THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES The Taxation of Land Values and the Report of the Select Committee on the Glasgow Bill By David Murray, M.A., LL.D. VIeii are most apt to believe what they least understand" Montaigne TBE PROPERTY PROTECTjOW SOCIETY. 45 PARLIAMENT STREET, S.W. Glasgow James MacLehose and Sons Publishers to the University 1907 RICE SIXPENCE NETT The Taxation of Land Values AND The Report of the Select Committee on the Glasgow Bill PUBLISHED BY JAMES MACLEHOSE AND SONS, GLASGOW flnbliBhcrs to tht antbersitj. MACMILLAN New York, Toronto, • London, - Cambridge, Edinburgh, Sydney, • AND C"., LTD., LONDON. Thi Macmillan Co. The Macmillan Co. of Canada Simpkin, Hamilton and Co. Macmillan and Bovjes. Douglas and Foulis. Angus and Robertson. The Taxation of Land Values and the Report of the Select Committee on the Glasgow Bill By David Murray, M.A., LL.D. "Men are most apt to believe what they least understand" Montaigne Glasgow James MacLehose and Sons Publishers to the University 1907 .;?'' First Edition March 1907. Reprinted May 1907. GLASGOW : PRINTED AT THE UNIVERSITY PRESS BY ROBERT MACLEHOSE AND CO. LTD. H1U PREFACE This is a paper which was prepared for the Civic Society of Glasgow, an abstract of which was read at a meeting of the Society a fortnight ago. There is added a Memorandum on valuing land for assess- ment purposes in some of the colonies and in some foreign countries, which I submitted to the Select Committee upon the Glasgow Bill on 2nd July last. D. M. 169 West George Street, Glasgow, zSiA March, 1907. CONTENTS PAGE Origin of the movement, ------- i The Glasgow Bill, -------- 2 Objects of its Promoters, ------- 2 Scheme of the present paper, ------ ^ I. The Existing System of Valuation of Property IN ITS Actual State. Present basis of valuation and assessment, - - - - ^ Owner's rate and occupier's rate mean different things, - 7 2. The Proposal to Assess on Land Values. Distinction between expenditure for Municipal purposes and expenditure on Municipal trading, - - _ - ^ Expenditure by owner on vacant land, - - - _ g Expenditure on Municipal improvements, - - - - g Claim by Municipality to increased value of building land, - 9 Essential in the interest of good government that assessments should fall on occupiers, - - - - - - lo 3. The Ascertainment of Land Value. Scheme of the Glasgow Bill, - - - - - - 11 Present proposal to base valuation on land values, - - 12 Present valuation rests upon facts, - - - - - 13 Proposed valuation would be purely matter of opinion, - 13 Valuation under present system of premises which are not let, 14 The hypothetical tenant,- ___-_- i^ viii CONTENTS PAGE Methods for fixing hypothetical rent, - - - - 15 Facts in all cases dealt with, - - - - - - 16 Views of the Courts upon assessors' methods, - - - 16 ~ The assessor is not allowed to value property in a hypo- thetical condition, - - - - - - - 17 Haphazard nature of such valuations, - - - - 18 "• Problem of valuation under the proposed scheme, - - 18 Quest for a hypothetical tenant is hopeless,- - - - 19 The Valuation Roll is a roll of annual values, - - - 19 Land values to be ascertained through capital values, - - 20 Value of land to be ascertained as if unbuilt, - - - 20 Use is the determining factor in value of land, - - - 21 Capital value is merely an expression of annual value present or prospective, - - - - - - 21 Separation of value of site and building, - - - - 22 Difference in site value caused by character of the building, - 23 Deducting cost of building from valuation of site and building not a satisfactory method for ascertaining land value, --------24 No other method suggested, ------ 24 Committee propose to leave the valuator to find a method, - 25 Proposed scheme of valuation unworkable, - - - - 25 Site is assessed under present system, ----- 26 Reasons for separate site assessment, ----- 26 Present use does not always exhaust value of the site, - - 26 If sites to be valued on assumed value in a different state, how is that to be ascertained ?- - - - - 27 Assessment of unbuilt land in urban districts, - - - 28 Slow increase of value, -------28 Increased value claimed to be the product of the community, 29 And to be rated, --------29 Vacant land in Glasgow, -------29 Area required yearly for building, ----- 30 Value of the vacant land,- ------ 30 Increase in value, - --__-__ji Would be assessed if taxation was based on capital, - - 31 Assessment of vacant land in Glasgow would yield very trifling amount, - - - - - - - 32 CONTENTS ix 4. Whether Assessment on Land Value would Reduce THE Price of Land and Rents and would Diminish Overcrowding. Increased taxation has caused speculation and rise of price page of land in America, -------34 And in New Zealand, ___-_-- ^^ Taxation of land value would fall wholly upon owner at the time it was imposed, - - - - - - 35 Price of land and rents would rise, - - - - - 35 Price of land a small factor in rent, - - - - - 35 Overcrowding would not be diminished, - - - - 36 5. Whether the Ascertainment of Land Values is Practicable, with due Regard to Accuracy and Economy. Land value would require to be carefully ascertained, - - 38 Views of assessors, - - - - - - - - 38 Owners would not accept their plan, - - - - - 38 Care with which valuations are made, - - - - 39 Cost of land value survey of Glasgow, _ _ _ _ 40 Litigation, - - - - - - - - - 41 Difficulty in case of agricultural land, - - - - 42 Land values in New Zealand, ------ 42 Urban assessment in New Zealand, ----- 44 In Sydney and Melbourne assessment is on annual value, - 44 In New York site and building separately valued, but assess- ment is on the joint value, ----- 44 6. The Estimated Amount of the Land