Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: [v. 96, no. 2486: Articles]: November 6, 1915

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REAL ESTATE BUILDERS Ar/D NEW YORK, NOVEMBER 6, 1915 ffliliiiillllliilll illllllilllllllllilllliiilllllllllllillillllllillllllliiil iniiiiiiiiiiiiiiiniiiiiiiiiiniiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiMA 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 retarded. 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 expenses. 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 expected. 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 accomplished. 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¬ ments. 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