Land has three “crucial features” which explain why its value has followed an upwards trend throughout history, according to financial journalist Mike Bird.

In his book, The Land Trap, Bird explains that the first special feature of land is simply that no more of it is being made.

“Its supply is fixed,” he writes. The second reason why land is different from every other asset is that it cannot be moved around.

“When land in a buzzing urban area becomes enormously valuable, more land cannot be brought in from a place where it is still dirt cheap,” the book reads.

The third factor is that land does not decay or depreciate over time so its value is extremely long-lived.

This trait differs from almost all other items of value in the modern economy. For example, a cutting-edge piece of technology might be very valuable today, but could easily become obsolete and worthless within a few years.

Loan security

Taken together, Bird argues that these unique characteristics help underpin land values and make it “the perfect collateral” to guarantee a loan.

He states that even in today’s modern economy, land still has a hugely important role in acting as security for all types of borrowing.

“As the economy becomes ever more high-tech and digital, banks may come to depend on land as collateral even more,” Bird suggests. However, the author highlights “a huge economic risk” in places where land values make up a large share of national wealth and where the connection between finance and land becomes very close.

He argues that many countries across the world find themselves in a land trap which has consequences if prices move in either direction.

If land prices rise, there is a credit boom for those who own land, with many others left out. And if land prices fall, the sudden loss of credit can be catastrophic for the whole financial system.

Land markets

Throughout the book, Bird draws on many examples of how land markets impact economies. They range from the land grabs of 17th century America, to Japan’s post-war boom, to China’s current property crisis.

A lot of the book is heavily focused on residential land and the housing market, but agricultural land does get discussed at various points.

One example is the boom in American agriculture during the First World War as European farming was in turmoil.

Commodity prices for American farmers roared but, when the bust finally came after the war ended, farmgate prices collapsed and so did the American land market.

“Thousands of rural banks closed through the 1920s, even as parts of the urban American economy were booming,” Bird writes.

While reading The Land Trap, I kept thinking about how farmland prices in Northern Ireland have generally kept moving upwards over recent decades.

In particular, the land market here is notorious for not being influenced by the ups and downs of farm commodity prices. Perhaps that is not a bad thing?