Value. Land values not suitable as a basis for local taxation, - - 45 Apparent high land value in New York explained, - - 45 Explanation in case of New Zealand, - _ - _ 46 Relative value of site and buildings in Glasgow, - - - 47 Rental of Glasgow, --------47 Its capital value, -------- 48 Land value of Glasgow _^5 7 7,000, ----- 48 X CONTENTS PAGE Verification, ---------50 Test by tenement property, - - - - - - 51 Test by central property, - - - - - - - 51 Land value insufficient to meet local assessments,- - - 52 Deficiency would require to be made up by occupiers, - - 52 City Assessor's Estimate, - - - - - - - 52 Erroneous, - - - - - - - - - 53 In many agricultural parishes land value would be nil, - - 53 Railways as industrial improvements would require to be excluded from land value, - - - - - - 53 EfFect on rural valuation, - - - - - - - 54 7. The Proposal to alter the Incidence of Local Taxation and to render Feu-Duties liable TO Assessments. The Glasgow Bill and feu-duties, - - - - - 54 Position of the Government, - - - - - - 55 Committee differ from the Government and follow the League, - - - - - - - - - 56 Feuar by law pays all assessments, - - - - - 56 If superior undertakes to relieve the feuar, this applies only to existing rates, - - - - - - - - 57 Feuar pays new rates, - - - - - - - 57 Proposal to alter incidence, - - - - - - 58 A violation of rights sanctioned by Parliament, - - - 58 Site now assessed for local rates, - - - - - 59 Committee propose to shift liability from owner of land to owner of feu-duty, -------59 An unjust inversion of liability, ----- 60 Committee find parallel in Valuation Act, - - - - 60 It does not support them, ------ 60 Lord Cairns' opinion of a similar contention, - - - 60 Committee call feu-duty rent, - - - - - - 61 It is not so, - - - - - - - - - 61 Relations of superior and landlord wholly different, - - 61 Superior a mere creditor, - - - - - - - 62 Sale of a perpetual annuity a common method of finance, - 63 CONTENTS xi PAGE Ground Annuals, --------64 Indistinguishable from interest, ----- 65 Reasons given by Committee for taxing feu-duties do not apply to ground annuals, ------ 65 Investments in feu-duties and ground annuals, - - - 65 Taxation would stop feuing, --____ 66 Conclusion. Rating on land value would cause confusion, produce anomalies, and would not supersede the existing system, - - 67 The scheme is not a scheme of taxation, but of confiscation, - 67 THE METHOD OF VALUING LAND FOR ASSESSMENT PURPOSES IN SOME OF THE COLONIES AND IN SOME FOREIGN COUNTRIES. New Zealand. The Valuation Roll, - - - - - - - 71 Improvements, - - - - - - - - 71 Unimproved land, - - - - - - - - 71 Capital value, -_-_____ 72 Assessment Court, - - - - - - - - 72 Remedy of Valuer-General if value fixed too low, - - 72 Remedy of owner if value fixed too high, - - - - 72 Revision of Valuation Roll, - - - - - - 73 Government taxes levied on unimproved value, - - - 73 Local taxes assessed on capital value, unimproved value, or annual value, --------73 Difference between New Zealand towns and Scottish burghs, 73 Towns which have adopted the various modes of assessment, - 74 Examples of improved and unimproved values, - - - 74 Disposal of Crown lands on long leases, - - - - 75 No evidence that valuation system is advantageous, - - 75 xii CONTENTS Commonwealth of Australia. New South Wales. PAGE Land tax, --------- j6 Municipal rates levied on annual value, - - - - 77 Vacant land, --------- jj Rates are payable by occupier, ------ 77 Sydney,- .-.-_---- 77 Assessments, - - - - - - - - - 77 Queensland. Local rates, ---------78 Unimproved value, --------78 Valuation Roll, -------- yc) Valuation Court, -------- 7^ Rates are payable by occupier, with right to recover from owner, --------- 7^ City of New York. Assessments on capital value of real and personal estate, - 80 Valuation at selling price, -____- 80 New law, ---------80 The Charter of the City of New York. Deputy Tax Commissioners' duties in assessing taxable property, - - - - - - - - 81 Annual record, - - - - - - - - 82 Improvements. Improvement tax, - - - - - - - - 83 Assessed valuation of New York City, - - - - 83 Examples of valuation, -------84. No return of rental value, - - - - - - 85 CONTENTS xiii Reported Valuation of Property Assessed for Taxation, IQ02. ' ^ ^ PAGE Caution in using valuations, ------ 86 Relative values of site and building in Glasgow, - - - 87 Prussia. Local assessments, --------89 Land tax, ---_-____ 89 Transfer tax, ---------89 I. ACT FOR THE ABOLITION OR REPEAL OF STATE DIRECT TAXES. Acts of 1893,- -__-_--- 89 II. THE SUPPLEMENTARY TAX ACT. III. THE COMMUNAL RATES ACT. Local Taxes Affecting Landed Property. A. THE LAND TAX. Communal Rates Act, -------90 Modes of assessment, ____-_- 90 Rent is ordinary basis of value, - - - - - - 91 Market value, - - -'- - - - - 91 Land tax, --------- ^2 Rate in Berlin, - - - - - - - - 92 Assessment on market value, ------ gz Growth of Berlin, --------93 B. THE TRANSFER TAX. C. THE BUILDING SITE TAX. D. INCREMENT TAX. E. SEWAGE TAX. Assessment on capital value, - - - - - - 95 Land and building valued together, ----- 95 xiv CONTENTS PAGE Tax on capital value is in substitution for tax on annual value, ---------95 Land for tenement houses cheaper than for residential houses, 95 Not so in Glasgow, _--____ 96 The better the building the higher the tax, - - - 96 Other municipal taxes, ------- g6 Appendix. Classification of the rental of the City of Glasgow for the year 1905-06, -------- gj Memorandum of area, rental value of new buildings, and amount of property unlet during the period 1872- 1873 to I905-I906, ------ 98 The Taxation of Land Values AND The Report of the Select Committee on the Glasgow Bill The