The Past
Rural land in the UK has increased in value consistently across the last 100 years with Savills reporting that for example, farmland has seen an average increase of 5.7% per year over this period. The rate of change has been incredibly variable, with several key themes impacting the value of land, many of which remain prominent today. These include security (both at home and abroad), government policy (agricultural and taxation) and associated subsidies, population changes, and technological innovations.
While precise data for the entire period may not be available, historical records and studies offer valuable insights into the general trajectory of farmland prices. We can break these down into a number of ‘chapters’ which take us to the present-day position.
Chapter 1: 1900 – 1915. UK farmland prices gently increased in value as populations and demand for food increased.
Chapter 2: 1915 – 1920. This period saw a significant fall in land prices as a result of international markets increasingly beginning to provide exports for the UK economy and later due to the events of the First World War placing incredible strain on the farming sector.
Chapter 3: 1920 – 1950. The first significant period of sustained land price growth occurred, initially due to the establishment of the UK marketing boards which provided increasing price certainty and the introduction of farm subsidies. Following 1939, the Second World War boosted demand for food and with guaranteed prices, the landscape of the UK changed with a staggering 50% increase in the area of land farmed. Security considerations, government policy (agricultural and taxation) and associated subsidies, population changes, and technological innovations all combined to drive land values back close to 1910 levels despite the significant increase in supply / availability of farmland.
Chapter 4: 1950 – 1960. The oversupply of land (and produce) alongside the growth of international exports following increased global political stability, certainly in Europe, saw a retraction in UK land values.
Chapter 5: 1960 – 1970. The Common Agricultural Policy (CAP) came into existence in Europe with the aim of collectively modernising the industry towards better economics of scale, including improved subsidy conditions – we now know at what environmental cost! This resulted in improved investment confidence in the UK and an increase in land price between the beginning and end of this period.
Chapter 6: 1970 – 1975. The UK joined the EU and in turn, the CAP, saw significant inflows of capital into land markets: rapidly increasing land values to new record highs. The market adjusts quickly presenting a rate of change (up and then down) never seen before or since.
Chapter 7: 1975 – 1990s. Land prices throughout this period exhibit the longest period of sustained decline: worsened towards the end of the period by CAP reforms which see lower subsidy payments and the end of the per unit production subsidy. By the early 1990s land values had returned to those last seen at the end of the First World War.
Chapter 8: 1990s – 2000s. The 1990s was a challenging period for the land market. Interest rates peaked at 15%, putting downward pressure on land prices, while record commodity prices (notably for wheat and cereals) pushed values up: ultimately resulting in relatively little change, but a huge amount of uncertainty for land owners through the period.
Chapter 9: 2000 – 2015s. This period saw the longest period of sustained land price increases over the last 100 years. Our thinking around rural landscapes was beginning to change as lifestyle buyers and investors sought to protect themselves against the pressures and challenges of the global financial markets. This changing focus on lifestyle choices combined with considerable pressure on land resources due to population growth, changes in land use patterns, and increased demand for housing and infrastructure resulting in rural land, especially in desirable locations, becoming increasingly more valuable.
Chapter 10: 2015 – 2020. The uncertainty caused by Brexit impacted economic confidence, and by extension, land prices. As the realities of leaving the EU became clear, the impacts on agriculture, and the loss of the single market, saw land values start to drop.
The Present
Earlier this year, Knight Frank declared that we have moved into the Natural Capital Century which has created a paradigm shift in the rural land market. Their recent analysis found that the value of bare land (i.e. land with the greatest natural capital potential) grew by 2% in the final quarter of 2023 alone, smashing through the £9,000/acre milestone for the first time and achieving an all-time record high. Since 2020 we have seen sustained growth in land value, largely driven by natural capital investments ranging from forestry through to pure conservation-based acquisitions.
This change is set amid an uncertain macro-economic outlook, yet Savills are forecasting modest growth in rural land values over the next five years. A key factor underpinning this growth is natural capital becoming a mainstream land use rather than a localised disrupter as the market matures.
The Natural Capital Century
Oxygen Conservation was founded to deliver positive environmental and social impact and deliver a profit as a result, not the purpose of what we do. The certainty we have in our ability to deliver that profit is in part based on our confidence in the increasing value of the underlying asset where we focus our investment – the land and natural capital assets themselves.
We believe that the future of land values in the UK will increase consistently in the long term based on the following core factors. We do of course appreciate that there will always be challenges and difficulties, but we must remember that the environment is a long-term investment: nature doesn’t care about quarterly results or financial years, it thinks in seasons, breathes in years, and ages in decades.
