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REAL ESTATE
AKD
(Copyright. 1917, by The Record and Ould* Co.)
NEW YORK, JUNE 30, 1917
FACTORS GOVERNING BUILDING CONSTRUCTION
High Rentals Obtainable, Though Labor Problems and Scarcity of
Materials Must Be Considered—Owners of Vacant Land Warned
< By CLARKE G. DAILEY, Vice-President. Alliance Realty Co
OWNERS of improved property in
New York City are in a stronger
position today than at any time for many
years past. The shortage in available
space for renting, caused by the general
business activity the past year or two
and the sudden diminishing in the amount
'j of building- construction, has resulted in
: an increase in rents and a deinand for
space. This has enabled the owners to
â– fill up the vacancies which prevfously
were only too frequent. In most sec¬
tions of the city the landlord has in¬
creased not only his income but the rate
at which his buildings were rented. Of
course, there must be offset aga-inst this
the increased cost of coal, labor and
other operating expenses, but the ab¬
sence of vacancies is nevertheless suffi¬
cient to cause a substantial net increase
I'n the income to the owner.
The owner of unimproved property,
however, faces an entirely different and
more discoura.ging situation. Knowing
that a new building erected on the site
of his property would rent immediately,
and at splendid rentals, he obtains infor¬
mation as to the cost of such building,
and the increase over the cost of a simi¬
lar building erected two or three years
ago is staggering. However, the equally
discouraging prospect of carrying prop¬
erty vacant, with carry charges accuiiiu-
lating from year to year, compels hiin
now to face this question: Is it better to
pay the increased cost and secure the ad-
vailtages of the splendid renting situa¬
tion, or carry the property for a period
of time and perhaps wake up to realize
that the advanced costs have come to
stay, while others have foreseen the
trend, improved their property and
reaped the advantages?
In order that the owner should prop¬
erly decide whether he is justified in pay¬
ing the present prices for building mate¬
rials and labor depends upon two fac¬
tors: first, whether within any reasona¬
ble period of tiine there is going to be
a decided slutnp in building costs and,
secondly, whether the property can be
improved with a low building. In this
latter case recession in the value of the
property when improved (due to a slump
in building costs) would not be a serious
item on account of the preponderating
land value.
I believe the present high cost of
building material and of labor will,
in a broad sense, be maintained for
a number of years to come. The
production of materials necessary for
the conduct of the war in which
we are now engaged, added to what is
required to supply individual demands,
must necessarily tend to compel still fur¬
ther the enlargement of our manufactur¬
ing, shipping and assemblin.g plants. The
drain upon labor and materials will con¬
tinue until the end of the war and for
some time thereafter, and I think it is
safe to say the price of labor and mate¬
rials will go, if anything, higher than at
present and will be on a more or less
permanent basis for some years to come.
.\ considerable period will have to pass
after Deace is declared before building
rnaterial prices recede to the levels exist¬
ing about two years ago. if they ever do.
RECOBD .\ND GriDE
Labor has a habit of holding on to what
it has gained, and labor, of course, is
involved in making up the greater part
of the price of any material. Moreover,
our new restrictive immigration laws,
which will undoubtedly be unchanged
after the war, will cut off a supply of
cheap labor that has been a source of
great importance in the building world
in the past. No one can predict how
long the war will last, but as soon as
the demands for special buildings caused
by the war cease, the pressure which has
accumulated for new buildings for other
purposes will make itself felt.
Shortage of Steel.
I believe there has been a real short¬
age in steel as a result of the large mu¬
nition and other Governmental contracts,
which shortage has been the cause of
the tremendous advance in prices. The
demand which will continue to exist for
steel, not only for the making of muni¬
tions but in response to the foreign de¬
mand for structural steel after the war,
will continue to create, if not an actual
shortage, a steady demand which will
keep the price of steel practically at its
present level for a lon.s time to come.
