Canadian Farmland Affordability the Worst in 30 Years

Mar 28, 2024

While important nuances exist across provinces, Canadian farmland affordability deteriorated to its worst level in 30 years at the end of 2023 as farmland values and mortgage rates increased, according to Farm Credit Canada (FCC).

In an analysis Thursday, FCC showed farmland affordability reached its historical worst in 1981 as five-year mortgage rates hit 18% in addition to production and price challenges that impacted farm cash receipts. The general decline in interest rates from the mid-1980’s to the early 2000’s improved farmland affordability and kept it relatively steady.

However, the surge in rates and strong appreciation of farmland values since 2020 have caused farmland affordability to deteriorate to its worst level since 1990.

A rising farmland affordability index (FAI) - a ratio of farmland purchase related costs (annual payments on newly purchased farmland) to the income potential from the land - indicates that farmland values are outpacing revenue generated from farmland.

While rising farmland values mean established farmers will have more equity from their assets, they also indicate that the price of farmland has become elevated compared to the revenue that can be generated from it, FCC said.

In Western Canada, the impact on rising farmland values and interest rate hikes has elevated the FAI to a decade high. Since 2020, British Columbia has experienced the most significant deterioration, due to higher farmland values. Alberta saw the least deterioration over the same period, partly due to slower appreciation of farmland values over the same period.

Meanwhile, farmland affordability has deteriorated to “unprecedented levels” in Eastern Canada, with Ontario in 2023 breaching 1981’s previous record for the least affordable land as farmland values appreciated faster than the growth in farm cash receipts. Quebec set an all-time worst in 2022 with further declines in 2023.

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