Grounds for improvement

Grounds for improvement [Summary]

Issues in rural areas: the role of land 

Rural areas in the Netherlands face major challenges relating to the living environment. All these challenges are linked to land. This advisory report examines the role that land plays in addressing these issues in rural areas.

An important aspect of land is the land market. The question is whether the land market makes it difficult to make sustainable choices for rural areas. By sustainable choices, we mean choices that lead to a pleasant, healthy living environment, attractive future prospects for residents and farmers, and a socially and culturally vibrant rural area. Governments, businesses, citizens and civil society organisations all make such choices. 

Rural areas face three major challenges:

• reducing the damage caused by agriculture to the living environment;
• providing space for national objectives such as housing, energy production, defence and nature conservation;
• offering vitality and socio-economic prospects for communities.

Many solutions to these societal challenges are linked to land. To reduce environmental pressure, agriculture must make less intensive use of the land. For housing construction, the legal function of land often needs to change. Furthermore, developments in the land market influence employment and living conditions in rural areas.

The land market consists of various sub-markets, including those for housing, nature and agriculture. Agricultural land plays a key role in the search for space for other functions, such as housing. This is hardly surprising: agriculture accounts for around two-thirds of total land use in the Netherlands. That is why planners often look to agriculture as a source of land. In practice, agriculture is the only sector that can provide (net) space.

Rising prices and low land mobility in the land market

Since the 1950s, the price of agricultural land has risen by an average of around 3% per year, adjusted for inflation. Land prices have therefore been at historically high levels for some time. Naturally, there are fluctuations, for example with rises or falls in interest rates. There are also significant price differences between regions and types of agricultural land.

The price of agricultural land is linked to its yield. But what is increasingly influencing the price is the expected value of the land once it’s legal function has been changed. This is particularly true if that new legal function generates higher returns, such as housing. The influence of such a ‘surge in value’ on agricultural land prices has risen sharply in recent decades. This applies most to land in the vicinity of urban areas. This is due to the high and ever-increasing demand for space for housing, renewable energy, business parks, nature and defence. Furthermore, only a small proportion of all agricultural land changes hands each year: ‘land mobility’ is low. There is thus high demand for land and very little supply. It is therefore not surprising that the price of agricultural land in the Netherlands is no less than nine times higher than the European average.

We see that high land prices and low land mobility make it difficult to tackle societal challenges in rural areas. For instance, it is hard for farmers to make a decent living from agriculture that is less harmful to the environment and the local community when land prices are high. This is because they need additional land to do so. The high prices also act as a barrier to new entrants in the agricultural land market, including young people. For the government, high land prices make it more expensive to purchase land to achieve societal objectives, such as creating nature reserves or strengthening the Dutch defence.

Government roles regarding land

How the land market functions depends largely on the government. It can influence the land market through various policies and instruments. In doing so, the government fulfils four roles, namely those of: 

• market regulator (which sets the rules that all players must adhere to);
• market regulator (which determines, through spatial planning, what function land may serve. In this way, the government creates sub-markets within the land market); 
• market influencer (which influences the choices of landowners and land users through legal rules in environmental policy, subsidies and taxes);
• market player (who is a landowner themselves and buys and sells land).

Each of these roles and the associated instruments have an impact on the land market.

Legal regulations: are too compartmentalised, too complicated and offer too little flexibility

Governments impose conditions on land use. They do so through legal regulations in environmental policy, such as emission standards of hazardous substances. In this way, they influence how land is used. Yet in practice, we see that the government does not always achieve its objectives with these rules. This is due, for example, to the compartmentalisation of policy: each ministry or government organisation makes its own rules. If there is insufficient focus on coherence, the rules sometimes become unworkable or contradictory. This causes problems for both agricultural businesses and the authorities responsible for monitoring their work. We also see that authorities do not make much use of the option to adapt environmental requirements to the local situation. This is because they are unaware of the possibilities or because they lack the capacity to explain why they are doing things differently in a particular location. Furthermore, they do not always feel confident about deviating from the nationally applicable rules.

Subsidies: are not always effective and lead to price inflation in the land market 

Governments can also influence land ownership and land use through financial schemes, such as subsidies. Businesses in the agricultural sector collectively receive hundreds of millions of euros in subsidies annually. This money comes from Europe, the national government and the provinces. Subsidies take the form of income support, early retirement schemes, innovation schemes and schemes for agricultural nature conservation. These schemes are intended to provide farmers with livelihood security and to make agriculture more sustainable. However, in practice, some subsidies contribute to rising land prices. Some farmers, particularly the larger ones, gain greater financial leeway as a result, which they use to purchase additional land. Subsidies, including income support, therefore capitalise in the land.