question of the taxation, or rather of the Origin rating, of land values for local assessments is one "'°^^"'^ which has been before the public for a considerable time, and has given rise to much discussion. The English League for the Taxation of Land Values, which was founded in 1883, under the name of The Land Reform Union, "to advance the principles laid down by Henry George in Progress and Poverty for the restoration of the land to the people," exists for the express purpose of effecting this object through such taxation. There is a Scottish League with a similar programme. The Land Law Reform Association includes the rating of ground values amongst its objects ; as does also the Land National- isation Society, which aims at the abolition of, what it terms, the present system of private ownership of land. The movement is supported by Land Values^ a monthly journal published in Glasgow. 2 THE GLASGOW BILL The Glasgpzv On lyth February, 1890, on the motion of one of ' ' the Councillors, who is also a prominent member of the Scottish League for the Taxation of Land Values, a remit was made by the Town Council of Glasgow to a Special Committee to consider the question of the incidence of Local Taxation, and that Committee in turn remitted it to a sub-committee. On I2th December, 1890, the sub-committee reported in favour of the proposal to adopt land value as the basis of assessment, and recommended that pro- prietors should, upon its adoption, be assessed pro rata for all local rates and taxes. This report was presented to the Council on 13th January, 1891, and was rejected. The question thereafter came before the Council from time to time, until 17th June, 1895, when the report was adopted by a majority of one. This report became the basis of what is known as the " Glasgow Bill," which was ultimately read a second time in the House of Commons on 23rd March, 1906, and on 3rd May was sent to a Select Committee, who, on 13th December, 1906, reported against the Bill, but by a majority in favour of the taxation of land values. Objerts oj its Two out of the three members of the Glasgow sub-committee of 1890 gave evidence before the Royal Commission on Local Taxation of 1898, and both admitted that in recommending the taxation of land values it was in the expectation that this taxation would be increased, from time to time, so as ulti- mately to absorb the whole interest of the landowner, or in other words, to divest the present owners of Promoters. OBJECTS OF ITS PROMOTERS 3 land of all interest therein. The imposition of an assessment upon any species of property, not for the purpose of raising revenue, but with the object of dispossessing owners, would be confiscation, and such a proposal cannot be dealt with as a question of taxation. The proposal has, however, been advo- cated by many, not upon the grounds put forward by its authors, but merely as, in their view, an improved method of raising local assessments. Many of those advocates regard it as a suitable means of making what is termed the unearned increment of value a subject of rating. I do not propose, on the present occasion, to deal Scheme of the with the larger proposition, but merely to consider P^^^^^^ P^P^^- the proposal to use land values as the basis for local rating. The proposal is based almost wholly upon theoretical grounds. My present purpose is not to discuss these, but to loolc at the matter from a practical point of view ; in other words to con- sider whether the proposal is one that is practicable. This I will do under the following heads : 1. The existing system of valuation of property in its actual state. 2. The proposal to assess on land values. 3. The manner of ascertaining Land Value. 4. Whether assessment on Land Value would reduce the price of land and rents and diminish overcrowding. 5. Whether the ascertainment of Land Values is practicable with due regard to accuracy and economy. EXISTING SYSTEM 6. The estimated amount of the Land Value. 7. The proposal to alter the incidence of local taxation and to render feu-duties liable to assessment. Present basis of valuation and assess- ment. I. THE EXISTING SYSTEM OF VALUATION OF PROPERTY IN ITS ACTUAL STATE. By land value is meant the value of land in itself apart from buildings and other improvements upon it. Under the existing system, if a farm is let at ;^2oo a year, it is entered upon the Valuation Roll as of the annual value of ;{|200. If a factory is let at £2^0, or a villa at ;^i50 a year, each is in like manner entered upon the Valuation Roll as of the annual value of ;/^2 50 or >Ci50> ^s the case may be. In each case the annual value is, in the language of the Valuation Act (17 and 18 Vict., c. 91, § 6), the yearly value of the subject in its actual state. The farm in its actual state includes land, houses, and fencing. If it is a pastoral land, there may be in addition a certain amount of surface draining and of planting for shelter. If it is an arable farm, the soil will probably have been brought to a high degree of productivity by a large expenditure of time, labour, and money. In the case of the factory, there are in addition to the land and fencing the buildinofs and fixed machinery, and there may be also water rights, a railway siding, or other accessories. So, too, in the case of the villa, besides the house and its boundary walls there are the garden and grounds, and the amenity is generally secured by stringent conditions affecting the adjoining land. Walks and OF VALUATION 5 terraces, ornamental shrubs and trees, are something added to the land in its natural state, and represent a considerable amount of labour and relative expendi- ture of money. Under the existing system each subject is assessed upon