An Empirical Analysis of the Texas Rural Land Market

Abstract

Rural land holds significant importance within the agricultural sector, serving as a crucial asset for farmers and acting as collateral for loans. Its value plays a vital role in assessing the financial stability of the agricultural economy. Consequently, evaluating rural land has become a prominent policy topic, drawing the attention of both researchers and practitioners in the market.

Texas stands out among rural land markets in the United States due to its unique characteristics. In the 2020-2021 marketing year, Texas maintained its position as the state with the highest number of farms and the largest farm acreage. The diverse landscape and geological features of Texas create distinct conditions that influence land ownership and marketing. Given these unique characteristics and the extensive market activity in Texas, it becomes an ideal subject for studying submarkets in a detailed and disaggregated manner.

The objective of this analysis is to address significant gaps in the existing literature regarding the determinants of rural land values in Texas. The study has two primary goals. Firstly, it aims to explore rural land markets at a regional level in Texas and examine the interrelationships between different regions. State-of-the-art machine learning algorithms and probabilistic graphical models are employed to identify causal interaction patterns within Texas' various rural land markets. Additionally, the analysis considers both nominal and real price scenarios, comparing their outcomes. The findings indicate that Texas' rural land markets are interconnected, and models based on nominal prices are better suited for describing the interdependencies among these markets.

Secondly, the study delves deeper into understanding the factors that influence the Texas rural land market. By employing a spatial error panel regression and a hedonic modeling approach, the analysis identifies four non-agricultural factors that contribute to rural land values in Texas. These factors, which potentially represent the demand for rural land, include the price of single-family housing, household income, credit availability, and urban development measured by the rural-urban continuum code. In contrast, the influence of agricultural factors on land values appears to be relatively minor, as only one agricultural return variable demonstrates significance. This finding supports the growing consensus among land market participants regarding the diminishing role of agricultural factors in determining land values.