The Effect on Farmland Prices of Rural Severances in the Urban Field

The lengthy debate on appropriate public policy for agricultural land planning has had two major components: the regulation of severances of farmland and the orderly expansion of each growing city. Putting aside the latter issue, this paper reports research on the severance issue, which is perhaps the key controllable socio‐economic policy variable in rural foodland protection. This paper examines data from one of the most complex areas, the intermediate rural fringe surrounding Toronto. A “severance theory” is presented, based upon a review of theories of externalities and land economics. To test the severance theory, a regression model is used. The research provides what may be the first quantitative information in North America on the extent of the pecuniary externalities alleged to arise from severances, and hence provides some of the information that would be required to evaluate empirically proposed and existing land use policies. The severance theory predicts that severance activity would increase the price of nearby farmland. From the statistical analysis, it is concluded that severances did affect farmland values but that the relationships were more complex than anticipated. Severances influenced farmer buyers to pay higher prices for farmland. However, the predominating nonfarm buyer of farmland in York Region consistently reacted as if there were negative externalities from severances and paid lower prices where severances had an influence. The implications of this study for public policies such as the Ontario Food Land Guidelines are limited by the study area and time period examined. The approach used in this study should be applied to other areas, especially ones less subject to purchases by nonfarmers, in order to define more precisely the impact of severance activity on nearby farmland values.