What Moves the German Land Market? A Decomposition of the Land Rent-Price Ratio

Abstract: The price increases on agricultural land markets over 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 and varies considerably among federal states; and that (expected) premia for land are mostly negative. Finally, we find that changing expected present values of returns on land investments are the major driver for land price volatility. https://www.tib-op.org/ojs/index.php/gjae/article/view/2161

Location
Deutsche Nationalbibliothek Frankfurt am Main
Extent
Online-Ressource
Language
Englisch

Bibliographic citation
What Moves the German Land Market? A Decomposition of the Land Rent-Price Ratio ; volume:69 ; number:1 ; year:2020
German journal of agricultural economics ; 69, Heft 1 (2020)

Creator

DOI
10.30430/69.2020.1.1-18
URN
urn:nbn:de:101:1-2409250942155.054515764829
Rights
Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
Last update
15.08.2025, 7:28 AM CEST

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