ANTICIPATING THE UNEARNED INCREMENT:

TH

REMEDIES.

BY I. W. HART.

HE business man in a newly settled country is naturally speculative by reason of the rapidly changing values all around him. In proportion as he foresees these changes and takes advantage of them, he accumulates wealth. According to the nature of his business and his station in life, it may be assumed that he owns more or less real estate in the city of his residence. The prospects are more or less certain that the rapid increase of population in this city will cause his lots to double in value within a brief term of years. He therefore, in assessing their value to him, puts a prospective value upon them, instead of the present value for use.

All the other business men we are now leaving the professional real-estate speculators out of account-are influenced by the same consideration, which is perfectly natural. For use, Robinson's lots may not be worth more than $600 to-day, but why should he limit their value to that figure when he may be able to sell them for $1,200 next year?

The result is that real estate as a whole, in any rapidly growing town, at a given time, is uniformly held at prices far in advance of its value for use; and this proposition is true of Eastern as well as of Western cities, although to a less extent, inasmuch as the speculative element in business is not so prominent in the East. Transactions in real estate in a growing city are therefore unavoidably more or less speculative. A shrewd purchaser may readily pay twice the use value, if he believes in the probability of being able to sell for three times the use value within a year.

1 The speculative element in American business particularly impressed Mr. Bryce. In his chapter on Wall Street, he says: "There is, even in the eastern cities, where the value of land might be thought to have become stable, a real estate market in which land and houses are dealt in as a matter for pure speculation, with no intention except of holding for a rise within the next few hours or days; while in the new West the price of lands, especially near cities, undergoes fluctuations greater than those of the most unstable stocks in the London market."-"American Common. wealth," Part VI, cap. C.

Now, we will suppose that a purchaser appears who wants a lot for use, which means that he intends to build a house or a block or a factory on his lot, and is not buying simply "for the rise." Nevertheless, he must pay the speculative price instead of the use value, and this is a heavy additional tax on his enterprise at the start. He can recoup himself only by charging higher rents or higher prices for what he sells or produces.

Tenants pay rent according to advantage of situation. Other things being equal, a storekeeper might be willing to pay twice the rent for a certain corner in a city of twenty thousand people that he would for the corresponding corner in a city of ten thousand, since he might reasonably count on twice the business. But if he finds that rents in the tenthousand city are already on the twenty-thousand basis, he must get even by charging up the extortionate rent to his customers in higher prices and inferior goods, and he will be able to do this because all the other storekeepers are in the same relative situation and avail themselves of the same alternative.

If we stop to analyze this fictitious element in rents in growing towns, we shall find that in many cases it exceeds the total amount of municipal, state, and national taxes, and that, like most indirect taxes, it bears most heavily on those who are the least able to bear it, the laboring and producing classes. It drives into tenement-house squalor myriads of wage-workers who under the proper working of our present economic forces, at the same wage they now receive, might enjoy decent homes. It lowers enormously the possible standard of comfort for all city-dwellers, except the favored few who are its beneficiaries; and in so far as it attacks the general well-being of the mass, it attacks their independence and usefulness as citizens. Remember that we are considering now, not simply the question of giving city land monopolists the "unearned increment" which they are to-day in a position to exact, but the question of allowing them to abuse their opportunity so far as to extort from us to-day the unearned increment which is not due until ten years from

now.

This is exactly what the craft and cunning of real

estate speculation in all our growing cities is contriving,- to discount and pocket the unearned increment as far ahead as possible.

I once lived in a rather attractive Western city of seven or eight thousand people. Several years before my arrival the place had been "boomed." This boom, which lasted for about a year, marked prices of real estate up to a point from which they never afterwards receded to reasonable figures, although it was on the whole a "light case" of boom, not characterized by the virulence with which the craze often attacks small Western cities. Ever since the boom year business had been comparatively dull; still the city continued to grow steadily, just as it had done before the boom folly disturbed the even tenor of its way. But real estate has not, to this day, experienced any further increase in price, since the natural increase for many years to come had been anticipated by the boom.

