How The Election Could Affect the Land Market
The Land Market and The Election
Election day. While we may not know the official results for a few more days, today is the day the nation casts their vote. This day may also cause come uncertainties and raise questions surrounding the agriculture market, land investments, and the future of the ag economy. I’d like to offer my views on how this election may alter the course of what I know best – farmland sales.
First things first: the demand of farmland dictates its value. This is an important principle to keep in mind. The recent little bump in commodity prices has been nice, but over the past couple years we have been suffering from more persistent low commodity prices. These are a symptom from the flux in our trade demand. The factor holding farmland prices up right now is the low interest rates, as low interest rates encourage land demand.
Capital Gains Taxes
A major player in land demand to watch for depending on the next administration will be the capital gains taxes. The two political parties differ greatly in this area. A Republican administration typically supports lower capital gains taxes, and want consumers to keep their own money to spend in other areas of the economy. A right-leaning government trusts people to use their money as they wish. A Democratic administration typically supports higher capital gains taxes for government programs to use to support the American people.
The sheer enormity of the capital gains tax is what makes it such a hot issue during a presidential election. For example, when “Larry” goes to sell a $1,000,000 farm (which is not outlandish – think roughly 100 acres selling for $10,000/acre), under a Republican administration he would spend nearly $280,000 in capital gains taxes, while under a Democratic administration, he would spend close to $390,000. I want to be clear – land sellers do NOT always have to pay capital gains taxes. There is a reason we typically work for farmland heirs and 1031 exchanges. If you’re interested in learning more about your options with selling farmland, reach out and we can answer your questions.
Back to the election. Another market-affecting factor to watch for with the results of the election is consumer confidence. With the pandemic, we all realized how closely the agricultural economy is tied to consumer behavior and habits. Schools shut down which caused a dairy industry back-up. The ability to make money from agriculture is intimately connected to what is happening in the world. Consumers don’t show a lot of confidence during times of turmoil – i.e. COVID-19 and/or the election. We’re seeing this represented in farmland buyers right now. Many farmland investors are balking due to the election, as confidence in another four years of a Trump administration is not very high. So, we’re seeing farmland investors sitting on the sidelines waiting until the results come in.
Future Land Market Outlook
You’re probably reading this for some answers about what is to come in the future. Here’s what I’ll say… If I was a land investor under a Republican president I’m looking to buy land farmers can rent, and mineral rich land or oil properties. If I’m a land investor under a Democratic president, I’m going to invest in land that has potential for green power such as windmills or solar powers. These specific political issues will start to show themselves in the land market depending on the election outcome. I also will say that if Trump is re-elected we will see the same players in the land market that we’ve seen the past few years continue to drive the land demand. Those who have built their investment portfolio based on Democratic principles will come out to play once again if Biden is elected.
To summarize, I don’t think the overall land market will change a lot depending on this election’s outcome. The only results we may encounter is that farmland values will continue to flourish with a Republican administration, and we may see farmland values diminish a bit under a Democratic administration.
Jason J Smith
Auctioneer & Land Broker
Jason is an experienced farmland broker and auctioneer with extensive experience in farmland sales across this Midwest. Jason has worked with hundreds of clients to create advantageous outcomes. If you are selling land schedule a consultation with Jason by calling or using the calendar.
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