Texas Association of Appraisal Districts Austin, TX -- February 25, 2003 Charles E. Gilliland Ph.D....

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

THE OUTLOOKTHE OUTLOOK

Current Land MarketsCurrent Land Markets

Future of Rural TexasFuture of Rural Texas

Implications for Land MarketsImplications for Land Markets

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

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

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 (% )

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

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 (% )

TEXAS LAND SELLERSTEXAS LAND SELLERS

Estate SettlementEstate Settlement

RetirementRetirement

Poor Agricultural MarketsPoor Agricultural Markets

Tight SuppliesTight Supplies

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

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

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

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?

-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 %

-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 %

-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 %

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

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

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

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

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

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

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

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?


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

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

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


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


““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


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


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


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


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


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

Texas Association of Appraisal Districts Austin, TX -- February 25, 2003 Charles E. Gilliland Ph.D....

Documents

Transcript of Texas Association of Appraisal Districts Austin, TX -- February 25, 2003 Charles E. Gilliland Ph.D....