How flooding impacts land values

With floodwaters only just receding in some areas, farmers and landowners will have to take the initiative to preserve productive capacity and value in future

Here are the basics – land and property that floods or is at risk of flooding is worth less money. We can debate how much less, but we need to start accepting the principle that it is worth less.

Why? Because deciding what land is “worth” is a function not only of what you see today but also anticipation of what the picture might be in future, assessing what risks may impact upon your investment.

Let’s think initially about land that actually floods. As we have all seen from the coverage of the flooding across the Somerset Levels, it is a really miserable experience.

It gives rise not only to physical and financial loss, but is also emotionally draining. The recent publication of the United Nations Climate Change II report shows that nobody will remain untouched by the effects of global warming. With a greater probability of more volatile weather, knowing your flood risk has never been more relevant.

Extreme events such as on the Somerset Levels this winter obviously have a huge impact on day-to-day operations, although, of course, anybody who purchased land in that location should have been aware that there is a significant risk of flooding.

On arable land that becomes submerged, clearly there is a huge impact on productive plant life and generation of a saleable crop. But it is not just submergence that is the issue – it is a general raising of water levels, which potentially affects drainage outfalls giving rise to soil inundation.

On permanent grass the impact may not be as great and in many locations land is actually in permanent grass because of the very fact that it is wet or prone to flooding.

Whenever I speak on this subject the inevitable question arises “how much do values reduce?” and, of course, the answer, in line with true agent speak, is that “it depends”.

Let’s take the example of 500 acres of good arable ground capable of growing potatoes as well as combinable crops. It is no good just looking at the specific block of land – you have to consider the boundaries and actively understand how water moves in and out of the locality.

You have to understand who is responsible for the wider drainage infrastructure. Is it currently maintained? Is it likely to be maintained in future? You have to understand also what the impact of a small change in sea level may mean.

How does that affect the ability to drain and dispose of surplus water? Are there any schemes upstream which may discharge higher volumes of water at periods of intensive rainfall? If so, what would the impact of this be? Reductions in value of up to 50% may be commonplace on that 500-acre block of arable land.

In my view, it is nonsense to suggest that because we are in a “hot market” there is no effect on value. Of course, there must be a change in value. The question should be: “how much?”

Where demand outstrips supply then the discount could be relatively small. However, place yourself into a different marketplace where supply exceeds demand or at least there is choice for the prospective purchaser.

Why would you choose land at risk of flooding? Well, only if it was considerably cheaper. At present, the lending institutions haven’t grasped the concept of flood risk, but at some stage they will, and will start to factor it into their pricing and willingness to lend.

The same dynamics apply to the rental market – the prospective tenant would need to take account of the impact of potential crop loss arising, say, one in every 10 years.

There is no way that a government is going to fund the cost of works to protect both the urban, built environment and the rural, farmed environment. Landowners, occupiers and their representative organisations have got to get real about the realities of flooding.

There is going to need to be a far more proactive partnership approach between these parties which will preserve both productive capacity from the land resource and the value of the balance sheet and return. The Environment Agency will need to be looking for solutions rather than presenting problems.

Looking forward, co-operation will be key. Consider the attitude in pre-war days where communities proactively pulled together in order to maintain their flood defences or indeed construct them in order to protect not only asset values, but productive capacity for the future.

If farmers and landowners fail to do this as a cohesive and focused group they are just going to see their balance sheets eroded alongside bottom-line profit.

For those with special and very specific locations, floodwater may become a positive asset. If your land holding has the ability to store floodwater, thereby protecting property downstream, I wonder what value it has? I suspect an awful lot more than has previously been assessed.

OCTOBER
29

Farm succession planning during the Covid-19 crisis

Register now