REAL  ESTATE







AND







NEW YORK, JANUARY 6, 1917





WHILE   REALTY ACTIVITY   IS   NOT   PRONOUNCED
STILL   CONDITIONS  ARE   IMPROVING

By LAURENCE McGUIRE, President, Real Estate Board of New York





I T MAY be fairly said that during the
■^ past two years the country has been
enjoying the greatest era of prosperity
in its history. Throughout the recent
political campaign many arguments were
advanced in an endeavor to show the
causes of this national well-being. It is
true that the dominant political parties
and their standard bearers "were far fi'om
agreeing as to these causes, yet all
agreed that the country has been and is
now prosperous beyond expectation.

To what extent has New York City
real estate shared in this unprecedented
prosperity? It may be that the present
is an unfortunate time to attempt an
answer. Real estate, it is conceded, is
the last form of wealth to feel depres¬
sion and likewise the last to recover.
The question naturally arises, as to
whether or not we have entirely recov¬
ered from the conditions of three years
ago. I would say that the recovery has
been only partial and in no wise propor¬
tionate to other branches of investing
and speculative business. There is now
and has been abundant mortgage money.
Soon there must be even more to be in¬
vested. This would ordinarily mean an
active speculative market. But until
such time as appraisers generally are
willing to take a more optimistic view of
New York's real estate's future there
can be no pronounced activity.

Renting conditions throughout the
whole city have never been better than
this Fall. There has been and there is
now great demand for office space.
There never has been greater demand
for living apartments. Thus one is
justified in saying that renting condi¬
tions have been and are all that could
possibly be desired.

With ample mortgage money and with
most properties well tenanted, what is
the obstacle to a sound and active mar¬
ket? Is it because of the ever increas¬
ing tax and the many conflicting and
burdensome demands made upon own¬
ers by the various Municipal and State
Departments? . There is no doubt that
the conservative investor is more fre¬
quently concerned with the future than
with the present. It is wiser to portray
even an unpleasant future than to con¬
tinue to abide in a fool's paradise.

The funded debt of the city has
reached the enorrnous total of $1,360,-
139,986.11, exclusive of revenue bonds,
an increase of $780,000,000 in the past
ten years and greater than the national
debt by $400,000,000. This debt is con¬
stantly increasing. The increase in the
cost of City Government may perhaps be
best understood by going back ten
years. At that time the total Budget for
the greater city was $118,650,552.08. In
1917 tlie debt service alone reaches the
alarming total of $56,552,256—all of
which is for interest—and the total
Budget without a Direct State Tax, for
which last year the city paid approxi¬
mately $14,000,000, is $211,000,000. Real¬
izing that the tax burden on real estate
has more than doubled in approximately
ten years, is it possible that investors
are looking ten years into the future and
seeing a tax rate of 4 per cent or even
higher? This is a reasonable expecta¬
tion if it is fair to judge the future by
the known past.

Real estate is the city's greatest asset.
Not only owners of real property but
every  citizen  possessing civic  pride and







LAURENCE    McGUIRE.

devotion to our city, the greatest in the
•vyorld,  must   realize   the   serious  obliga¬
tion which he owes for the conservation
and the preservation of this great asset.
How  is  this  duty  to  be  discharged?    I
can see but one way: to seek immediate¬
ly additional sources of revenue or other
forms of taxation to meet the constantly
increasing    cost    of    government.     The
Mayor's    Tax    Committee,    after    many
hearings    and    exhaustive    study,    con¬
cluded  that  reducing  the   tax  on   build¬
ings would do much harm and no possi¬
ble good.    The Committee made recom¬
mendations    by    way    of    special    taxes
which    they    concluded   would    produce
some additional revenue, but to my mind
not a sufficient one materially to lessen
the   burden   now   being   carried   by   real
property owners.    The Joint Legislative
Committee   so   ably   presided   over   by
Senator Ogden  L. Mills reported to the
Legislature  last  year and  recommended
a State Income Ta.x.    This, I firmly be¬
lieve,   is   the   logical  just  and   most  de¬
sirable   way   of   meeting   the   situation.
Every individual should be compelled to
contribute   a   fair   share   of   income   en¬
joyed,  to  meet  the  cost of government.
This  will eventually cause all to take a
greater  interest  in  governmental  affairs
and particularly in the financial require¬
ments of their City and their State.

