Urban proximity, demand for land and land prices in Malawi

Abstract

We assess the spatial and intertemporal change patterns of farmland prices using per hectare minimum willingness to accept (WTA) sales and rental prices in Malawi. We use three rounds of nationally representative household farm panel data from the Living Standards Measurement Surveys (LSMS), collected in 2010, 2013 and 2016. We study price changes by splitting the sample in quintiles based on distance from the nearest major city, building on the von Thünen theory and urban growth model. Generally, WTA land prices decrease with distance from urban areas. However, WTA land sales prices increased more sharply between 2010 and 2013 in rural areas (+100% vs. +30% in urban proximity). Conversely, by 2016 land sales prices were again, like in 2010, about three times as high in areas near urban centres compared to remote rural areas. Even though sales prices declined in remote rural areas from 2013 to 2016, rental prices remained high. Using farm level population pressure, we show that local population pressure is a driver of WTA land prices, which is an indicator of land scarcity challenges and a growing demand for land. Although a policy focus in the past decade within Africa has been on the new demand for large scale land transfers in rural areas, we see that shadow land prices in smallholder agriculture in Malawi were affected by this sharp increase in demand as well as by increasing population pressure and urbanization. With growing land scarcity, land markets are becoming more important and need to be factored in when formulating development policies that aim to improve access to land and land use efficiency in both peri-urban and rural areas.