And they say farms are expensive

31/10/2012

We were splitting the partnership in a crib in Wanaka and looking for another one at the same time we were buying a couple of hundred hectares from a neighbouring farm at home.

When given the price of the section and working out the per hectare price compared with the farmland my farmer asked, “how many stock units could I run on it?”

Urban sections aren’t directly comparable with farms but Don Brash points out just how out of kilter city prices are:

For one of the least densely populated countries in the world, it is ridiculous that tiny 500 square metre sections often end up costing well in excess of $250,000 – equivalent to $5 million per hectare. Yes, there are costs of servicing these new sections with infrastructure – but $5 million per hectare?

Five million dollars could buy you about 600 hectares of reasonable farmland in the Manawatu on which you could run about 6,000 stock units.

People complain that farms are expensive. I wouldn’t say they’re cheap but they’re far more reasonably priced than the sections Dr Brash talks about.

That’s a lot of money poured into what is usually a non-productive asset, if not a liability.

A section, and the house built on it, generally cost money and earn nothing until, if the market is favourable, it’s sold when there might be some capital gain.

That contrasts poorly with farms which are – usually – productive assets that provide jobs and earn export income.


What’s a view worth?

28/01/2009

What is the value of a view and how much should you pay for it?

 

If you are a tramper or climber it is priceless and you pay little or nothing for it. If you are involved in tourism or film making it is worth a lot and what you pay for it depends on negotiation. If you want a scenic hideaway it is worth even more and the market generally ensures you pay what it’s worth to you when buying it. If, however, you are grazing sheep, cattle or deer on crown pastoral leasehold property it is not worth much.

 

That is not to say that farmers do not appreciate the often spectacular views on and from their properties, but the average pastoral lease allows a leaseholder to do nothing else but farm. While a grand vista might make advertising fodder it does not feed animals; and a sheep or cattle beast is going to be worth no more if it grazed in beautiful surroundings.

 

This was the reasoning which has governed rent reviews for pastoral leases. They are based on land exclusive of improvements and until now that has been taken to be the land as it was before it was settled.

 

We have a very good idea of exactly what that is because our pastoral leasehold property boundaries a large tract of reserve which is owned by the crown and administered by DOC. On our side of the fence is pasture, tussock and some bush. We spend a lot on weed and pest control and it shows. On the other side of the fence there is tussock and bush too but there is also scrub and lots of weeds.

 

We run about 10 stock units to the hectare on our farm; the DOC land would struggle to support one sheep or cattle beast in many hectares and that poor animal would be competing with the rabbits, possums, pigs and deer.

 

A crown pastoral lease precludes the lessee from realising any potential for subdivision for building purposes or any commercial or industrial use. The leases also have restrictive land use controls so lessees who wanted to do anything else on their property except graze it require permission from the commissioner of crown lands and the rent would increase to take account of any diversification.

 

This has been regarded as fair to both lessees and the crown since the Land Act of 1948. But the Labour Government believed that amenity values were part of the unimproved value and rents should reflect that.

 

There is no doubting the beauty of the high country but it is subjective. One set of eyes might delight in the uninterrupted view of tussock; another will see weeds between the golden clumps and recognise fire danger in uncontrolled growth.

 

Beauty also changes with the weather. We love our leasehold property but it is at the end of the aptly named Mount Misery Road and the beauty is difficult to appreciate in a howling blizzard or when you can’t see past your nose because of fog.

 

The idea that anyone should pay more to lease farm land because of the views from which they earn nothing at all is ludicrous.

 

But the previous Government changed the rules which forced some leaseholders to pay more than they can possibly generate from pastoral farming because their properties have views from which they get no financial return. Labour thought a view was worth more than a livelihood so a group of pastoral lessees has taken a test case on the issue to the Land Valuation Tribunal.

 

It’s the final day of the hearing today but the change of government may make the judgement academic anyway because National’s agriculture policy stated that it would ensure the sertting of high country rents was tied to earning capacity so runholders could maintain their properties at an acceptable level.


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