Tax exemptions: reduce land mobility and hinder access for new entrants

Through tax schemes, the government primarily influences land ownership. Owners of agricultural land collectively enjoy hundreds of millions of euros in tax benefits each year. Independent research is critical of the effectiveness and efficiency of these schemes. This applies in particular to the agricultural exemption, the arable land exemption, property taxes and the exemption from stamp duty. The current tax rules make it more attractive to retain ownership of and purchase additional agricultural land than to cease farming and sell the land. And there is another important reason for farmers to hold onto land. For most farmers, owning land is a safe investment for their retirement provision. Holding onto land ensures that little agricultural land comes onto the market. Moreover, the money tied up in the land does not go towards investments in agriculture that increase production and protect the environment.

Land instruments: voluntary instruments are the norm

The government uses land instruments to influence the planning of areas. In this way, it aims to achieve public objectives. Examples include improving the agricultural structure, water management, nature conservation, or the development of residential areas and infrastructure (for energy or transport). Governments have a well-stocked toolbox of land instruments at their disposal. However, in recent decades, the central government has significantly reduced its own position and scope for using these instruments. Although the government is once again more ambitious in steering the development of areas, it takes time and money to be able to deploy land instruments again. Such instruments include, for example, statutory land consolidation, a land bank, expropriation and the establishment of a right of first purchase on land. We see that provinces, water boards and local authorities do not readily deploy land instruments that compel other parties. They prefer voluntary land exchange or, in the case of land purchases, ‘amicable acquisition’, i.e. voluntary sale. This works well for straightforward challenges. But for complex challenges, such caution often acts as a barrier to achieving a result that delivers long-term added value.

Government policy on the land market drives up land prices, reduces land mobility and hinders the achievement of societal objectives

The government aims to keep rural areas vibrant, liveable and attractive in the long term. It also wishes to facilitate sustainable land use. This requires a large-scale redevelopment of rural areas. Government land policy is indispensable to a successful strategy for redeveloping areas. However, we now see that governments are primarily using land policy to try to repair the negative effects of environmental and spatial planning policies that are not stringent enough. Furthermore, we observe a preference among governments for voluntary land instruments. Consequently, they are not making sufficient progress, given the scale of the challenges.

Three recommendations with a perspective for the living environment, agriculture and rural residents 

We make recommendations for public authorities’ land policy and for the broader public policy that affects the land market and land use. This concerns environmental policy, fiscal policy and subsidy policy. Our recommendations combine incentives and disincentives. We see many and diverse parties working with energy, passion and commitment towards a sustainable future for the countryside. Tapping into this energy within society is essential for a successful future for rural areas. But we also see that the challenge is immense and the problems persistent. Interests diverge, particularly in the short term. The government must carefully balance and weigh these up. But it must also take the lead, setting clear conditions and frameworks. And it must not be afraid to use binding instruments to drive change.

Recommendation 1: Remove incentives from tax rules and subsidies that drive up land prices

To curb the rise in agricultural land prices, the government must at the very least stop adding fuel to the fire. It is currently doing so through various tax rules and subsidies for agriculture. Money flowing into rural areas to solve societal problems is being invested in land. Reform is needed of various tax exemptions for agricultural land, business succession to the next generation, agricultural subsidies under the Common Agricultural Policy (CAP) and the buy-out schemes to reduce manure surplusses). These reforms will have a dampening effect on the rise in land prices. They will also partly remove the incentive to invest in land. Specifically, we envisage the following reforms:

• Convert tax exemptions relating to agricultural land into a pension fund for farmers.
• Link sustainability conditions to the business succession scheme (BOR).
• Target agricultural subsidies at making agriculture more sustainable and strengthening its structure.
• Remove incentives that drive up land prices from the retirement schemes.

Recommendation 2: Provide direction by distinguishing between production agriculture and societal agriculture

We recommend distinguishing between two development paths for rural areas: one towards production agriculture areas and one towards areas for societal agriculture. The two development paths differ from one another in terms of the nature of agriculture, the scale of environmental problems, the integration of other functions, and the links with communities. In areas of production agriculture, commercial food production is the primary focus. In areas for societal  agriculture, food production is combined with community services and other functions are integrated. The government must provide planning and financial guidance for the development of these two types of rural areas. It must support this through the following measures:

• Link agricultural subsidies to the legal planning function of land. Spatial plans must therefore include multiple types of agricultural land. We recommend introducing the function ‘landscape land’ (or a comparable term) alongside agricultural land. Authorities must utilise the opportunities offered by the Environment And Planning Act for this variation.
• Create instruments to facilitate the development of areas for societal agriculture. Examples include cross-plan offsetting and red-for-green financing. In cross-plan offsetting, profits from one sub-project are used to offset losses from another sub-project. This makes it possible to implement a programme of projects in an area in a coherent manner. Red-for-green financing helps to clear derelict buildings in rural areas and replace them with nature or landscape features.

Recommendation 3: Intervene more actively in the land market to achieve social objectives 

Achieving social objectives requires a large-scale redevelopment of significant parts of the rural landscape. If public authorities wish to achieve results, they must make effective use of all the land instruments at their disposal. Essential instruments in this regard are statutory land consolidation, expropriation (including compensation) and pre-emptive rights. These must be deployed in parallel with and simultaneously alongside voluntary instruments. We also recommend assessing whether land transactions contribute to addressing societal challenges.