Look at the value of land from the Japanese movie "Survival Family"

Author: Doctor of Computational Finance, Film Critic Jian Chen

In the movie "Surviving Family", one day, for completely unexplained reasons, their apartment loses power, and then they find that everywhere they can go loses power.

In the film, someone takes out a Rolex watch and a Maserati sports car to change for food, but is beaten by the landlady of the food store. The reason is very simple, these luxuries are almost worthless in an agrarian society without electricity.

One

"Survival Family" is a relatively different Japanese film. It's a fantasy film, but it's not a science fiction film; it depicts how ordinary people cope with life after a disaster, but it's not a disaster movie in the traditional sense; it can be called a comedy, but it makes people feel inexplicably bitter in addition to the laughter; it can even be used as a road movie, because most of the time the protagonist's family is on the road, but it is completely different from traditional road movies.

The plot of the story is not complicated, the protagonist's family of four is a typical Japanese family living in Tokyo, the father is busy with work, only cares about the annual report and his own wig, never really cares about his wife and children. And the mother only knows how to bury her head in the housework, and only promises to the family. Daughters and sons live in their own world, no big or small for their parents, inseparable from mobile phones and social media all day long, preferring to buy convenience store bento rather than eat at home. For the fresh fish sent by Grandpa from Kagoshima, sorry, no one will kill the fish, so I can only put it in the refrigerator and wait for the next time I receive the same gift to clean it up. As for talking to Grandpa on the phone, please, these two little cubs don't have time to talk about things in the countryside.

One morning, for completely unexplained reasons, the apartment they were in lost power, and then they found that everything they could walk to lost power. And because all the means of communication failed, they had no way of knowing how widespread the accident was. And it's not a power outage, it's a complete loss of power: any devices related to electricity are out of function, including cars, high-speed trains, airplanes, and all kinds of machines powered by batteries. Yes, even a flashlight can't be used.

Without electricity, there was no means of transport, supermarkets soon ran out of food to sell, running water naturally could not be supplied, and the only viable means of transportation was bicycles. My father decided to take everyone on a bicycle to Osaka to try their luck, because he heard that there seemed to be electricity there. After much ordeal, they finally arrived in Osaka, only to find that there was no electricity and that people gathered around the aquarium to eat a barbecue made from the seafood inside. But this is only a drop in the bucket, the aquarium's aquatic products are quickly eaten, and the family has to find a new direction.

After being taken in by a pig farmer, they finally realized that in this world without electricity, the only way to survive was to return to the land. So the family began to head for Kagoshima, where their grandfather was, and along the way they met a family of outdoor masters who also rode bicycles but maintained a comfortable quality of life, teaching them how to forage for food and drink water in the wild. Eventually, the family took a steam locomotive to Kagoshima and lived a life of small farmers with men and women weaving, until one day two years later, the electricity miraculously restored, just like two years ago.

When the family returned to Tokyo, nothing seemed to change and life returned to its former pattern. However, no one dares to despise the fresh fish sent by grandpa anymore, and where is the summer vacation spent? Kagoshima, of course.

There is an interesting scene in the film where the family wants to get something to exchange for some food, when the fashionable man in front of them takes out a Rolex watch and a Maserati sports car, but is beaten by the female owner of the food store. reason? Quite simply, what is the value of these luxuries in an agrarian society without electricity?

Two

So, what is the most valuable thing in this case? land.

One might think that the film is nothing more than an extreme catastrophic scenario, but look at a set of data: Over the past decade, the average annual return on capital on U.S. farm land has been 12.1 percent, compared to just 9.5 percent for the bullish U.S. stock market indicator S&P500. Don't underestimate the annual average of 2.6%, the difference in returns over a decade is 66%.

So what has led to a sharp appreciation in the price of farmland in the United States? On this subject, we will discuss the technical question of how land is priced in the United States.

"How is the land priced" seems to be a redundant question: how much is sold in the market, is it not worth how much?

Not really. First of all, land as a physical asset, the frequency of transactions is very low, its liquidity is far less than financial assets; secondly, the cost of land transactions is very high, often need to be examined in the early stage, assessment, in the medium term and need to bid, financing, after the transaction also have to be delivered, pay taxes, resulting in its actual price is not so obvious. These two reasons lead to the fact that there is often no ready-made second-hand trading market to find the most representative price directly. Finally, the homogeneity of land is far less than that of other physical assets, such as precious metals such as gold and silver, or industrial raw materials such as crude oil, coal mines, and copper. The price of the two adjacent plots of land may be very different due to planned uses, school district differences, and the price difference makes it difficult to trade commodity futures with land as the subject matter.

But that doesn't mean land can't be priced. In the United States, land pricing can be broadly divided into three categories: marginal agricultural value pricing, real option pricing, and time-space model pricing.

The so-called marginal agricultural value refers to the discounted present value of all future net agricultural output on this land. At the junction of urban and rural areas, if land is free to buy and sell, then according to economic principles, the commercial value of land should be roughly equal to its agricultural value, otherwise the city will continue to expand until its marginal commercial value is equal to its marginal agricultural value. If agricultural output is relatively stable, the value of these lands is basically determined by the price of agricultural products. Agricultural land in Nebraska in the Midwest reportedly rose 30 percent in 2011 amid a housing depression across the country, largely because the current price of soybeans is 40 percent higher than the historical average, while the price of corn has nearly doubled.

For commercial plots in cities, agricultural value pricing is less easy to use, and real options are generally used for pricing. The so-called real option refers to the right to develop the land after owning it. After considering the invested construction costs and operating costs, the project with the highest discounted value of its future net cash flow determines the value of the land. For example, there are three feasible projects on a certain piece of land: parking lot, cinema, and department store. Construction costs and operating costs rise sequentially, but operating income will also rise, and after considering a certain rate of return on funds, the most profitable project should be able to determine the value of this commercial plot. The so-called "golden location" and "little land and little money" are not just talking. The average annual sales volume in American malls is about $3,000 per square meter, but caesars palace mall in Las Vegas is a staggering $13,000. However, compared with the $56,260 of Apple's retail store, it is still far from the same.

For residential plots with no commercial output, the most commonly used in the United States is an automatic pricing model that integrates time and space models. The basic principle of this model is to take into account the homogeneity of the same house, and take a time series regression analysis of the price change to obtain the average change of the house price index in a certain area. On this basis, the specific characteristics of the house are then priced. This approach was originally used to value property, and the implied land value can be obtained after estimating and depreciating the cost of construction.

So, must rising land pricing be a good thing for the economy? Usda economists don't think so. In a paper published in February 2018, they were concerned to find that the current high prices of agricultural land may be unsustainable, and that a decline in farmland prices is likely to worsen the financial situation of farmers. According to statistics, farm real estate (including land and the buildings on it) accounts for more than 80% of the assets of the U.S. agricultural sector. Farm real estate values hit record highs in 2015 due to high net cash farm incomes and low interest rates. However, the growth rate of farmland has slowed sharply over the past two years due to falling commodity prices and falling net farm cash income, raising fears of potential debt pressures on agriculture. The study found that farmland appreciation reduced the share of fiscally strapped farms, especially those operating less than a quarter of the land they owned. It also found that farms that owned at least 50 percent of the land borrowed to buy more farmland during periods of high value addition and high yields. Finally, using econometric economic models, the study found that current farmland values are not supported by agricultural returns, suggesting that a decline in land prices is highly likely.