Overheated land market: politicians must make choices

The new cabinet will have to make choices about how we will use our limited space: for housing, defense, water extraction, or agriculture? And where can we combine what? The recently published Spatial Planning Memorandum makes this clear. This prompted both Land van Ons and the Federation of Private Landowners (FPG) to present their positions on the land market to politicians in political cafés in recent weeks. I introduced the discussion with a few questions.

In the Dutch delta, we have very fertile soils, but also much less fertile ones. It seems in the interest of the agricultural and food sectors (and of the food supply) not to use the best land for industrial estates, residential areas, or military training grounds. These would be better off on the less fertile lands, and the substantial funding from these parties could also be used, where necessary, for nature restoration and extensification. Then we can help farmers in those areas who are not meeting environmental targets with only high corporate investments in technological solutions. In these areas, agriculture needs support to develop new farming systems with more public and private services, and where neighborhoods and villages must be kept vibrant. 

The question then is whether these spatial planning choices can be made easier by labeling these two types of areas, such as production agriculture and social agriculture. To avoid confusion: even in a production agriculture area, according to proponents, someone could produce organically for the market or establish a nature contract. And even in areas with social agriculture, there will be farmers with better soil or a high-tech solution to environmental problems. But it is the areas with social agriculture that will be the first to undergo a round of modernization and often also land development. At least, that is what proponents of the idea argue.

Subsidies and taxation
A second issue concerns subsidies and taxation. The Common Agricultural Policy is due for a new round of negotiations. There may be more opportunities to use regional funds in this area. I'm increasingly hearing farmers and citizens question those hectare payments in the first pillar, introduced 35 years ago as compensation for a drop in grain prices, but which contribute to higher land prices. Shouldn't that money be linked more closely to environmental and nature objectives? The question then is whether it helps to distinguish between agricultural land and landscaped land in spatial planning. Even in an area with production agriculture, there may be water extraction areas or buffer zones with additional environmental requirements.

Our tax rules also strongly encourage older farmers to reinvest money from project developers, wind turbines, or the retirement scheme in land, rather than in a pension plan. Agricultural exemptions, retaining farm assets, and transferring them to children through the business takeover scheme are just a few examples. So, if significant money continues to flow into rural areas in the coming years, land prices will continue to rise. There are also significant lottery effects: anyone who happens to be in a desirable location will be a winner, while the neighbor who also wanted to buy land will be driven out of the market. Young farmers and (innovative) entrepreneurs are increasingly struggling with this trend. And water boards complain that it is accompanied by the ploughing of grassland, making it even more difficult to comply with the Water Framework Directive.

The question is whether we can devise smart adjustments to the tax legislation here. The FPG (Foundation for the Protection of Nature) drew considerable attention to the combination of the Nature Conservation Act and the new tax rules in income tax. These would hinder business acquisitions and the establishment of farm estates (agriculture with 30% nature for 25 years).

Lack of space and very liberal market
Scarce land leads to high land prices and intensive land use. Sometimes too intensive, and that can't be solved with land market policy. Environmental policy (what emissions are permitted) and spatial planning policy (what is permitted where) are needed for this. This provides clarity for all entrepreneurs. However, there's also the question of whether the land market isn't too free: in the Netherlands, we have a greater shortage of land than elsewhere in Europe, yet it's a very liberal market. For example, in France, transactions are assessed, and sometimes the buyer is replaced by the land bank, which then passes the plot on to an entrepreneur who needs it more. Land van Ons proposed using this method to pass land on to sustainable farmers in the Netherlands instead of to investors or farmers with very high emissions. This requires understanding what constitutes sustainability, but perhaps target management and benchmarking will provide the answer: farms that are closest to the 2040 standards could be given an A (or gold) label, with priority for the land bank.

All in all, the Spatial Planning Memorandum has brought the problem of spatial planning and land scarcity back to the attention of politicians, and The Hague will have to get to work to answer difficult questions.

Krijn J. Poppe

Krijn Poppe worked for almost 40 years as an economist at LEI and Wageningen UR and now holds a number of advisory and management positions. For Boerenbusiness he dives into his bookcase and discusses current developments on the basis of studies that have become classic.

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.