Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: [v. 99, no. 2547: Articles]: January 6, 1917

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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-