Climate Change & Biodiversity Loss
The escalating challenges of climate change and biodiversity loss are reshaping the landscape of natural capital investment. As these issues gain greater attention and urgency, investors increasingly recognise the value of land that supports biodiversity and mitigates climate impacts. Land with intact ecosystems (which are becoming increasingly rare) and diverse habitats are becoming more sought after as they provide resilience against environmental threats and offer opportunities for sustainable development. With growing awareness of the importance of preserving natural capital, including government support aligning paying landowners for “public goods”, demand for such land in the UK is expected to rise, leading to higher land prices in the long term as investors seek to secure assets that contribute positively to environmental sustainability.
Lifestyle Choices
Shifts in individual preferences towards sustainable lifestyles are influencing the demand for environmentally friendly products, services, and living spaces. As individuals and communities prioritise positive environmental choices, there is greater emphasis on preserving and enhancing natural capital. Land with intact natural features, such as green spaces, clean water sources, and healthy ecosystems, is becoming increasingly sought after. This trend is expected to drive up land prices in the UK over the long term as demand for properties with access to natural amenities and sustainable features continues to grow. This is likely to mirror the pattern of movement we saw from lifestyle buyers in the early 2000s but with increasing urgency caused by an awareness of climate change and biodiversity collapse.
Demand for Housing & New Homes
The increasing demand for housing and new homes in the UK is a significant driver of rising land prices. Population growth, coupled with changing demographics fuels the need for residential development. As cities and towns expand to accommodate growing populations, the scarcity of available land in desirable locations intensifies competition among developers and homebuyers, driving up land prices. The planning system has acted as a break on development in many rural areas, but there is an increasing recognition that rural growth is required to maintain the vitality of these communities.
A post-pandemic trend saw some people re-evaluate the relative benefits of urban living – and bolstered demand in rural housing markets. Improved technology and connectivity, alongside the normalisation of home and flexible working, are making it possible for many more people to work remotely: increasing demand for homes in rural communities. Consequently, land with development potential becomes increasingly valuable, particularly in areas that allow people to better connect with nature and achieve the work-life balance that works for them and their families.
Supply & Demand
The persistent imbalance between supply and demand for land in the UK, exacerbated by population growth and increased development, drives competition for available land parcels. Limited availability of land suitable for development (for built property and other uses), particularly in desirable locations, puts upward pressure on land prices. As demand for land outstrips supply, driven by factors such as housing needs, infrastructure development, and commercial expansion, land values are expected to increase in the long term. This fundamental dynamic of supply and demand will continue to underpin rising land prices in the UK, making land investments a reliable opportunity for long-term growth.
The Growth in Renewable Energy
The UK’s commitment to decarbonisation and the expansion of renewable energy sources is driving demand for land suitable for clean energy infrastructure development. Wind farms, solar parks, and other renewable energy projects require significant land areas, creating opportunities for landowners and investors. As the transition to renewable energy accelerates, the demand for land for energy production purposes will increase, driving up land prices in suitable locations. As the recognition of this need for renewable energy grows in the face of a worsening climate, we’re likely to see increasingly favourable policy positions for renewables. It is important to note that the best renewable developers are committed to multifaceted land use and are combining low-density agriculture or biodiversity net gain projects alongside energy production to maximise the collective value of the land, which will support long-term growth in value when done successfully.
Focus on Sustainable Forestry
Any route towards a more sustainable future is likely to see the growing use of sustainable timber as a building product. Currently very little of our wood is grown within the UK. The emphasis on sustainable forestry practices presents opportunities for investments in land with forested areas. Sustainable forestry initiatives promote responsible land management, biodiversity conservation, and carbon sequestration, making land within well-managed forests increasingly valuable. As investors recognise the ecological and economic benefits of sustainable forestry, demand for land suitable for timber production is expected to grow. Investing in land with sustainable forestry potential offers the prospect of long-term value appreciation as the demand for responsibly managed forests continues to rise in the UK.
Growing Demand for Domestic Food Security
Concerns about food security and sustainability are driving demand for agricultural land suitable for food production. With increasing emphasis on local and sustainable food systems, land with fertile soil, water resources, and suitable climate conditions becomes more valuable. Investing in land that supports agricultural activities aligned with principles of regenerative farming and food sovereignty offers opportunities for long-term growth. We believe that land which is managed organically will increase in value further still as people become more aware of the impact of the food they eat on their health and wellbeing. Not only that, but the practices of regenerative agriculture maintain and enhance long-term soil productivity. The impact of these changes means that more land will be required to produce the same amount of food, albeit at a higher quality, placing even greater demand for land and therefore increasing land value.
As the demand for domestic food security grows, driven by population growth, changing dietary preferences, and environmental concerns, land prices in the UK are expected to rise, making agricultural land investments an attractive option for investors.