the value at which it appears in the Valuation Roll, The farm, subject to certain deductions allowed under the Agricultural Rates Act (59 and 60 Vic, c. 37 ; 5 Ed. VII., c. 8), is rated on ;^200, the factory on £2^0, and the villa on ;^ioo a year. This, it is contended, is unreasonable. The buildings, fencing, and other improvements are, it is said, the products of industry ; and industry, it is asserted, ought not to be taxed. Why land should be singled out for exceptional treatment is not obvious. According to the extreme advocates of the proposal the land of the country is common property. The natural right to the use of the earth is, they say, an equal interest to all. There can therefore, they conclude, be no private property in land, and the State, by taxation or otherwise, ought to get rid of such ownership and appropriate the land for common use by all the people. On this footing they contend that so long as the land is in private hands it is the proper and only subject for taxation. The reasoning is not convincing, but is intelligible. The ground upon which the more moderate advocates of the proposal support it is not so distinct. Under the older practice, say in Glasgow a hundred years ago, municipal assessments were levied upon the inhabitants as a body, and the amount was apportioned amongst them according to their ability 6 GLASGOW RATES to contribute, estimated in accordance with the rents they paid. The poor rate, in supplement of the Kirk Session and other funds, was levied on all the inhabitants, " according to the estimation of their means and substance," and was thus of the nature of an income tax. Under present arrangements, the whole of the municipal rates in Glasgow and other burghs are assessed on annual rental, as ascertained by the Valuation Roll. Parochial rates, both in urban and landward parishes, are levied upon that rental, less certain deductions. The Police and Statute Labour rate in Glasgow, which is the largest of the municipal assessments, is levied wholly upon occupiers; the rate upon rents below ^lo being one-half of that upon rents of that amount or above it. The Sanitary rate, the rate for Parks and Galleries, and the rate for Juvenile Delinquency, are also paid wholly by occupiers. The other rates are payable one half by the owner and the other half by the occupier, with the exception of the Road debt, which is levied wholly on owners. The cur- rent assessment on occupiers is 2s. lod., and on owners slightly under is. per £, together 3s. lod. The Poor rate and School rate are payable equally by owners and occupiers, and amount to about IS. 6d. per £ upon each, or together 3s. The total rates are thus about ys. per £, or 4s. ^d. upon occupiers and 2s. 6d. upon owners. The present basis of assessment is therefore pretty much in accordance with the older practice. Although both owner and occupier are assessed OCCUPIER'S RATE 7 upon rental, the assessment means quite a different Owner's rate thing in the two cases. The assessment upon the '^^^.f"!!^"^ ^ o r rate mean owner is a. definite tax upon rent, that is upon the different income which he derives from the capital invested ^^^^' in the property. The assessment upon the occupier is an assessment, according to the old phraseology, on means and substance, the rent he pays being taken merely as a rough index of his ability to contribute to the municipal revenue. The theory of the assessment of the occupiers of property is that it is a levy upon the inhabitants distributed according to rent ; and that it is they who derive the sole or principal benefit from the expenditure of the money raised. Primarily, it is the inhabitants as a body, that is the occupiers, who benefit by police protection, maintenance of streets, and so on. In recent years the doctrine that owners of property •derive certain benefits from the expenditure of public money, has been propounded, and, giving effect to this idea, a proportion of certain assessments has been laid upon them. In the Local Government (Scotland) Act, 1889, it is provided that all new county rates, and the addition to old rates, shall be divided equally between owners ond occupiers. 2. THE PROPOSAL TO ASSESS ON LAND VALUES. Distinction What underlies the proposal to assess land values between ex- 'is the assumption that the owner of property, par- i^J^iJp//^ ticularly of urban property, derives a special benefit purposes and from the expenditure of municipal taxation, and that ^^^"-^^'f^" this benefit is not assessed for revenue purposes, trading. 8 MUNICIPAL EXPENDITURE under the existing system. In this connection the essential difference between money expended for municipal objects and money expended in municipal trading is often overlooked. The supply of gas, electricity, and water, and of tramways, may be undertaken by the Corporation, and may be a source of profit to it and a convenience to the community, but these services could be quite as well supplied by private enterprise. They were so in Glasgow at one time, and in most places are still so supplied. But be this as it may, the money required for carrying on such services is not raised by taxation, and the tax-bill of the ratepayer does not impose upon him a penny for such objects. So far as the municipality is concerned, the ratepayer pays for police and sanitation and similar purposes. So far as the parish is concerned, he pays for the poor and for educa- tion. The benefit conferred upon property by the expenditure of municipal revenue Is comparatively small, and is fully met by the existing contribution. It is argued, no doubt, that the owner of a house benefits by the streets ; that he could make no use of it without a street. That Is so, but the fact