The next speculative real estate boom

The new, farmland real estate bubble
 
 
 
Investment groups fleeing the stock markets are investing in farmland, including irrigated California farmland. Finance, insurance and real estate corporations have been discreetly buying and holding agricultural land for decades in the California Central Valley. Almond orchards and vineyards are good places to park money to wait for the next expansion of urban slurb. When the Enron/dotcom market crashed, California real estate, with its low property taxes, rapid growth and weak governments, was a very attractive investment. As a result, five or six county seats in the San Joaquin Valley have made the top ten for residential foreclosures for the last several years.
 
There is a lot of money in America; it comes and goes out of this valley like floods before the dams were built. Move over, Nathan Detroit, our economy is the richest floating crap game the nation has ever seen. But the players in this particular game may be farming the tax code more than the land and crops.
 
Some likely consequences of a major increase in outside-investor control -- control by financial entities not always interested in profits -- of agricultural production in California:
 
* Increasing over-production of nuts, fruits and grapes, depressing commodity prices;
* Impacts on water: more, larger wells, driving down the aquifers for real farmers;
* Increased, sophisticated, well-funded political pressure to destroy the San Joaquin Delta for the benefit of irrigated agriculture;
* Salts: increases speed at which farms salt up to the point they cannot be
farmed;
* Expansion of orchards and vineyards onto seasonal pasture on both sides of the Central Valley from Tehama to Kern and Butte to Tulare counties -- reducing groundwater recharge areas and destroying habitat for federal and state-listed endangered species of flora and fauna;
* Managers of agricultural operations of the size that attract large pools of investment funds – for example, the Kern County-based 30,000-acre operation mentioned recently in the Los Angeles Times – are not and cannot ever be as efficient as owner-operated farms; it frequently occurs that the investors, rather than the land and crops, are being farmed; the greater the amount of farmland under control of over-sized agribusiness managers, the less efficient the farming operations are over all – a point made by J. Russell Giffen during the 160-acre limitation battle in the late 1970s. Giffen was one of the largest farmers on the west side of the San Joaquin Valley when the last battle to enforce the conditions of the Reclamation Act of 1902 was fought and lost by small farmers and their supporters;
* Land ownership will become more concentrated and farmland prices will rise; both factors will make entry into farming by new real farmers more difficult;
 
 
The game will be played essentially as it was in residential real estate. It will be a
casino. Hedge funds will buy farms to "flip" them as the farmland prices rise, and seek,
totally rationally, to do anything and everything to avoid being caught in the musical
chairs game when the speculative farmland bubble busts. Thousand-acre agricultural parcels will be flipped like Mc Mansions were a few years ago. It will have as much to do with farming as the housing bubble had to do with homes.
 
However, there will be differences. Urban development, constantly braying the slogan, “Development pays for itself,” constantly ripped off municipalities. Contemporary real estate booms leave cities in their wakes full of frightened, demoralized residents, rising unemployment, rising crime rates, tent cities on their peripheries and extremely austere municipal and county budgets. The coming farmland casino, at least in the San Joaquin Valley of California – already gutted by one wave of real estate speculation – will demand, not more streets and roads, but more water. The irrigated farmland casino of California will be a bonanza for state and federal lobbyists, who will get a whole new class of clients with deep pockets and a giant thirst for the public-trust and public-funded natural resources of California. Since more than 70 percent of the state's developed water goes to agriculture, this new bubble will inevitably add more weight to the technocratic doctrine of Western water established by President Herbert Hoover: "Every drop of water that runs to the sea without yielding its full commercial returns to the nation is an economic waste," echoed at the time by Joseph Stalin's maxim that "water which is allowed to enter the sea is wasted."
 
 
 
We can hardly wait to see how the financial geniuses of America are going to slice, dice and securitize farm ownership in the nation, following the nice folks on Wall Street that are “tranching” their mortgages. When the land values rise to irresistible levels, around here in the San Joaquin Valley, we will lose the last generation of farmers and ranchers who actually know how to farm and ranch on this land. They’ll cash out and go elsewhere, creating a mini-boom in agricultural land values wherever they come to rest. It happened here already about 15 years ago when Southern California dairymen, whose land values increased to the point where it was insane not to sell, sold and bought dairies 10-times as large in the San Joaquin Valley.
 
 
 
Valley farmland owners will shuck and drawl and count the money. As was true during the urban boom, early sellers will make a lot of it. Politicians at all levels in the valley will welcome the investment and dispatch press releases about the new prosperity. State and federal environmental groups will remain silent, and if not, judicious contributions
may flow their way to ease their consciences. They have enough to do protecting the Sierra and the coast, anyway. Besides, the politics and economics of irrigated agriculture are beyond the intellectual scope of either the conservation-biology or the environmental attorney sets. The New York Times, at the behest of banks and investors, will write more stories about the terrible lack of water for agriculture in California, including interviews with yeomen cotton merchants and drugstore farm workers from central casting.
 
 
 
A handful of Valley grassroots groups will fight the new farmland casino because they won't want to see their home region economically sacked for a second time in a decade. They do not believe that the sociopathic rich have a god-given right to get richer speculating on the farm land, ranch land, natural resources, wildlife habitat and water resources in their region, further polluting our air and water quality and our minds with another dose of sick, speculator flak. They’ll no doubt get another throbbing, but they will show up for the fight and get a few licks in themselves as they did by exposing the phony “Chinatown” drought of 2006-2009.
 
 
 
A free-market society is committed, whole-heartedly and by tooth and by nail, to three fictitious propositions: that there is a free market in land and natural resources, a free market in labor, and a free market in money. At some point the pain level in the society will cause some questions to be raised regarding these fictions, but that level has not yet arrived. As Aeschylus put it some time ago: Through suffering alone will we grow wise. However, the imperious demands of the immediate future drown out the voices from the very recent past. Business and government leaders always regard an act of memory a betrayal.