Columbia University Libraries Digital Collections: The Real Estate Record

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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.