Is overlooked that, in nearly every case, the land for the street has been contributed by the frontager, that it has been formed and sewered by him and handed over complete to the Corporation, whose expenditure is only for maintenance of the roadway, the maintenance of the footwalks resting still upon the owners. by^Znerm ^^^^'^^ vacant land becomes building land, there vacant land, must be a large expenditure by the owner for sur- MUNICIPAL IMPROVEMENTS 9 veying, road-making, sewering, and the like. The money, amounting often to a very large sum, may lie unproductive for many years. The municipality gets the benefit of that expenditure. It is largely on account of that expenditure that ground rises in value from ^^ to ^^40 or j/^50, and that consequently larger rating is produced. The price got for building land depends to a considerable extent upon the manner in which the land is laid off and prepared for building, and that again is influenced by the greater or smaller expenditure of the owner. In the hands of one man, land might fetch a feu-duty of ^^40 a year, which in the hands of another might not bring the half. There may be special expenditure by a muni- Expenditure cipality for a special improvement, and if property "'^ Mimidpal . . . . . improvements. in proximity to the improvement receives excep- tional benefit from such expenditure, it may legitimately be, and in practice is, assessed under an improvement rate, in proportion to the benefit accruing to it individually in excess of the general benefit. The fact that those who, maintaining that vacant land receives a like benefit from municipal expenditure, do not propose a special rate to meet the improvement, but advocate an entire revolution in our system of valuation and assess- ment, suggests that they do not believe in the proposition, and are really aiming at something which is equivalent to land nationalisation. c/aim bv In many parts of Glasgow and in other towns. Municipality there has been a gradual increase in the value ^^"j^glf^l^iu of property. This increase, it is claimed, is the ing land. lo OCCUPIER'S RATE A CHECK product of the community, not of the property- owner, and should therefore, it is said, belong to and be appropriated by the community. The increase is much exaggerated in the minds of those who put forward this view, and they take no note of corresponding decreases. There has been comparatively little increase in site value in the central area of Glasgow within recent years. In the ring outside the centre and within the suburban area there has been a considerable fall in values. Sites can now be had at from lo to 40 per cent, less than the price paid for adjoining and similar sites 25 to 30 years ago. But assuming that there is a definite increase, capable of being ascertained, it can certainly be in no way attributed to expenditure on the part of the Corporation. The greater demand, arising from the presence of a larger population, has a tendency to enhance the value of land as of other objects. If land is thus rendered more valuable, it may be that such increase should be assessed, but it cannot be claimed as a return for benefit derived from municipal expenditure. Essential hi Local expenditure is wholly in the hands of the gooTgoi'ern- occupiers as distinguished from the owners of houses ment that and Other property. In Glasgow there are only '^sToulTfdl on ^^'°°° owners, as against some 180,000 occupiers. occupiers. Both owners and occupiers are voters, but as the latter are so much the more numerous they, have the control. It is they who elect the members of ' the Town Council, and it is the Town Council who control the expenditure and lay on the assessments ON MUNICIPAL EXPENDITURE ii to meet it. The occupier's rate is the only check we have upon municipal expenditure, and to relieve the occupiers of the payment of the rate and to enable them, through their representatives, to spend money without control, and at the expense of another section of the community, would be most unreason- able in itself, and fatal to good government. What is proposed in reference to rating upon the new basis is not clear. It might, no doubt, be pos- sible to adopt the new standard of valuation in lieu of the old, and to levy assessments upon owners and occupiers as now ; but this is not what is aimed at by a large section of the professed reformers. Part of their scheme is to lay the whole of the assess- ments on the owner of land values, and wholly to relieve the occupiers of property. This means that the owner should collect the rate, not necessarily that he has to bear the burden. Rent is the only fund out of which the owner can meet charges, and if he had to pay the rates, the rents would have to be correspondingly increased. This is what occurs in practice. If a fresh charge is laid on the owner so as to reduce his return below the normal pro- portion, he raises the rent to meet it, and generally succeeds. The hope of the supporters of the new scheme is that he will not succeed. 