How focus on environment over food will affect land prices

More than 70% of land in England is used for agriculture, and under the CAP the sector’s primary objective was to provide food for the population.

However, a change is underway, with more alternative uses for land competing with food production, as Charlie Evans of CKD Property Advisers explains.

No one knows what the medium- to long-term trajectory will be and there are plenty of opposing theories.

See also: Carbon credits explained: Long-term income option for farmers

The existing alternative uses such as development, leisure, sport and amenity suddenly have major competition from “enhancement of the environment”.

Natural capital, carbon capture and biodiversity-offsetting are buzz words and government subsidies are going to reward landowners for farming in an environmentally beneficial way through the new Environmental Land Management (ELM) scheme.

Climate change is near the top of most agendas, and the Environment Bill proposes establishing the principle of “the polluter pays”.

Polluters (businesses and industry) will have to find ways to offset their carbon footprint or face fines. Many of these offsetting methods involve land.

Planting trees, increasing the organic matter content of soil, peatland restoration, regenerative farming methods and planting crops for carbon capture will all form part of the national plan to reduce carbon emissions.

As more businesses start to focus on their responsibilities, the demand for carbon-offsetting schemes will grow. This, in turn, will increase the demand for land.

This market is developing rapidly and we are already seeing new buyers in the land market.

At present, funding for land purchases for these schemes has been borne by wealthy private individuals with an environmental and social conscience, or by businesses.

However, the market will evolve and investors will find a model that delivers the returns they demand.

At that point, I expect funds to start to buy land, as we saw in 2007 when, among others, investment management company BlackRock set up an agri-fund. We can shortly expect to see “green funds” set up by private and institutional investors buying land.

Re-purposed parcels

Some of this increased demand will be supplied by a reduction in the land area needed for farming. I believe we can expect society’s diet to gradually change to include more plant-based food, a change that has already started.

Food technology such as hydroponics and vertical farming will mean less land is required, as some of our food will no longer be grown in fields.

The knock-on effect of less land needed to grow food will be the availability of more land for alternative uses.

This repurposing should allow land use to become more suited to land type and quality. Much of the marginal arable land in production today was ploughed up under CAP and will likely return to grass.

Price predictions

What will this mean for land prices? I forecast two trends:

• I expect land prices overall to marginally increase as environmental buyers start to compete with lifestyle buyers, farmers and investors. However, this increase is likely to be slow in the short term while the market adjusts. Which areas of land benefit from an increase will largely be driven by type and location. For example, it is very unlikely that the best-quality, Grade 1 soil will be bought by environmentally driven buyers. They are much more likely to focus on marginal arable land, which can be returned to pasture.
• I expect arable, pasture and woodland prices to start to equalise. In my view, current average land prices nationally are: £9,000/acre for arable, £7,000/acre for pasture, and £6,000/acre for woodland, although these averages mask a very broad range. I can see pasture and woodland values rising to become more in line with arable values.

What has not been mentioned is the potential impact of a change in tax policy on land prices.

Removal or a major change to some of the reliefs land enjoys from capital gains tax and inheritance tax would have a significant effect on pricing.

However, it is worth noting that this newest type of land-buyer will be less sensitive to the existing tax reliefs than most other buyer types, which should – to a degree – help to underpin the market in the event of a change in tax policy.