The price of pig iron today is mount¬
ing upward and will continue to do so in
response to the large contracts for shell
and shrapnel which our "War and Navy
Departments are giving out in large
numbers. No doubt there will be some
reaction when peace is declared, but the
great amount of iron and steel wlTicTi
has been used up in munitions and in the
creation of certain types of buildings
and other special uses caused by the war
will have its effect upon the amount of
iron and stee! available for the use of the
world. Iron and steel play a very large
part in the commerce of today, bemg
only surpassed by the factor of labor.
Transportation Problem.
.\nother factor is the increased cost
to the owner occasioned bv delay in
the construction of the building dtie to
the difficulty in getting quick transporta¬
tion of the materials to be used, when
they coine from out of town. The progress
of many a building has been seriously
hampered by waitine for materials from
out of town, and this situation is still
serious, although now bein.g prepared
for it we are better able to encounter it.
The government will, of course, have the
right of way for the transportation of
troops and its own material, and the
owner should take this into account in
figuring the probable time which the con¬
struction of a building will take.
I do not look for any falling off in the
rate paid for labor for many vears to
come. It will doubtless be higher in
this countrv as we feel the effect of the
withdrawal from peaceful pursuits of the
million voun.e- men who are to take un
ariTis. How long these conditions will
last and the effect upon this country will
largely depend upon the extent to which
our nation becomes actively involved in
the .great war. I believe, however, even
after peace is declared and the soldiers
abroad and in this country return to
their homes, there will be so much to
do in rebuilding the destruction caused
bv the war that there will be no danger
of idleness amon.g the working classes.
IS IN ITS FIFTIETH YE-iR
and consequently tlie high rate of wage
will be maintained.
The United States, on account of its
vast natural resources, is the logical
country to supply materials to be used
in repairing the destruction in Europe
caused by the war.
Upon the conclusion of peace we shall
still be called upon to supply the world's
market with many necessities of peaceful
industry, as the business of the countries
abroad has been radically affected by
their endeavor to attain efficiencv in war.
Gradually no doubt they will again build
up their own industries and become inde¬
pendent, but this will take time.
Doubtless it will be cheaper to build
homes and biisiness buildings when a
slump in building material prices comes,
but a considerable period must elapse
before that time arrives.
Notwithstanding our conclusion on the
question as to how long a period of
time will elapse before building costs
will be materially reduced, there are
certain circumstances under which the
owner should not hesitate to pay
the advanced costs of today. For
instance, the price paid therefor does not
really count providing the profits of the
businesses, which the new buildings are
to house, warrant the expenditure. We
recently sold a plot of ground in White¬
hall street to a large steamship com¬
pany, which is now erecting on the site
a building for its own use and paying a
price per cubic foot for this building
which must be nearly double the price
we paid to erect the adjoining building
two years ago: but they apparently feel
that proper accommodations to take care
of their wonderfully increased business
warrants the expenditure.
It is necessary to consider the height
of the building and the proportion the
cost of the building bears to the land
value in order to properly estimate the
possible loss of capital value should
there be a shrinkage in building costs
later.
Certainly if one owns a piece of prop-
ertly which can be improved so that if
will bring in a good income by the con¬
struction of a low building, there can be
no doubt that it would be more profita¬
ble to pav the present cost than to wait
until buildin.g prices recede. For such a
building it might even pay to go out and
buv land, as the existing low land values
will helo to offset advanced building
costs. However, where the property
must be improved with a high building
more caution should be used, for if the
value of the improvement is large in
proportion to the land value a shrinkage
of capital value later, caused by a drop
in cost of building, would be apt to wipe
out the profits obtained on account of
good renting conditions. AVe should
also remember that the profits of today
will be appreciably diminished by the
taxes to be levied by Congress.
-\s an illustration of the low building
tvpe of improvement take the example of
the synagogue property which w? own
on the west side of Madison avenue, be-,
tween 64th and 65th streets. This proo-
ert.v is exceptionally well adapted for the
site of an eleven-story apartment build¬
ing, and an improvement of this char-
(Continued on page 904.)
OF CONTINVOUS PUBLIC.tTION.