3. THE ASCERTAINMENT OF LAND VALUE. The scheme of the Glasgow Bill was to create Scheme oj the machinery for the ascertainment of land values and ^^^"^ ' ' to authorise the levy upon these values at the rate of 2s. per £^ of their annual value in supplement 12 LAND VALUE of the Police rate. In other words, existing local assessments were to remain as at present, and, in addition, there was to be a special assessment for Police purposes on owners only, calculated on the Present pro- basis of land values. What is now proposed is posal to base ^j^^^ ^^^ present system should be superseded ; that valuation on i •' land values, the valuation of landed property should be based on land values ; that all local taxation should be shifted from the present valuation, based on rental, to valuation based on land value ; and that the assessments should be laid wholly on the owners of land values. The last is not perhaps an essential part of the scheme, but it is put forward by most of the advocates of the change as an essential part. If occupiers are still to be assessed, it would make comparatively little difference to them, in the case of urban property, whether they were assessed on the rent they paid or on the land value of the premises they occupied. There might be, as the Select Committee say, some redistribution of the burden. Central sites would, it is anticipated, pay more, and suburban sites less; but if this were so the munici- pality would gain nothing. One set of owners and occupiers might be relieved at the cost of another set ; the burden might be shifted ; but that, even if it were just, which it is not, is not the ground upon which it is proposed to assess land values. Assessment on land values would, however, make a substantial difference in the case of agricultural land. If such land was valued as unimproved, the land value would be very much less than the value now assessed on ; except where agricultural land MATTER OF OPINION 13 had a prospective building value, and consequently higher land value. In that case, the rateable value would be greatly increased. In Glasgow, agricul- tural land might be rated on £20 to £^0 an acre, instead of on _^2 as now — that is, the occupier's rate, as well as the owner's, would be increased by a thousand to twenty-five hundred per cent. The present system of valuation is based on the Prescntvaka- uctual condition of the property and upon its rental ^^^ ^^^^^ ^^°^ in that condition. The actual state of the property is a fact visible to the eye, and as to which there can be no question. The rent paid is a fact easily ascertainable. To value property not in its actual state, but in a hypothetical condition, is obvi- ously a difficult, if not an impossible, task. The Select Committee upon the Glasgow Bill state that all the witnesses were agreed " that valuation Proposed of land sites was, from the very nature of the case, ^'^ ^'^fJ'^L purely matter of opinion ; that absolute accuracy purel''^ matter was, necessarily, unattainable; and that everything °f°P^^^o^- in valuation depended on the skill, experience, and impartiality of the valuator." The Committee also admit that " if it be impracticable to fix the yearly value of land apart from the erections placed upon it, then plainly no measure relating to the taxation of land values can be proceeded with." One would have thought that a valuation, which they admit must be purely matter of opinion and in which absolute accuracy was unattainable, was impracticable for assessment purposes, and was a thing that no reasonable body of men would recom- 14 HYPOTHETICAL TENANT mend for adoption. So far, however, from taking this view, the majority of the Select Committee accept the scheme of valuation, and recommend it for adoption by the legislature. Fortunately, they give their reasons ; and these are so inadequate that it is difficult to understand how they could be seriously advanced. They say that all the witnesses were agreed that under the existing rating system a problem similar to that presented by the Bill confronts, and is solved by, the assessor in the ordinary discharge of his everyday duties. This is hardly an accurate representation of the evidence ; but in any case the statement is not in accordance with experience. Valuation Let US glance at the problem referred to. It is under present , r • i • i 11 5K stem of pre- ^"^ ^^^^ ^^ premises which are not let, but are in mlses which the occupation of the owner, and for which conse- quently no rent is paid. In such circumstances the assessor is bound, under present arrangements, to ascertain " the rent at which, one year with another,, such lands and heritages might, in their actual state, be reasonably expected to let from year to year." The quest for the hypothetical buyer, say the Committee, is as baffling as the quest for the hypothetical tenant. The quest for the hypothetical tenant is baffling, as the Committee state ; the quest for the hypothetical buyer would be so baffling as to be impracticable. Take first the case of the quest for the hypothetical tenant. The hypothe- The cases in which a hypothetical tenant has to be tical tenant. • j ^ j . r 1 conjured up are not common, and most of them present no difficulty. When they do occur, the HYPOTHETICAL RENT 15 premises are valued in their actual and not in a hypothetical state. The valuations so made are admittedly of an unreliable and unsatisfactory character. If five houses in a terrace are let to tenants, and five are in the personal occupancy of the proprietors, the rents paid by the tenants afford undoubted evidence as to the annual value of the houses in the hands of the proprietors. The annual value of a shop or of a warehouse in the occupation of the owner, is determined by the rent paid by his neighbours for similar shops or warehouses. There are, however, buildings which are seldom, if ever let, and with which there are no similar buildings for comparison, as for instance a hospital, an asylum, or a special kind of factory. The valuation of such buildings is the problem which the assessor has to face, and in its solution he has conspicuously failed. One of the most familiar methods adopted by Methods for the assessor for solving: the problem is to ascertain Pf^^S yP°- c) r ^ ^ tnetical rent^ the cost of the site, of the buildings, and of the machinery, if there is machinery, to apply a per- centage to each amount, and to take the