In your issue of March 15, 1913, you describe the ringing of a bell,
every five minutes, to indicate the unearned increment of $1,000 in New
York city real estate. This corresponds to a yearly increase of a little
over $106,000,000. As stated further on, however, the community takes
over $57,000,000 of this, directly, in taxes. It is perfectly true that
the industries of the city account for the increase in value. But, on
the other hand, the men who own and have built skyscrapers on the land
have made the space in which the community lives. The land area itself
is utterly inadequate for the business and living room of the community.
There does not seem to be any great injustice in leaving for the men who
have bought and improved and who manage this land, between 40 and 43 per
cent of the increase, especially as the increase is itself subject to an
increased assessment and progressive taxation.
Looking at the matter in another way, the owner of land in New York is
allowed a trifle over 1½ per cent a year interest on his investment.
Unless he makes a high rate of interest on the buildings, and the
general experience for most cities is that 5 per cent on a realty
investment is rather beyond the average, it does not appear that his
profits are usurious.
A comparatively small fraction of the great fortunes of the country is
invested in realty, and for the country as a whole real estate is the
safeguard of the poor but thrifty. To reduce rents below the average
interest on conservative investments is to discourage thrift and home
owning. Temporarily and to a small degree increase of land tax will
stimulate building and thereby, by disturbing the relation of supply and
demand, reduce rents. But this effect will last only until those who
hold unsalable land have made the best of a bad investment. No one will
continue to engage in any kind of a business beyond the point at which
it yields a return fairly equivalent to that obtainable in other lines.
It is almost an axiom that 4 per cent of the total cost of any kind of a
building must be allowed for taxes, insurance, repairs, depreciation,
&c. As much as 9 or 10 per cent of the investment must therefore be
charged in rentals, to equal even quiet investments which require very
little personal attention. In a small town or in suburbs, where the land
value is about $200 for a twenty-foot front lot, a cottage can be built,
with proper plumbing and lighting equipment, so as to represent a total
investment of somewhat less than $1,000. This corresponds to a yearly
rental of $90, or thereabouts. How far the enormously increased land
value can be counterbalanced by building on a large scale, but with
inevitably more expensive material, is a question to be carefully
considered. But the rental must be calculated on a business basis unless
the problem is solved by a frank reversion to charity.
While it is unfortunate that any one should be poor, it does not seem
strange that 30 per cent of the earnings of the very poor, in a city
where there is literally too little land for the inhabitants, should go
for a home. Rent nowadays often includes water, care of exterior of
premises, and sometimes heat and light. A generation ago 25 per cent,
without any of these extras, was considered a fair average for the
moderately well-to-do family.