land market Land rent price of land

The main factor of production in agriculture is land. It can only operate in conjunction with other tools. As in any of the sectors of production, ignoring the laws of the market in agricultural production leads to negative results. The fact that agriculture is closely intertwined natural and economic conditions of management, laws of nature and economic laws. In this connection it is necessary to lead this very sensitive sphere, so as not to upset the balance established between them.

Broadly speaking, the land includes all the benefits given to the nature of man as a finished product (arable land, forests, mineral deposits, sources of water). It is also the climatic characteristics, the power of wind, water, solar. It follows that the term “land” is characteristic of all the forces of nature, used in production to meet human needs.
Earth as a factor of production has its own characteristics, is the basis of development of agrarian relations:

• land is a non-reproducible means of production. A man can not create it artificially, again;
• the amount of land on the planet in general, and of agricultural land use in particular, is limited;
• Plot unlike other means of production with the correct and rational use of it does not waste its beneficial properties, but increases it;
• allotments differ in fertility, ie, They have different natural productive force, as well as the location to the markets.

It offers a unique environment of land and other natural resources generate land rent.
Land rent – is the price paid for the use of land and other natural resources, the number of which (their stocks) are strictly limited.

 

Rent – a type of income property, to pay the owner for permission to invest in land. Its size is determined by the lease agreement. Land rent – the form in which landed property is realized economically, profitable. Although as a form of income for property rent of land is used for a long time, assign it to economic methods has become possible only in a market economy. In market conditions, it acts as an additional income, which is divided into two parts: profit, appropriated by the entrepreneur – the tenant of land, and the rent that goes to the landlord.

It is necessary to distinguish between the rent and the rent. Rent – a broader concept than the rent. It includes, in addition to the rent and other payments: the percentage depreciation deduction from the average profit, etc. So, if the owner of the land leases only land, the rent for it coincides with the rent. If the landowner leases land with buildings, farm buildings, roads, etc., in the rent includes:

• rent, ie, fee for use of the land;
• lending rate payable for the temporary use of the land attached to the capital.

The limited land and the impossibility of reproduction leads to a monopoly on farming land. Its essence is that each participant as an object of a certain economy is monopolized by the owner, which was a legal right enshrined farming on this land holdings. Before the end of the lease term it can only make capital in land rent.

Monopoly economy on earth determines the specifics of pricing in agriculture. The fertile ground in this sector are more profitable, but their number is limited, so to meet the population’s demand for agricultural products should be included in the turnover for the processing of all available land. It is possible in the case of treatment will bring about the same gain (with the best and worst lands). In other words, the price of agricultural products is governed by the cost of production on the worst land areas involved in the economic turnover. But as the individual costs on the worst land is higher than the cost of production of the same products in the medium and the best lands, the tenants with the best and average land receive additional product that is in the form of rents is assigned to the owner of the land.

Incremental gains arising in the middle and the best lands and assign the landowner forms differential land rent. This is the difference between the market price of production of the product, determined by the conditions of its production on the worst land plots and individual price of production of the same product on the best plots.

Depending on the conditions of formation of the additional income divided by the differential rent I – on the fertility and location and rent II – economic fertility.

Differential rent I is associated with the natural features of the land and so it is assigned to land owners.

Differential rent II is due to the additional investments of capital in the same land (use of new machines, new technologies, the additional application of organic and mineral fertilizers, irrigation, soil improvement, etc.), which contributes to the economic growth of soil fertility. Economic growth provides the fertility of crop yields, and it brings additional profit entrepreneur.
Differential rent II inevitably arises in the context of the scientific and technological progress and is an incentive for the entrepreneur. It is partially assigned to tenant-owner as a reward for the capital invested, but after the end of the lease term, and this type of annuity is assigned to the landlord. It is no accident the owner is always striving to reduce the term of the lease, and the entrepreneur – to increase it.

It should be emphasized that the worst of the soil and climatic characteristics of the land owners do not bring their differential rents. It follows that the tenants worst sites should get another kind of extra profit to pay rent and assign a normal profit. And they receive it in the form of absolute rent.

The cause of absolute ground rent is a monopoly of private ownership of land. Absolute ground rent charged landowner from all land parcels regardless of their fertility and location. The amount of this annuity is determined by the low level of retail prices for land plots. The “Economics” absolute ground rent is called economic rent, the price paid for the use of land and other natural resources.

There is also a monopoly rents. The reason for its occurrence, as well as absolute rent, monopoly advocates private ownership of land. Monopoly rent is based on the monopoly price at which the product is sold rare quality. Monopolistically high price is determined by the ability of buyers to pay for a rare product, a high price, so it is a deduction from the income of the buyers.
In a market economy the land is bought and sold. Although she does not have a value, but because profitable large part of the population, land price gains.

The price of land depends on two parameters:

• the value of land rent, which can be obtained from a plot of land;
• lending rate.

In essence, the price of land and is the price of the land rent, which it brings into line with the interest rate. Using the value of the loan per cent in determining the price due to the fact that the owner of the money is to choose between putting money in the bank and receive interest on it or be the owner of the site and receive the rent. Therefore, the price of land is equal to the sum of money that is being put into the pot, bring to a percentage of the income of the same magnitude as the annual rent of the land allotment.

The price of land – it capitalized rent, ie, rent, transformed into money-capital, income in the form of sung. It is defined by the formula
The size of land rent
Land price = × 100%.
The level of loan interest

For example, if the landlord gets a rent of 40,000 dollars. And the lending interest rate is 4%, then the price of land will be equal to 40000/4% × 100% = 100 000 dollars. This means that the land can be sold in the property to another person for 100 000 dollars.

In general, land prices in countries with market economies are growing. This is due to the increase of rent, reduction in lending rates and increasing demand for land.

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