sum as representing the annual value. Nearly every case of the kind becomes the subject of an appeal, and although the Court has, in some instances, allowed this as a basis of valuation because none other could be found, it has pointed out that it is far from being satisfactory. There are buildings to which this method cannot be applied, as, for instance, gas works and the like. The plan resorted to in these cases is to ascertain the net 1 6 ASSESSORS' METHODS profits earned, after deducting working expenses, tenant's allowances, and repairs. This is the basis upon which railways and similar undertakings are valued ; but it is merely a manipulation of the revenue and expenditure of the undertaking; it is, in no sense, a valuation of the lands or buildings. Facts In all In all these cases the assessor deals with facts. cases dealt 'pj^^ figures are actual ascertained figures. The only with. " . question is how they are to be dealt with. When the valuation is on the basis of cost, the cost is generally an ascertained figure, the only question is whether the annual value should be assumed to be 3, or 5 or 7 per cent. When the valuation is on the basis of profits, the earnings and the expenditure of the year are facts. The only question is what pro- portion of these is attributable to the buildings as distinguished from the plant and equipment, and ^ what proportion of the earnings represent tenants' profits and other tenants' allowances. Views of the All these methods of solving the problem have Courts upon ^^^^ regarded by the Court with disfavour. " I assessors . methods. disapprove altogether of the idea that the annual value of certain buildings or works should be fixed at a percentage of their cost ... I also disapprove of estimating the annual value of buildings on a mere consideration of their actual output or productive power " (per Lord Trayner in Kinross Gas Co. v. Assessor for Kinross.^ I2 March, 1890, 17 R. 850). "Cost of construction is, as a test, so apt to mislead that it ought never to be adopted as a hard and fast rule," said Lord Stormonth Darling {M-Vitie v. Assessor for Edinburgh, 18th February, 1898, 25 R. at p. 602). MUST VALUE PROPERTY AS IT IS 17 A percentage on price, says the same learned judge, *' is plainly arbitrary, but so perhaps must every method be which proceeds upon the generalised opinion of experts " (JLowson v. Assessor for Arbroath^ 1 8th February, 1901, 3 F. p. 466). In one case the Court held that neither cost of construction, com- parison of floor space with that of other similar buildings, comparison of the number of apartments, nor estimate of profits, taken separately or together, was a proper method of ascertaining annual value. This was to be arrived at by a broad view, or, in more familiar language, making a shot at it (see North British Railway Co. v. Assessor for Edinburgh^ 14th January, 1905, 7 F. 435). Turn now to the case of the hypothetical buyer. The assessor When it is necessary for the assessor to estimate the " not allowed ■' , to value pro- rent that a hypothetical tenant would give, land and perty in a buildings are valued as one. The figure arrived at is hypothetual ° 1 1 • r 1 co7idttton. the estimated rent which a tenant would give tor the property in its actual condition. In no case is the assessor permitted to value property in a hypothetical condition. He cannot say that if a house was altered it would fetch a higher rent, or that if a factory was improved it would be more profitable. He can only deal with things as they stand. There is no analogy between this case and that suggested by the Select Committee. What they propose is that the assessor should ascertain what a hypothetical tenant would give for a hypothetical property. An assessor may be able to ascertain the net profits of a factory, and on this basis to estimate the probable rent which a tenant could afford to give if it were leased ; but 1 8 PROBLEM PROPOSED such a process would not help to determine what a tenant would give from year to year for the site, if the buildings and machinery, lades and ponds, railway sidings, and so on, were removed, and the site reduced to bare ground. Haphazard The haphazard nature of such valuations, the large nature of such g^pense involved in makinor them, and the great valuations. ^ o o dissatisfaction they cause, are a strong argument against making such methods universal, and against extending them to circumstances which are neces- sarily non-existent. The case of the hypothetical tenant of existing premises has been so difficult to deal with, and shows so clearly how impracticable it would be to ascertain the value of land in a purely hypothetical condition, that one would have expected that the Select Committee would have attempted to explain it away, instead of adopting it as their sole justification. Problem of Passing, however, from the vain attempt of the ua ton Committee to show that what they recommend is under the pro- posed scheme, in actual operation, let us turn to the problem itself. The proposal is that the value of bare land, apart from improvements, should be taken as the measure by which to fix contributions to local expenditure. Building and fencing, levelling and embanking, and other improvements on land, become part of the land as soon as they are made. When a house is erected the site and the building are one, just as much as the materials which compose the house. Building and site together form the house. They are occupied as one ; they are rented as one ; ITS DIFFICULTIES 19 they are sold as one ; they are mortgaged as one. if you separate them, if you remove the builduig and leave the site bare, the house has ceased to be. If ground is swampy and is drained, or if it is full of hollows and is levelled up, and becomes, say, good agricultural land, it is some- thing wholly different from what it was before. It is a new creation. In accordance with the existing lav/j the land is valued in its actual condition ; that is, as drained or levelled up, the house is valued as a house, not as site and building. What is proposed is that the site should be valued as if the building did not exist ; the agricultural land as if it had not been drained or levelled up. In other words, it would be necessary to determine what a hypothetical tenant would give for a property in a state other than its actual state, and which would be purely hypothetical. The first difficulty which presents itself in con- Quest/or a sidering this problem is that a quest for a hypo- ^v.