Tag Archives: crisis
Soaring Farmland Prices A Crisis In The Making: Don Pittis
If you knew there was a very safe Canadian investment that skyrocketed by 20 per cent last year, you’d probably say that was a good thing. But when the thing that’s going up in value is farmland, Christie Young says it’s a crisis in the making. The latest survey by Farm Credit Canada shows the price of farmland in Quebec rose by a staggering 19.4 per cent last year. Nationally, Canadian farmland from coast to coast has risen by an average of 12 per cent a year since 2008. That’s more than five times the rate of inflation. For people who already own farmland, soaring prices are a windfall. But Young, executive director of FarmStart, a group trying to help young farmers get into the business of farming, says Canada is facing a sea change that bodes ill for agriculture. “The average age of farmers is 60 years old across Canada,” says Young. “According to StatsCan data, about 50 per cent of our land assets will be transferred in the next five years. And of the retiring farmers, 75 per cent of them don’t have successors. It’s a transition we’ve never seen before in agriculture. And it’s one we are wholly and completely unprepared for.” FarmStart has two incubator farms in southern Ontario to bring new farmers into the business, but at current prices, Young says there is no way those starting out could earn enough from their farms to make a living and pay their mortgage. Overpriced land It is a problem that Rejean Girard, who farms southwest of Montreal, understands. He bought his small plot of land near Saint-Cesaire 20 years ago. But Girard says the return he gets from the sheep he raises would never pay for that land today. By that measure, he says, the land is overpriced by about three-quarters. The steadily rising price of land has caught the attention of savvy Canadian investors. Global investors have an interest, too, but in most provinces only Canadians are allowed to own farmland. That has created an opportunity for Canadian farmland investment funds like Bonnefield, Agcapita and Assiniobia, which have been assembling blocks of farmland and selling shares to high net worth Canadians. The president of Toronto-based Bonnefield, Tom Eisenhaur, says farmland has been one of the most lucrative and secure investments especially when markets are volatile, and “a better hedge against inflation than gold.” Eisenhaur says he expects the price of land to continue to rise, if not at the same rate as over the past decade. He quotes a United Nations survey that shows world food production will have to double over the next 20 years. “While it’s trite to say, no matter how bad or how good things get in the markets, people still have to eat.” Profits from rising prices While Eisenhaur is profiting from rising prices, he scoffs at the idea that funds like his are responsible for the land boom. He says that while farmers buy and sell some $15 billion worth of land each year in Canada, third-party investors like his company trade a mere $100 million worth. So it seems clear that farmers’ pursuit of more acreage is helping to push up the price of the land. That seems to be in direct conflict with what Girard, Young and many others say about the difficulty of paying for farmland with a farm income. That is, until I speak with Gary Brien who farms near Chatham, Ont.. “The way we’ve looked at it is more of a way of life. It just so happens the land has gone up as we accumulated it over our lifetime,” says Brien. “I really don’t think we own it. We’re just using it while we’re here. The value to us may not be in a dollar value.” Brien says that the last few years, bumper crops have pushed up farm incomes to record levels, so farmers have had cash to spare. And when farmers have money on hand, their non-monetary way of thinking of land, combined with the tax rules, encourages them to put that spare cash into farmland, whatever the price. “Farmers don’t like paying income tax,” says Brien. “And if they get a bunch of money and have a choice to pay income tax, or buy more land, they buy more land.” Bigger and bigger That tends to mean existing farms are getting bigger and bigger, able to take advantage of the efficiencies of expensive modern farm machinery and make the money to buy more land. But that doesn’t help the farmers who are just starting out small, without inherited family land and little prospect of paying off a mortgage, even if they could get one. “We have farmers in rural areas paying far over the productive value of the land that they are buying because they have the income or there are such scarce land resources that they’ll pay anything,” says Young. “For a new entrant looking at that landscape, it is almost impossible to conceive of buying a farm.” Continue reading
The Housing Bubble Goes Global – Again
