R E A L    E S TAT E

mm





BUILDERS





AND







Vol. CII.





NEW YORK, AUGUST 24, 1918





No. 8





Necessity of Safeguarding Realty Mortgages

Total   of   Six   Billion   Dollars   in   This   Class   of   Securities   in

New   York   City   Alone

r.y LEO DAY WOODWORTH,

Secretarv,   Advisoi"v   Council   of   Real   Estate   luterests,  Nevv  York.





THE   follovviug  discussion   results   f i-om   four  facts:
War conditions, tlie general  vveakness of the  real
estate market, the effect of the growing tax levies
and the entire ahsence of government  support in the
mortgage market.

I

Hesitancy appears both natural and proper when we
would call attention to con(htions in the mortgage market.
Whole-hearted support of the war administration must
not be clouded by any act indicative of mere selfish
interest.

The splendid accomplishments of tlie real estate di-
visions in floating the war loans, toward the success of
wliich realty board facilities contributed so much—also
like deeds by realty's labor, material and contracting
alHes—give ample proof of the unalloycd patriotism of
the real estate interests.

The national "will to win" has svvept away deterrent in-
fluences. Both material and services now are on the altar
without reserve. Even the respected and necessary prin-
ciples of constitutional government and of political eco-
nomics are laid aside as necessary—for the time being.

Property is now on a quick asset basis in order to "vvin
the war and do it now." The working capital of the coun-
trv must be used for the rapid and extensive turn overs
of unprecedented payrolls, new construction in most un-
expected places, added production of materials at in-
creased prices. Long term private investments would not
be opportune.

II

Cefore the war there vvere two primary securities in
vvhich to invest permanent funds—government bonds and
real estate mortgages—both protected by the constitutions
and moral standards of the Nation.

Loans secured by realty being the more remunerative,
attracted by far the larger amount of capital. This favor-
able aspect made possible the enormous growth in the
real property of the country through improvements and
extensions for manufacturing, business, residence and
agriculture. The lure of the unearned increment, as
Prof. Ely has called it, has supplied us with enterprises
and facilities and resulting rewards which enables us at
this critical juncture to step in as the big brother among
twenty-three allies.

The total of mortgage obligations is about half of the
total value of real property. In other words, the invest-
ments of realty ovvners are about equal to those by mort-
gages. However, in Nevv Ynrk City it is possible that
mortgage indebtcdness amounts to even 60 per cent. of
the whole. This inimense volunie of mortgagc securities
—over six billions in New York alone—is maturing in
one, three and five-ycar periods and no small part is past
due.

Such is the size and scope of thc problem of conserva-





tion vvhich confronts the real estate interests—borrowers
and lenders, landlords and tenants, bankers and depositors,
and all others, iiicluding public utilities and their strap-
hangers!

III

The problems of mortgage securities are tied uj) with
those of public (especially city) finance and credit. A
brief sketch will indicate our need for serious attention to
this field.

The borrowing povver of the city is limited to a percent-
age of the total assessed value of the real property therein.
The taxing power is practically limited to what it can ex-
tract from the real estate owners. As if this were not
er.ough, the State of New York has drawn its sustenance
from an assortment of indirect taxes which must now be
suppleniented by a State direct tax upon realty. The
threat is now made that the indirect taxes will be more
and more i)reempted or "dried up" by Federal taxation,
both (luring and after war—to the enlargement of the
real estate tax.

Real estate values must be conserved, ;uid be main-
tained as a productive and profitable investment, if it is to
carry this burden—and threat.

If real estate values are not conserved and fostered
rather than impaired and destroyed by improper tax laws
and regulations, we can safely predict a declining market.
That in turn produces an increasing total of uncollected
taxes, demands for payment or reduction of mortgage
debts, decreased building activity, higher rents. Hovv
niany of these symptoms are ])resent today ? If present,
are they increasing in severity or are vve applying a
remedy ?

While it is our main purpose here to deal vvith the need
for attention to the mortgage market, municipal finance
furnished during the present month an event of signifi-
cance vvhich should be noted. The Comptrolier of the
City of New York discontinued certain tax sales for the
period of the war. The owners are relieved in order that
taxes may continue to pile up against them—but mean-
while the city budget must be met either by borrowings or
by further contributions from taxpayers who have
already paid their share.

The war is not the real rcason. The cau.ses are much
more complicated. They are to be found in recognized
principles which are not to our taste but which are con-
tiolling and follow in sequence about as follows:

Realtv will bear a heavier burden of taxation than other
property. That hurden can be increased so long as the
realty is increasing in value or allowed to produce a rea-
sonable nct income, biit,

(1)   taxes, likc all fixed or increasing charges, deter
buvers and therefore deijress values in properties to
both present and prospective demands; therefore,

(2)  ovvners of vacant or inadequately improved land.