Think housing prices are rising quickly? Not compared to farmland

In short:

Australian farmland prices have increased by more than 8 per cent per annum for the past two decades. 

Analysts with decades of experience in the industry say they have never seen such growth.

What’s next?

Like most scarce resources, the value of farmland is expected to keep increasing. 

Reports of increasing house prices have been dominating Australian real estate news, but it is farming land that has been undergoing a more dramatic leap in value. 

The national median price for farmland has tripled in the past 10 years, rising by 201 per cent, a Rural Bank analysis shows. 

Comparatively, house values in Australia have risen 85 per cent in the same time period, according to property data and analytics company CoreLogic. 

Rural Bank head of development, business and agribusiness Andrew Smith said he had never seen such a spectacular surge in his 37-year career in banking. 

“It has been a strong run across the decade in most parts of the country, but it really has taken off in the last five years,” he said.

“If you look back at 2022, we saw [farm price] growth rates of over 25 per cent per annum.”

In 2023, the median price per hectare increased by 6.4 per cent to $9,575, according to Rural Bank. 

The latest information supports the bank’s annual report, released in May.

It found a record run of prices that had outpaced the Australian Stock Exchange. 

Why the price rise?

Agribusiness analysts have attributed the price rise to a rare confluence of factors, beginning with the breaking of the east coast drought in early 2020.

At the same time almost every rural commodity — from beef, to wool, to wheat and sugar — was strong.

With a return to good seasons and a long run of low interest rates boosting margins, Mr Smith said many family farm enterprises took the opportunity to expand their land holdings. 

“We see a lot of family corporates where we’ve got multi-generational businesses expanding for that next generation buying the place next door,” he said.  

Agribusiness analyst David Goodfellow said there was strong demand for land. 

“People knew that interest rates were at all time lows so people were wanting to take advantage of having a strong balance sheet and low interest rates,” he said.

Mr Goodfellow said his analysis of two decades of farmland prices and trends in Australia found an annual increase of more than 8 per cent per annum. 

But he said land prices had flatlined in the past 18 months due to a sharp fall in livestock prices, a rise in interest rates and a drier seasonal outlook for some farming districts.

Rural Bank’s analysis found these factors corresponded with an 18 per cent reduction in the number of farm land sales last year, reaching a 29-year low. 

Even so, 6 million hectares of land changed hands nationwide last year at a combined price of $14.5 billion.

Which type of farmland is the winner?

Cropping country, underpinned by successive years of good grains prices and a run of good seasons, has been the star performer.

Productivity gains in recent years also contributed.

Elders Real Estate agent Rob Rickard, based in the south-west Victorian town of Camperdown, said he had seen this play out. 

“Here in south-west Victoria you used to be able to buy 5 acres [2 hectares] of cropping country for 1 acre [0.4 hectares] of dairy country,” he said. 

“Now it runs pretty well parallel.”

International buyers 

Mr Rickard said there had been a rise in overseas buyers, especially institutional investors such as superannuation funds, looking at longer-term returns.

“I’ve seen a lot of international people in the last two to three years, with the currency where it’s at, starting to look at this part of the world to invest,” he said.

Mr Goodfellow said the value of Australian land was “very cheap” compared to the value of rural land in other countries.

“Also we’ve got a lot of land here in Australia that is yet to be fully developed,” he said. 

“So people are seeing the opportunities to buy land in Australia with the goal of one day improving the productivity of those farms, producing more food for the rest of the world and ultimately doing quite well for their investors.”

Mr Goodfellow said farmland was a scarce resource that couldn’t be re-created.

“The whole world is realising just how scarce a resource farmland is. We don’t make any more, do we?” he said. 

Mr Smith said that reality was even more apparent post-pandemic, with the “get out of town” factor fuelling prices for coastal and rural lifestyle regions, further reducing agricultural land.

“Certainly south of Sydney has been an area. The peninsulas in Victoria really do stand as areas where people are wanting to be and were prepared to pay for it,” he said.