What is Land Speculation?
Land speculation is a financial activity that involves the purchase of real estate with the hope that the price will increase. Most land purchases can be better referred to as real estate investment, since land tends to appreciate in value over time due to factors such as scarcity. Speculating on land typically involves the purchase of real estate that may lose value, and often refers to activities that took place in the early history of the United States. As there were vast expanses of public land available throughout much of the the history of the United States, land speculators sometimes bought up large parcels with the specific intent of withholding them from the market. This very act of land speculation could drive prices up, but sometimes had detrimental effects as well.
Real estate is typically a valuable and stable commodity, so purchasing land is not often thought of as speculation. If an investor does the proper research to understand the local market, a reasonable expectation of return can be obtained. Land speculation typically involves risky purchases, either due to a lack of information or an inherently unstable situation. Modern land speculation may occur if an individual purchases land without doing the proper research or buys inexpensive property that he expects to appreciate rapidly due to external forces. Activities such as these can result in an overall loss of money, so they can be seen as speculative.
Historical land speculation has typically occurred when large amounts of land became available for private purchase. This type of situation has happened in the United States several times, beginning with original colonization of America by the British. Many colonists purchased extensive tracts of land on the speculation that they might be able to derive income from the purchases. In some cases these land purchases would be nullified by disagreements between colonies, or in later cases between states, and the speculator would be left with nothing.
During the westward expansion of the United States, more public land was opened to private speculation. Some attempts were made by the government to reign in potentially harmful speculative behaviors, such as homestead acts that allowed tracts to be granted to individuals that actually occupied them. Even after such laws were enacted, land speculators still purchased large quantities of land to intentionally withhold from the market. This sometimes resulted in great profits for the speculator, though in many cases the land would simply go unused.
@Iluviaporos - Well, in some cases I know that's a good thing. There's been several billionaires in the States who have done a lot of investing in land, with the intention of putting it back into its natural state. This is actually pretty vital work, since a lot of the time the land has been planted in grasses that need a lot of water and those areas are quickly running out of water.
The original grasses (which are good for bison but not so much for cows) are much more hardy and do better in the extreme weather that we are tending to get.
If this had been done a hundred years or so ago we wouldn't have had to suffer from the dust bowl, which basically happened because there was a drought and the grass types couldn't handle it.
I think this land speculation is being done for environmental reasons, not financial reasons, but personally I think it's a good move either way.
@browncoat - I wonder if the person who originally thought of that studied the original speculative land investments in the United States and how they affected all the prices around them. A lot of people made tremendous amounts of money, just by being able to see enough into the future to know when to buy, when to sell and when to hold.
It would have been a bit unfair to the average homesteader though, who just wanted a small piece of land to call home and ended up having to pay a lot more than they otherwise might have done. It also makes me a bit sad that there is probably still a lot of fallow land out there not being used that could otherwise do some good.
I know there are definitely still places where land that was bought without any intention of anyone using (in order to drive up the prices of the land around it) it is still going unused.
Wellington, the capital of New Zealand, for example, has a lot of undeveloped land in what they call the "town belt". It's not unused, because people hike on it and use it recreationally, but it was originally bought so that the land prices in the city would go up (I think in order to have a positive effect on the economy, because the land was bought by the government).
Every now and then they will talk about developing it, because it's very valuable land now, but there is always a public outcry and they stop their plans.
I guess that's a somewhat loose definition of speculation, but it amounted to the same ends.
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