Many thoughtful comments on yesterday’s breakfast musing on the implications of rising California ag land prices, here and over on the twitter, provide yet another reminder that my readers are far smarter than I am about this stuff.
The most important point, which quite a few people made, is that a single California number hides a lot of variability – down some places, up in others, depending on regulatory framework, estimates of political power, availability of surface and/or groundwater, recharge potential (but see OtPR below).
Andrew Ayres at UCSB (Click for full thread from an actual economist!):
These USDA numbers aggregate over a diverse landscape in California, some of which may not be subject to #SGMA. Reports from ground-zero for #SGMA, the San Joaquin Valley, tell a little different story.
In some critically overdrafted basins, appraiser reports show land that only has groundwater access selling at depressed prices already, relative to district lands. Sales slowing, prices lower….
All in all, I think too early to reject that the market is doing what markets do: translate (albeit perhaps limited) knowledge from numerous disparate parties into price signals that reveal information & can direct action.
Michael Hanemann (another actual economist):
There is a flattening in California’s irrigated land value at the very end of the data (2019 onwards).
SGMA did not become a reality until very recently — as you know the actual SGMA plans were to be filed by Jan 31 of this year.In the development of the GSA plans, there was a large amount of magical thinking (we will find a source of water with which to replace the groundwater overdraft…).
Moreover, the political pushback against SGMA also began to appear in public this Spring. So, the market may now be showing some acknowledgement. of SGMA.
It is interesting think about how SGMA will affect value. Water supply may become less certain=acreage abandoned, reduced value. But then acreage with water becomes scarce=increased value.
The key question is whether the market has decided to price in water efficiency, or if it has decided power and money will figure a way around the new system?
I’m pretty sure that comparing acreage inside GSAs and in white areas would show the price for land going in different directions. The price of land in GSAs may also be based on an overestimate of potential recharge.