By Jeremy Warner Economics Last updated: October 22nd, 2013 Germany’s property prices are rising Not for the first time, the Bundesbank has voiced concerns about rising German house prices. “What the…!” you might exclaim. Compared to the property price inflation many other countries have seen, Germany’s looks tame indeed. Germans are on the whole makers, not property speculators, with most of them still choosing to rent, rather than own. Even so, prices in major German cities have been rising strongly over the past few years. “After the real estate bubbles in the US and several European house markets burst,” says the Bundesbank in its latest monthly report, “the German property market, which has been quiet for many years, became more attractive to international investors.” Germany is one thing, but the same phenomenon is occurring in major cities more or less everywhere. In London, the property crash of 2009/10 is now but a distant memory. Buoyed by frenzied foreign buying, house and apartment prices are again at record highs, with anything halfway decent going to sealed bids. London property, as one New York Times writer recently observed, is the new “global reserve currency”. Nor is this revival in the UK housing market any longer confined just to London and the Home Counties – it’s fast spreading out to the regions as well. The speed with which both the housing market and the credit cycle are turning has taken the Bank of England’s Financial Policy Committee by surprise; in coming months it must decide what, if anything, to do about it, for this is just the sort of thing the FPC was created for. There may already be some kind of a case for a rise in UK interest rates, such is the strength of the more broadly based economic recovery, but we know from experience that marginally higher interest rates are largely ineffective against a nascent house price bubble. There is, of course, a level of interest rates which would be effective, but only one so high that it would eat seriously into discretionary spending and thereby induce another recession. Mass unemployment seems a high price to pay for taming the housing market. So it falls to the FPC. There are basically two levers under consideration – one is simply to increase the capital banks are required to apply to mortgage lending. Another is to recommend the imposition of strict loan to value lending criteria, though the FPC doesn’t have the powers to impose these off its own back; the Prudential Regulation Authority, which is subject to a higher degree of political interference, would have to do this instead. Given that the Treasury is only just introducing the second phase of its “help to buy” scheme, designed specifically to lower the required deposit, there will, presumably be very little appetite for such measures among ministers, where in any case rising house prices are regarded as an electoral bonus. The FPC thus faces its first big test of independence. All the same, there appears nothing the FPC can do to halt the flood of foreign buying, the great bulk of which is for cash and therefore not dependant on UK bank lending. In Hong Kong and Singapore, penalty rates of tax have been imposed on foreign buying, and it may yet come to that. For Britain, a better solution would simply be to increase supply, by reforming the byzantine planning system and thereby allowing a degree of construction on greenbelt sites and farmland. However, this is not in itself going to stop the more broadly based global stampede into prime real estate in the world’s most desirable cities – a much more intractable problem grown out of the dearth of decent alternative investment opportunities. This is in itself partly the result of the ultra low interest rate environment, which has ground returns on bonds down to levels where it is increasingly hard to keep pace with inflation. A general climate of risk aversion since the crisis began has also made companies wary of creating investment opportunities. Michael Kumhof, an economist at the International Monetary Fund, has argued that there is a direct connection between growing income and wealth inequality on the one hand, and asset bubbles and financial crises on the other. If an ever greater share of GDP is being concentrated in the hands of an ever smaller group of people, it tends to get saved rather than consumed. Kumhof’s contention is that these savings will get intermediated to lower income earners in the form of easy credit to sustain their consumption, resulting in an eventual debt crisis. Well, maybe. I’m a little sceptical of this line of argument myself, superficially compelling though it seems. It doesn’t, for instance, explain very high levels of UK investment in the Victorian age, or indeed the repeated financial crises of those days, when credit was not widely available to the masses. The Victorians tended to justify income and wealth inequality on the basis that only the rich were capable of accumulating sufficient wealth to fund investment and thereby create jobs and prosperity for all. In a more equal society, wealth would be consumed, not invested. So yes, there were investment booms resulting in financial crises and busts, but these were not the result of high earners lending their spoils to low earners. In any case, what’s going on at the moment with rising asset prices seems to be somewhat different; this is more a case of growing global wealth chasing a finite pool of desirable assets. There appear no solutions to such a problem, other than to make your country or city a bad place to invest. To do that is only to shoot yourself in the foot. Continue reading
Kenya mall attack: combats continue as the President addresses the nation
The assault, and the siege of the mall in Nairobi, Kenya, is still on-going, as the president Uhuru Kenyatta addressed the nation, and called for the support… Continue reading