The Next Generation
The emergence of natural capital markets is the market’s response to our collective overconsumption and wilful destruction of the natural world. These new markets are poised to provide new avenues for investors to allocate capital towards projects that deliver financial returns based on positive environmental outcomes. Natural capital markets facilitate the valuation and trading of ecosystem services, carbon credits, and biodiversity offsets, creating incentives for conservation and sustainable land management. As investors increasingly recognise the value of natural capital assets and seek opportunities to align their investments with environmental stewardship, demand for land with natural capital potential is and will continue to rise! This growing demand for natural capital investments is likely to drive up land prices in the UK over the long term, as investors compete for assets that deliver both financial and environmental value. We’ve already seen this trend accelerate through the first part of the 2020s. And this is before the pension funds and other large financial institutions, with the potential to deploy billions of pounds into land acquisition, poised to enter the market….
What Are We Modelling
We are modelling a sustained rise in land value between 3% and 12% per year over the long term dependent on the land type and location; long-term from our perspective means over the next 10 years. We expect to see the biggest rises in the South West and the South East elevated by lifestyle buying choices and the impact of development pressures in that region.
We also believe we will see a rapid increase in the Scottish Borders up towards the Highlands, with land suitable for native woodland planting, peatland restoration, and wetland creation outperforming other land types and geographies.
Volatility Will Remain
While we firmly believe that land value will continue to rise over the long term, it is likely that land market will continue to see significant volatility based on a wide range of macroeconomic and societal issues including some or all of the following.
Economic Downturn: Economic recessions or downturns can lead to decreased demand for land as investors and developers become more cautious about making new investments, albeit we have seen the counter-reaction in most recent recessions. Reduced consumer spending, declining business confidence, and tightened credit conditions can all contribute to decreased demand for real estate, including land, leading to lower prices.
Changes in Government Policies: Shifts in government policies, such as changes to planning policy and land use restrictions, regulation of natural capital, or taxation policies, will impact the value of land. Policies that restrict development, impose additional costs on landowners, or discourage investment in certain sectors can dampen demand for land and lead to lower prices.
Environmental Degradation: Environmental degradation, such as pollution, habitat destruction, or natural disasters, can negatively affect the value of land. If we don’t act quickly enough against the threats caused by climate change and the biodiversity crisis much of our land will either be underwater or uninhabitable destroying underlying land value.
Market Oversupply: Overdevelopment or oversupply of land in certain markets can lead to localised downward pressure on prices – similar to those seen on office buildings immediately following the pandemic. If supply exceeds demand, either due to speculative investment or miscalculation of market trends, land prices may fall.
Global Economic Factors: Land prices can be influenced by global economic factors such as geopolitical tensions, trade disputes, or changes in global financial markets. Economic instability or uncertainty on a global scale can impact investor confidence and lead to reduced demand for real estate assets, including land.
Summary
In the Natural Capital Century, the trajectory of UK land values will be informed both by historical trends and emerging paradigms: reflecting a complex interplay of economic, social, and environmental factors. Over the past century, rural land in the UK has experienced consistent growth in value, albeit shaped by fluctuations in global markets, government policies, and technological advancements. The past century has seen periods of significant change, from the impacts of world wars to the implementation of agricultural subsidies and the evolution of land use practices. However, amidst these shifts, one constant remains: the intrinsic value of land as a finite and essential resource.
As we move forward into the Natural Capital Century, we are witnessing a paradigm shift in the rural land market driven by a growing recognition of the value of natural capital. This shift is characterised by a renewed emphasis on environmental sustainability and responsible stewardship of land resources. Recent analysis indicates sustained growth in land values, fuelled by investments in natural capital ranging from forestry to conservation-based acquisitions. Despite uncertainties in the macroeconomic landscape, natural capital has become a mainstream consideration in land use decisions, underpinning the resilience and long-term value of rural land assets.
Looking ahead, we anticipate continued growth in land values driven by key factors such as climate change mitigation, sustainable land management practices, and the growing demand for food security and renewable energy. The emergence of natural capital markets offers new avenues for investors to allocate capital towards projects that deliver both financial returns and positive environmental outcomes, further bolstering the value of land and its natural capital assets. However, we recognise that volatility will remain a constant feature of the land market, influenced by economic cycles, government policies, environmental degradation, and global economic factors.
While the future of UK land values may be subject to fluctuations and uncertainties, just as it has been in the past, the enduring value of natural capital and the increasing recognition of its importance in land investment underscores a positive trajectory for the long-term growth of land prices.
Market Correction
In many ways, the emergence of natural capital markets, as a result of climate change and the biodiversity crisis, is a clear market correction mechanism and likely the biggest one ever seen. We didn’t put a price on carbon, we wilfully polluted the atmosphere without care for the consequences, and now the planet is calling in its debt, loudly, and violently.
For the people who have the asset base to support those reparations and the ability to provide a refinancing package in the shape of natural capital markets, there is an unparalleled return to be made. The return will primarily be seen through the positive environmental and social impact they can deliver ensuring the future of life on Earth, and a financial return commensurate with that incredible achievement.
Land prices will continue to rise and may do so dramatically over the long term for those with the ability to utilise these assets to deliver positive environmental and social impact.