Water Availability And California Land Values

In the 2017 Fourth Quarter edition of The Wise Ag Update, we discussed California’s Sustainable Groundwater Management Act (SGMA) and the mandated development of groundwater sustainability plans (GSPs) for various parts of the state.

The questions we proposed then were: How would the Sustainable Groundwater Management Act shape how farmers use water with crop allocations? Would it alter their methods of irrigation? Would it result in the potential fallowing of ground?

Those questions remain, but one thing noticeable so far has been the impact the legislation has had on California land prices.

Farm properties that rely on groundwater only and don’t have access to surface water have dropped in value, when compared with similar properties that do have access to surface water.

SGMA’s impact on land value “was most apparent in the San Joaquin Valley in 2017,” according to the 2018 Trends in Agricultural Land & Lease Values report issued by the California Chapter of the American Society of Farm Managers and Rural Appraisers.

In Madera County, which lies in the central portion of the San Joaquin Valley, cropland with access to irrigation district surface water fell “16 percent from its 2015 peak,” the report said.

But cropland that had access to only well water fell by more than twice that amount – 38 percent – from its 2015 peak.

Similar value differences between cropland with access to surface water and cropland with access to only well water were also seen in Fresno, Tulare and Kings counties, though these variances weren’t as drastic as those in Madera County.

What’s going on? Buyers are pricing in the potential cutback on the amount of water they’ll be allowed to pull from their wells once all the groundwater sustainability plans are established and implemented. The buyers are putting a higher value on properties with access to both ground and surface water.

The eventual impact of the Sustainable Groundwater Management Act and its mandated groundwater sustainability plans is still unknown. But one thing is evident: currently, land with access to surface water is demanding a higher price.