominateRecreation – Investment Dominate
Small Tracts On Fire Small Tracts On Fire
Continuing Climb in Non-Farm MarketsContinuing Climb in Non-Farm Markets
Typical Size Markets WeakerTypical Size Markets Weaker
Page 21
LONG-TERM LONG-TERM INFLUENCESINFLUENCES
Rural Policy in Distress Rural Policy in Distress
Current Social ContextCurrent Social Context
Negotiating a New Social ContractNegotiating a New Social Contract
Implications for Land MarketsImplications for Land Markets
Page 23
SOCIAL CONTRACT SOCIAL CONTRACT FRONTIER 1776 – 1880sFRONTIER 1776 – 1880s
Exploration PromotedExploration Promoted
Protection Afforded Protection Afforded
Food SuppliedFood Supplied
Raw Materials Raw Materials
Hard CurrencyHard Currency
Farmers are Majority of workforce.Farmers are Majority of workforce.
Farmer’s Farmer’s defineddefined American society American society
Farmers are Majority of workforce.Farmers are Majority of workforce.
Farmer’s Farmer’s defineddefined American society American society
Page 24
SOCIAL CONTRACT SOCIAL CONTRACT STOREHOUSE 1890s – STOREHOUSE 1890s –
1970s1970s Subsidies Subsidies
TransportationTransportation
Irrigation projectsIrrigation projects
REA REA
Direct payments to farmersDirect payments to farmers
Low-Cost Food Low-Cost Food
After 1880 farmers are less than 50 % of workforce.After 1880 farmers are less than 50 % of workforce.
Farmer’s Farmer’s suppliedsupplied America’s tables America’s tables
After 1880 farmers are less than 50 % of workforce.After 1880 farmers are less than 50 % of workforce.
Farmer’s Farmer’s suppliedsupplied America’s tables America’s tables
Page 25
CURRENT SOCIAL CURRENT SOCIAL CONTEXTCONTEXT
US A Suburban Nation US A Suburban Nation
1990 – Half of US in Cities of 1 Million1990 – Half of US in Cities of 1 Million
1992 – Most Presidential Votes from 1992 – Most Presidential Votes from
SuburbsSuburbs
1994 – Top 5 House Positions Suburban1994 – Top 5 House Positions Suburban
1996 – House 82.5 % Non-Rural 1996 – House 82.5 % Non-Rural
2000 – Majority of US in Suburbs2000 – Majority of US in Suburbs
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 26
WHY SHOULD WE INVEST WHY SHOULD WE INVEST IN RURAL AMERICA? IN RURAL AMERICA?
Most Americans could care less Most Americans could care less
if farming and ranching if farming and ranching
disappear, as long as they get disappear, as long as they get
their burgers and fries….their burgers and fries….
Stephen BlankStephen Blank -- The End of the American -- The End of the American
Farm?Farm?
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 27
NEW SOCIAL CONTRACTNEW SOCIAL CONTRACT
No Social Contract Since No Social Contract Since
19701970
Rural Interests Holding on Rural Interests Holding on
to Subsidiesto Subsidies
Power and Savvy of Rural Power and Savvy of Rural
Special InterestsSpecial InterestsSource: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 28
RURAL POLICY IN RURAL POLICY IN DISTRESSDISTRESS
Characteristics of Rural Policy Characteristics of Rural Policy
Agriculture -- Lowest Cost ProducersAgriculture -- Lowest Cost Producers
Manufacturing -- Low Cost LaborManufacturing -- Low Cost Labor
Page 29
NEW SOCIAL NEW SOCIAL CONTRACT?CONTRACT?
Survival of Rural Middle ClassSurvival of Rural Middle Class
Reducing Concentrated Rural PovertyReducing Concentrated Rural Poverty
Sustaining and Improving Natural Sustaining and Improving Natural
EnvironmentEnvironment
Karl N. Stauber Ph.D. Karl N. Stauber Ph.D. -- The Economic Review; -- The Economic Review; 22ndnd Qtr, Qtr,
20012001
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 30
NEW SOCIAL NEW SOCIAL CONTRACT?CONTRACT?
Protect and Restore EnvironmentProtect and Restore Environment
Produce High-Quality Local FoodProduce High-Quality Local Food
Create a Laboratory of Social InnovationCreate a Laboratory of Social Innovation
Produce Healthy, Well-Educated CitizensProduce Healthy, Well-Educated Citizens
Prevent Urban OvercrowdingPrevent Urban OvercrowdingMark Drabenstott Ph.D. and Katharine H. SheaffMark Drabenstott Ph.D. and Katharine H. Sheaff -- The -- The
Economic Review; 3Economic Review; 3rdrd Qtr, Qtr, 20012001
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 31
““CURRENT AGRICULTURAL CURRENT AGRICULTURAL POLICIES ACTUALLY HURTING…”POLICIES ACTUALLY HURTING…”
““Absorbing Vast Majority of Absorbing Vast Majority of
Resources…”Resources…”
“ “Continuing Myth That Rural and Continuing Myth That Rural and
Agriculture are the Same…”Agriculture are the Same…”
“ “Making it Difficult … to Develop … Making it Difficult … to Develop …
Competitive Advantages…”Competitive Advantages…”
““Higher Land Prices for FarmersHigher Land Prices for Farmers
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 32
PRESCRIBED REMEDIESPRESCRIBED REMEDIES
Education Education
Conserve Natural Environment and Conserve Natural Environment and
CultureCulture
Increase Regional CompetitivenessIncrease Regional Competitiveness
Create New Competitive AdvantageCreate New Competitive Advantage
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 33
WHAT WORKSWHAT WORKS
No Competitive Advantage = No Competitive Advantage =
No ProsperityNo Prosperity
Create New, Don’t Preserve OldCreate New, Don’t Preserve Old
Build Social and Human CapitalBuild Social and Human Capital
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 34
SUCCESSFUL SUCCESSFUL COMMUNITIESCOMMUNITIES
Community Controversy AcceptedCommunity Controversy Accepted
Schools Focus on AcademicsSchools Focus on Academics
Resources to Support Joint Risk Taking Resources to Support Joint Risk Taking
Raise Taxes to Fund InfrastructureRaise Taxes to Fund Infrastructure
Community Inclusive Community Inclusive
Leadership Dispersed and FlexibleLeadership Dispersed and Flexible
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 35
WHAT DOESN’T WORKWHAT DOESN’T WORK
High Levels of Class DivisionHigh Levels of Class Division
Dominance By Elites Dominance By Elites
Lack of LeadershipLack of Leadership
Source: Federal Reserve Source: Federal Reserve Bank of Kansas CityBank of Kansas City
Page 36
TAKEAWAYSTAKEAWAYS
Rural Communities Are at Risk Rural Communities Are at Risk
Rural Community Leadership Critical to SuccessRural Community Leadership Critical to Success
“ “Smaller” is Better?Smaller” is Better?
Debate has Begun Debate has Begun
Center for the Study of Rural America Center for the Study of Rural America
http://www.kc.frb.org/RuralCenter/RuralMain.htmhttp://www.kc.frb.org/RuralCenter/RuralMain.htm