The Legislature has convened at Al¬
bany this week. The Real Estate Board
is determined to make every effort to in¬
duce the Legislature to enact some form
of tax measure which will equitably dis¬
tribute the obligation so that all classes
and kinds of wealth will be required to
pay by way of tax, a fair and reasonable
proportion of the cost of maintenance of
State and City Government. The Legis¬
lature possesses the lower to fix the rate
at which real estate may be taxed. I
believe that 2 per cent on the fair taxa¬
ble value is the maximum which owners
of real property should be called upon to
contribute.

It may be claimed that the real prop¬
erty owner is only the direct taxpayer
and that the whole burden is shifted to
the tenant. This argument cannot be
sustained. Taxes must be paid on vacant
land   and   untenanted   buildings.     It   is





only in a comparatively few instances
that the landlord can shift this burden
to the tenant. In any event, the owner
IS directly obligated for the payment of
the tax and must, if he wishes to retain
the ownership of his property, pay, and
this without regard to whether or not he
collects anything from tenants. A State
Income Tax based on the recommenda¬
tions contained in the report of the Mills
Committee, I am inclined to believe
would receive serious consideration and
possibly favorable action in the coming
Legislature. The first duty which real
estate and tax organizations owe is a well
planned, aggressive campaign to impress
upon the Legislature the necessity for
prom_pt action at its coming session.

If real estate owners generally fail to
realize that the Budget next year on the
supposition that there will be a Direct
State Tax, will not be less than $225 -
000,000, possibly $230,000,000, a tax rate
of 2.25 per cent., and if the real estate in¬
terest cannot gauge what it is facing,
there will be no justification for com¬
plaint when in February, 1918, the rate
is announced.

That present assessed valuations can
be sustained is doubtful. Tlie tentative
assessed values for 1917 are in no sense
final. It may be that many millions will
be taken off; in any event nothing can be
added. The tentative assessed value for
1917 is $7,833,875,536 or $51,405,837 more
than the final assessed value for 1916, but
$38,392,908 less than the tentative value
for 1916.

On Decernber 8 last, a property as¬
sessed at $2,800,000 was sold at auction
for $2,000,000, the deficiency being nearly
$500,000. When it is considered that this
is the only square block of land in one
ownership in a section which a com¬
paratively short time ago was enjoying
great prosperity, and that the amount
realized at a forced sale is not necessarily
a real criterion of value, although the
announcement is made that the plain¬
tiff in the action will fake back a pur¬
chase money mortgage of more than
85 per cent of the actual bid in price, one
is compelled to abandon the more or
less accepted theory that a forced sale is
no criterion of value. Granting that
values in the immediate neighborhood
have^ not materially fluctuated, at least
within the past two years, it is safe to
prophesy that present assessed valua¬
tions cannot be sustained. This being
so, the real estate tax must in proportion'
to the declining values increase and
possibly become more burdensome than
it would be pleasant to speculate on at
this time.

It is reasonable to deduce from all of
this that the first and most vital im¬
pediment to an active real estate market
is not only the increasing tax rate liut the
consantly increasing permanent debt of
the city which is a first charge or lien
against all real estate. To insist on econ¬
omy is imperative even though, if the
most rigid economies were practiced,
the total saving in the City Budget
would be comparatively small when tran¬
scribed into a tax rate. Future ex¬
travagancies must be vigorously op¬
posed. Appropriations by the Legisla¬
ture and the Board of Estimate should
be carefully scrutinized by every tax¬
payer and only absolutely necessary ap¬
propriations should be made after thor¬
ough  study.

It is intimated that the Board of Esti-