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NEW YORK, NOVEMBER 6, 1915
I HOUSING AND THE UNTAXING OF BUILDINGS
The Single Tax Would Make Some Aspects of the Hous¬
ing Problem Worse—False Hopes For Lower Rents
By PROF. E. R. A. SELIGMAN
Prof, Political Economy, ColumbiaUniversity
THE fundamental point in the de¬
mand for the exemption of build¬
ings from taxation is the contention of
the single-taxer tliat private property in
land is unjust and that property in every¬
thing else is necessarily just.
With this general proposition, I have
dealt elsewhere and have attempted to
show that both branches of the con¬
tention are unsound.
This association, however, is interest¬
ed in a mucli more restricted pliase of
the subject—the contention, namely, that
the housing problem can be solved by
the exemption of dwellings from taxa¬
tion, and that as a consequence houses
ought to be so exempted.
It is with this far more modest phase
of the problem that I shall occupy my¬
self, leaving entirely on one side the
question of the truth of the single tax
as a general philosopliy.
In approaching this more restricted
problem, however, it is essential to dis¬
tinguish between two questions.
The first is, as to whether in truth
the housing problem in large cities can
be solved by the untaxing of buildings.
The second and more important ques¬
tion is, whether, even if the first be
answered in the affirmative, it is for
other reasons inadvisable to introduce
the alleged reform.
For, after all, we must carefully dis¬
tinguish between the two aspects of
every tax—the fiscal aspect and the so¬
cial or general economic aspect. In
modern times, it has become, and right¬
ly so, the custom to emphasize the social
consequences and effects of a ta.x.
The Primary Function.
But this must not blind us to the fact
that the primary function of a ta.x is to
raise money; and that while a tax system
ought indeed to be so contrived as to
liave the least possible deleterious social
results, the primary fiscal rules of every
revenue system must always be borne
in mind—viz.; adequacy and equality.
Even a socially desirable change in a
revenue system which would result in
fiscal embarrassment or gross injustice
of burden could not be defended.
Let us take up first, then, the problem
as to whether the untaxing of buildings
would solve the housing problem in
large cities. It may be taken for granted
that under ordinary conditions, while a
lax on land remains on the land owner,
a tax on houses will be shifted to the
tenant. Other things being equal, there¬
fore, it would seem that the untaxing
of buildings_ would result in lower rents
or in roomier apartments at the same
rent. Before, however, it is legitimate
to assume this result, it will be neces¬
sary to bear three things in mind.
In the first place, it is a notorious
fact that since buildings depreciate in
the course of time, and since it is not
the custom in Aineriea to provide a de¬
preciation fund, intending builders and
especially intending home-owners count
"P°" the expected increase in the value
•Paper presented at Fourth National
Housing Conference. Minneapolis, Oct, 6-
of the land in order to make good the
depreciation in the building, or, even
apart from that, in order to enable them
to pay back the money they have bor¬
rowed in financing the property.
An increase in the land taxes would
obviously mean a pro-tanto slackening in
the increase of land values, or even in
a great majority of cases an actual de¬
crease in land values. To this extent
the prospective growth in the number
of houses would be checked and the ex¬
pected result in the way of lower rents
The Element of Friction.
In the second place, we must count,
especially in large cities, with the ele¬
ment of friction. In actual life, all sorts
of influence which would take too long
to recapitulate here come in to prevent
the benefit of lower taxes from being
transferred to the tenant. These in¬
fluences are known to all students under
the name of "inelasticity of demand"
and would withbut much doubt frequent¬
ly to a large extent impede the process.
Again, it is by no means sure wliether
the benefit, if it actually reached the
tenant, would take the form of lower
rents or of larger rooms. If it took
the latter form, it is questionable wheth¬
er congestion would be appreciably re¬
lieved. For, as we all know, the worst
congestion in our large cities is due to
the filling up of the rooms by boarders.
And if the rooms were a little larger,
the result would probably be the taking
in of more boarders. For where rents
are so high, as they are in large cities,
and as they would substantially remain,
tax or no tax, tenants will try to save
as much as possible on their rent in
order to have more left for the other
In the third place, houses in our large
cities are almost everywhere built on
borrowed money. The margin of se¬
curity on the loan is not very high.
If by the sudden untaxing of buildings
there should be a substantial decrease
in land values, this margin would be
apt to_ be seriously impaired. Intend¬
ing builders_ will, as a consequence, have
to pay a higher interest rate on their
mortgages and this would tend in part
at least, to offset the reduced taxes.
As to Lower Rents.
Tluis. from many points of view, the
entluisiastic hopes for lower rents as
a result of untaxing buildings would
have to be moderated. There would in¬
deed be a tendency ultimately to have
lower rents; but the reduction might be
far less than was imagined, might be
much slower in coming than was
The housinrr problem, or congestion
problem, depends, however, not alone
upon tlie number of tenants per room,
but also upon the number of tenants
per acre. In other words, we must not
forget tlie problem of high tenements
and of open spaces. It is quite beyond
question tliat the untaxing of buildings
will increase the tendency to erect lofty
tenement houses in the slums, and will
decrease the tendency to have little gar¬
dens about the houses in the suburbs.
While therefore the untaxing of build¬
ings might have some effect upon re¬
ducing the congestion per room, it
would, on the other hand, increase the
congestion per acre. It could therefore
not be said to solve the housing problem,
for it will make some aspects of the
housing problem worse. It is no an¬
swer to say, that high buildings can be
prevented and public parks multiplied
by law. It is possible to accomplish
these results now and yet they are not
Would Make the Problem Worse.
What we are studying is the tendency
of the projected measure taken by itself,
and not in view of other legislation
which may or may not be obtained. The
untaxing of buildings by increasing the
height of buildings and by diminishing
the open spaces about buildings may do
at least as much harm as the possible
reduction of rents may do good.
We now come to the second and more
important part of the problem: What
will be the general fiscal and economic
effects of the untaxing of buildings?
Here, in the first place, it must be
pointed out that as a general fiscal
proposition of undoubted validity the
narrowing of the base of taxation is al¬
ways to be regarded with suspicion. The
higher taxes on land, which would re¬
sult from the untaxing of improvements,
would have a doubly injurious result.
The assessment of property would be
twice reduced, first, by the removal of
improvements from the assessment roll,
and, secondly, by the decrease in the
value of the land itself In almost all
American States there is not only a con¬
stitutional limit as to the tax rate on
property, but a constitutional limit as to
the amount of indebtedness which is re¬
stricted to a certain percentage of the
real estate. The great narrowing of the
base would in many of our large cities
render necessary a tax rate which would
transcend the constitutional limit and
which might therefore seriously inter¬
fere with the conduct of the city's affairs
Jn the same way. the restriction of the
debt limit would often be most em-
barrassin.g. The fiscal results might
therefore most assuredly be injurious.
Violation of Equality.
In the second place, the project would
violate some of the most elementary
principles of equality. In a careful in¬
vestigation that has recently been made
under the auspices of the Ncw York
City Committee on Taxation, it has been
shown beyond the peradventure of doubt
that results like the following -ivould
ensue from the untaxing of buildings.
The sky-scrapers would pay less than
at present and the wealthy individuals
and corporations that own these struc-
ttires would be relieved from taxation
1 he great mass of modest single homes
in the Borough of Manliattan would pav
more than at present, and the tendencv
would be strongly accentuated to drive
such home-owners info the large apart¬
Finally, in almost all the groups of
.Tpartmcnt and tenement houses in the
Borough of Manhattan, the wealthier
owners in each class would be relieved