Allentown, Pa.
THE RINGING OF THE BELL
To the Editor:
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.
A. L. Benedict, M.D.
[Editor Buffalo Medical Journal.]