Local Land Markets and Agricultural Preservation Programs

Lori Lynch and Sabrina Lovell

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Local and state governmental entities have implemented transfer of development rights (TDR) and purchase of development rights or purchase of agricultural conservation easements (PDR/PACE) programs to permanently preserve farmland throughout the United States (AFT (American Farmland Trust) 2001a; AFT, 2001b; AFT, 2001c). In each of these programs, the sale of development rights results in an easement attached to the title of the land which restricts the current and all future owners from converting the parcel to residential, commercial, or industrial uses. The value of the land in alternative uses affects an owner’s willingness to participate in these programs as well as the program costs. Thus, information on the value that the private market places on parcel characteristics is important in determining participation behavior and payment levels. In addition, knowledge of the marginal contributions of different parcel characteristics to both private market prices and easement values can help program administrators decide which easement purchases can maximize society’s benefit at the lowest cost.

Lynch and Lovell (2002) found that the agricultural land preservation programs in three Maryland counties (Calvert, Howard and Carroll counties) paid higher per acre easement values for farmland close to the nearest employment center, smaller farms, and farms with a high percent of prime soils, and paid lower values for farms with a high percent of cropland. The importance of certain land characteristics on the easement values was affected by the type of agricultural preservation program (TDR or PDR/PACE) that had enrolled the farm. In an analysis of whether or not the easement restrictions affected the preserved parcels’ market price, Nickerson and Lynch (2001) examined private market sales prices for 200 farmland parcels in the same Maryland counties (Howard, Carroll, and Calvert). They found that the private market paid higher prices per acre for farmland close to the nearest employment center, smaller farms, non-forested parcels, and those parcels in Calvert and Howard counties. They found that prime soils were not important in determining the parcel price in the private market. Comparing the results of these two studies, we find both similarities and differences in the effect of different characteristics on easement values and private market prices for agricultural land.

This chapter explores these similarities and differences by investigating whether the private land market pays similar values for parcel characteristics or whether the preservation programs design payment schemes that are not market-driven. Analyzing a spatially explicit dataset of 2,592 arm’s-length transactions, we also correct for possible spatial correlation that might occur due to the proximity of the observations to one another. We also include parcels that are no longer in an agricultural use. By examining the local market for land, we can determine if the easement value indicated by the supply curve of eligible land to be preserved based on the easement programs’ payments is comparable to the prices received by recently sold local land.