Examining the Relationship between Land Values and Credit Availability

Abstract

Increased credit availability facilitates land acquisition, but higher land values also hinder it. We investigate the impact of credit availability on land values, after regulatory changes in the lending system. We build an index of increased credit availability using Federal Reserve and Federal Deposit Insurance Corporation data. County-level panel fixed effects estimations are performed controlling for land value determinants, credit availability, and county-level macroeconomic factors. We find that estimating the effects of credit availability separately masks its total effect. Results show a 0.1 change in the index for increased credit availability is associated with 1.64–1.96% increase in land values.

Racial disparities in farm loan application processing: Are Black farmers disadvantaged?

“…Studies have found a negative correlation between farm value and credit access (Pederson et al, 2012; Sant'Anna et al, 2021). For instance, Pederson et al (2012) find that a 1% growth in loans to credit‐constrained farmers increases income by 0.5% and investments by 0.3%.…”

Limits to capital: Assessing the role of race on the Paycheck Protection Program for African American farmers in America

“…Limited credit access can pose challenges in terms of farm start‐ups and growth. In agricultural lending, aspects such as revenue generation and land ownership can hinder credit access, as studies have found that there is a negative correlation between farm value and credit access (Pederson et al, 2012; Sant'Anna et al, 2021). In this study, we seek to address the yet unanswered questions: Does the pattern observed within the Paycheck Protection Program (PPP) apply to the agricultural production sector?…”

“…Small businesses 1 with limited buffer to withstand macroeconomic shocks were more vulnerable to the pandemic relative to large businesses, and the number of actively run small business owners decreased by 3.3 million or 22% in early 2020, with a 25% decrease in revenue (Fairlie, 2020; SBA, 2022). To address the financial hardships that small businesses faced, under the Coronavirus Aid, Relief, and Economic Security (CARES), an $835 billion PPP program was administered by the U.S. Small Business Administration (SBA) with support from the U.S. Department of the Treasury (Sant'Anna et al, 2021). There were two rounds of PPP in 2020 and 2021, and each lasted 18 weeks in 2020 and 20 weeks in 2021.…”

“…Improving credit access should be done sensibly and targeted. Sant'Anna et al (2021) conclude that government programs should focus on increasing credit access to target specific groups to not create further challenges or barriers to entry to farming (e.g. land acquisition due to the positive effect that credit availability has on land values).…”

The impact of no‐till on agricultural land values in the United States Midwest

“…However, the principal determinant of agricultural land values is the ability to generate future returns. According to relevant farmland valuation studies, the common capitalization formula is expressed as the relationship between current farmland values and expected returns in future periods (Borchers et al, 2014; Ifft et al, 2015; Sant'Anna et al, 2021). The capitalization formula is expressed as: where is agricultural land values, is the expected net economic returns in period , and is the discount factor.…”