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- Many urban centers initially grew among particularly fertile soils so farmland near these areas tends to be quite productive.
- Farms near urban areas have greater access to markets and ports and therefore lower transportation costs.
- As a result, these farms may generate economic profits above comparable lands further from the urban center.
Urban influence varies by location
The degree of urban influence is expected to vary according to the characteristics of the urban area, including population density, as well as the characteristics of the surrounding agricultural lands, such as recreation potential or production intensity. As a result, urban-influence is not expected to be uniform across the United States, but to vary by location. While urban influence is an important factor nationally, the impact of urban pressure may be larger (or smaller) in some areas. This can be illustrated by considering how urban influence impacts cropland values in Atlanta, Ga.; Chicago, Ill.; Dallas, Tex.; and Minneapolis, Minn. This illustration (Figure 2) highlights the differing price impacts in these markets, as well as one potential driver of nonagricultural land values—urban development.
The four metropolitan areas were selected based on the observed deviation between cropland values and their implied agricultural use in surrounding rural areas. Each metropolitan area is surrounded by agricultural lands, yet the agricultural production varies across locations. For example, the areas surrounding Chicago are principally devoted to row crop production, yet in Dallas, the surrounding agricultural lands consist of a greater share of livestock production.
The cities also vary in terms of urban characteristics. The Atlanta metropolitan area is a major economic hub for the Southeastern United States and home to 5.2 million inhabitants. The city has grown rapidly in recent decades due in part to the growth of the city's major industries: financial services, media, and transportation. Similarly, Chicago, with 9.6 million inhabitants, is the largest economy in the Midwest, and its economy centers around financial and other high-value services. Minneapolis, also located in the Midwest, is home to approximately 3.5 million people, and its economy is principally comprised of financial institutions and transportation industries. Dallas, on the other hand, is the third largest city in Texas, with a metropolitan area population of 1.2 million, and the city's rapid economic growth is attributed to high-tech companies, as well as manufacturing and services.
One factor potentially contributing to higher land values in urban influenced areas is urban land use “bidding up” the market value of land. The Case-Shiller Home Price Indices (Figure 3) for each of these metropolitan areas can be used to help illustrate this potential in each of the markets from 2000 to 2011 (Standard & Poor's). All of the metropolitan areas exhibited a period of positive price appreciation over the period 2001 – 2006 and a price decline in the remaining years. The declines were most pronounced in the Minneapolis and Chicago metropolitan areas. The Minneapolis price index fell from a peak value of 174 in April 2006 to January 2011 value of 114. The Chicago price index fell from a record high of 169 in April 2007 to a current value of 117. Although the appreciation through 2007 is less pronounced in Atlanta, the metropolitan area experienced a significant reduction in home prices that are currently below 2000 reported values.
To examine the potential bidding up of farmland prices in these areas, the ratio of cropland value to its implied agricultural use value at the farm level were calculated for both rural and urban-influenced farms within 300 miles of each city. The differences between farmer reported land values and implied agricultural use values were greatest in the area surrounding Atlanta, at a range of $1,957 (1999) to $3,509 (2005). Although median prices were much lower, the difference between cropland values and their implied agricultural use values for Dallas exhibited a similar range of $1,535. The range is much lower in Chicago ($723) and Minneapolis ($621). The figure also suggests a narrowing of the difference between urban-influenced and rural cropland values in Atlanta, Chicago, and Dallas following the housing decline.