Some six years after the boom in question I had occasion to inquire the price of a small cottage which was for sale, situated about a mile from the business centre of the town. If the town had really been built up over the whole area within a mile from its business centre, it would have contained something like seventy thousand people, but at least nine-tenths of the land within this area was vacant, and likely to remain vacant for years. The price of the cottage and lot was $1,500, which was considered cheap. It was the sort of dwelling that would come within the means of a mechanic or clerk with an income of from $700 to $1,000. The agent admitted that the little five-roomed house and accessories could not have cost more than $1,100, which left a supposed value for the lot of $400, or at least ten times its value for any legitimate use at that distance from the centre of the town. This was also about the price, as I ascertained, of vacant lots, similarly situated, in that vicinity. Now, it is calculated that a landlord in this city, where interest rates are high, may reasonably demand every year fifteen per cent of his property investment in the form of rent, in order to recoup himself for his fixed charges of taxes, insurance, repairs, and depreciation. It may be urged that none of the fixed charges, ex

cept taxes, properly fall upon the land alone. We will therefore admit that the landlord might be content with a return of eight per cent on his land investment in this case. On such a basis the perpetual annual charge on this $400 lot to any tenant who occupied it would be $32. At the risk of shocking my real-estate friends, I make the assertion that the use value of this lot is not now more than $75, and that if all the city lots together were put up at auction it would not bring even that price. This means that there is $325 of water in the valuation of the lot. An eight-per-cent annual charge on this water amounts to $26, which is a pretty heavy tax for a wage earner of moderate income to pay in order that a professional real-estate operator may skim the cream of the unearned increment and make a "good thing" out of an "addition." And it is none the less an extortion because it has probably never occurred to the tenant himself to complain of it. This particular form of exploiting the poor and middle classes is so universal that the average victim of high rent has never imagined any other possible system.

And it must be noted that the $26 is by no means the end of the tax. For all the tradesmen who pay extortionate rent-tribute for the benefit of the unearned-increment anticipators, must charge our tenant higher prices for the necessaries of life in order to make themselves even. Every time that he buys a bag of flour or a yard of calico, every time that he has a prescription filled for his sick child or replenishes his coal cellar, it is probable that he pays a further instalment of this most subtle and insidious of all indirect taxes.

This explains why living in our American cities is so very much dearer than in the country. The expense of living ought not to be so much greater in centres of population, where production is specialized and distribution is effected with the least cost. Our western American comes east and is surprised at the cheapness of living in a stationary New-England town. The greater part of the cheapness arises from the fact that real-estate values are on a normal basis, since it is not expected that the town will grow appreciably larger, and there is therefore no inducement for unearned-increment anticipators to exploit the municipal site.

It is an experience common to humanity to be obliged to pay for the sins and errors of the past, but the denizens of our growing American cities must pay heavy penalties for presuming to live in them, on account of something which may happen in the future. It is not only that the unearned increment, which the people themselves have created by establishing a centre of population, goes into the pockets of speculators. If that were all, the case would not be so deplorable. But the speculators are not satisfied with taking possession of the unearned increment accruing from the present size of a town; they insist upon discounting the future, and greedily grasp at the unearned increment ten or twenty years ahead, an increment, in fact, which may never materialize at all. Their efforts are crowned with success in a growing town, because the possession of land in a given place is a natural monopoly, and those who have it can hold up those who want it.

Suppose now that the man appears who wants it for use, -the capitalist who desires to erect a business block or an apartment-house. This is exactly the individual for whom the speculative bandits have been lying in wait. For such a purpose requires a particularly eligible site. The speculative element in the cost price of the site is therefore very prominent. How does the capitalist defend his pocket? The most approved expedient, in order to make the most of the forced investment of capital in a site, the valuation of which has been absurdly watered, is to erect a towering and unsightly edifice, as cheaply constructed as possible. There it stands, a monument of grotesque ugliness, with its mask of mongrel architecture fronting the street, and its huge slice of dreary brick wall, equally visible, bounding another side. The effect is very likely heightened by contrast with the adjacent half-block, occupied by one-story shanties because the owner holds it for a still higher price.

If private ownership of land, as its champions maintain, is defensible as a necessary condition of civilization up to a certain degree of development, then its right of continuance as an institution rests wholly on its continued usefulness to society, and wherever such usefulness is shown to have been