What Is Land?
Land, in a business context, refers to real estate or property without buildings and equipment, defined by fixed spatial boundaries.
Land ownership offers the titleholder the right to any natural resources within its boundaries.
In traditional economics, land is a factor of production alongside capital and labor. The sale of land results in a capital gain or loss.
According to Internal Revenue Service (IRS) tax laws, land is not a depreciable asset and qualifies as a fixed asset rather than a current asset.
Key Takeaways
- Land can refer to real estate or property designated by fixed boundaries.
- In economics, land is a primary factor of production along with capital and labor.
- Land itself is a valuable resource, especially if it contains natural resources like oil and gas.
- Investing in land for development is risky but potentially lucrative due to profits and value appreciation.
- Land is used for various purposes—residential, commercial, industrial, recreational, agricultural, and transportation.
Understanding Land
The basic concept of land describes it as a specific area of the earth, property with defined boundaries, which has an owner. This concept can vary based on the context and circumstances under analysis.
When owning land, one owns the surface area, everything on it (trees, buildings, animals), the area below, and the airspace above its boundaries.
In Economics
Legally and economically, land is a factor of production. It is a resource without a cost of production, fundamental to produce other goods, like food.
Though the use of land might change to be more or less economical, its supply can’t be increased.
Ownership of land can be transferred by will, deed, gift, or business transaction.
Characteristics of Land and Land Ownership
Land as a Natural Asset
Land encompasses everything natural on, below, or above it, including trees, buildings, and water.
The term land includes all physical elements bestowed by nature on a specific property area—environment, fields, forests, minerals, climate, animals, and water sources.
Landowners may have rights to natural resources on their property, including plants, soil, minerals, geographic location, electromagnetic features, and geophysical occurrences.
Among the Oldest Types of Collateral
Lenders are attracted to land because it is one of the oldest forms of collateral. Unlike movable assets like homes and cars, land generally can’t be stolen.
Air and space rights attach to ownership, though the use could be subject to height limitations by local, state, and federal laws.
Land Valuation
Land value—what a piece of land is worth—can be estimated by an independent real estate appraiser. Precise land valuation is essential for real estate transactions, local taxes, and property investments, ensuring buyer and seller confidence.
Accurate land valuation helps landowners effectively manage business transactions involving their property.
Factors Affecting Valuation
Valuation depends on location, climate, size, condition, structures, and natural resources within its boundaries.
Proximity to urban amenities can increase land valuation as high appeal typically results in a higher price.
Natural resources like gas and oil also affect valuation significantly. Companies may pay substantial sums for rights to access these resources, increasing the land’s value.
Land Use
Land use involves the employment of land for human business and cultural activities, focusing on residential, commercial, industrial, recreational, and agricultural purposes.
Land condition changes due to usage can affect natural resources and the environment, prompting regulations and guidance from town/city planners for sustainable use.
Investing in Land for Development
Land’s economic value lies in its scarcity. Investors often purchase land for development, be it commercial or residential, though subject to zoning laws and regulations.
Raw land investments can offer predictable future cash flows but come with risks, including tax regulations, political events, and natural disasters.
What Is Land in Economics?
In economics, land is a production factor, akin to labor, vital for creating goods and services. These resources include raw materials like trees, oil, and metals.
Why Is Owning Land Important?
Land ownership is a wealth source. Land can yield profit via harvesting, development for business, leasing, and it doesn’t depreciate. Although susceptible to pollution and destruction, these issues can be managed.
What Are the Main Uses of Land?
Land serves purposes such as transportation, residences, commercial activities, production, agriculture, and recreational uses.
The Bottom Line
Land, defined by specific borders, serves both commercial and residential purposes. Investors may be interested in land for its development potential or existing commercial ventures. It brings inherent risks related to local laws, taxes, political scenarios, and natural events.
Related Terms: fixed asset, capital gain, land value, zoning laws, natural resources.
References
- Legal Explanations. “Land Definition and Legal Meaning”.
- Legal Information Institute. “Land”.
- United States Environmental Protection Agency. “Land Use”.