^o^^^^iV'^/ , -1 u 1 1 1 TXT, tenant is hope- thetical tenant would be hopeless. What a tenant ig^s, would give for a factory or an asylum, or any building of a special kind, may be difficult to deter- mine ; but it is possible to assume that a tenant might be got. It is impossible, however, to conceive of a tenant discriminating the site of a factory from the building and renting it for a year. The Valuation Roll is a roll of annual values. It The Valuation is made up yearly, and the valuations are the rent at j " ^ J"" I J J ^ ^ ot annual which one year with another the lands and heritages values. might, in their actual state, be reasonably expected to let from year to year. The advocates of the taxa- tion of land values saw that to apply this rule to the 20 CAPITAL VALUE ascertainment of land values was impracticable. They, therefore, take as the basis of valuation not Land values annual rental value, but capital selling value. They ^lainedarou h Propose to ascertain the price which the land, if in capital values, imagination divested of buildings, might bring as between a willing seller and a willing buyer, and to take a percentage upon that sum as annual land value. Apart from the objections to the method of ascertaining the value, the proposal must be con- demned as an entire departure from the principles upon which the annual revenue of the country, both local and imperial, is based. No assessments are levied upon capital ; all are upon annual values. That a sum representing land value could in certain cases be fixed, is not questioned. If a man buys a piece of land for ;^icoo, divides into ten equal and similar plots, and builds ten equal and similar houses on these plots, it would be reasonable, subject to consideration where part of the land has been converted into street, to put ^loo as the land value of each plot. The question is, however, wholly different where land is in the central part of a town, surrounded by other buildings, and is itself already built upon, and has been occupied by buildings for Falue of land generations. If the proposals of the Select Com- tained as if ^^^^^^ were given effect to, it would be necessary to unbuilt. ascertain the value of the land as if no houses existed. It is obvious that, if it were assumed that all buildings were removed, the area would be just so much bare land, which might be on the Moor of Rannoch quite as well as in Glasgow, and would have merely the value of pastoral, or, it might be, of AN EXPRESSION OF ANNUAL VALUE 21 agricultural land. This is not, however, what is aimed at. What is intended is that each site should be valued as if it were denuded of buildings, but that all the buildings in the neighbourhood still stood. It is not disputed that if a building in a town is disposed of as old material, and is taken down and the site cleared, it will sell for a great deal more than the value of agricultural land. The price it might fetch, it is contended, is its land value, and a percentage upon that — 3, 4, or 5 per cent. — it is proposed to take as its annual land value. The value of land is, however, merely the money expression of the use to which it can be put. If it can be used Use is the only for pastoral purposes, it will have one value, and %ctorTnv%ue if for agricultural purposes it will have another. If of land. it is building land, it will be valued in accordance with the kind of building which could be suitably erected upon it. Use, therefore, is the determining factor in value. If a house is in existence and is yielding rent, its value is so many years' purchase of that rent. In other words, it is the capital sum Capital value which a purchaser could afford to pay for that rent, " ^^^^n ^" 1^ r y ' expression of keeping in view the charges upon it for repairs, annual value taxes, insurance, management, and the like. If the P''^^^"^ o^' , ° prospective. ground be unbuilt, the purchaser calculates the cost of building, the probable rent and charges upon it, and fixes the value accordingly. It is impossible to estimate value apart from improvements, actual or potential. When a building is in existence, the natural course is to value it as it stands, that is, site and structure as one. A sale of the two separately is an impossibility. To separate them is 22 SEPARATION OF SITE AND BUILDING to put an end to the house. It is said, however, that whether they can be sold or not they must be valued separately, or at least that a value must be put upon the land irrespective of the buildings or other Separation of improvements upon it. Only one method for so value of site ^jging has been suggested. The method is, in the first instance, to value the building as a whole, land and structure together, as would be done, say, for the purposes of a loan ; then to calculate the cost of the structure, and deduct it from the valuation of the whole. The balance would be the land value. When the Select Committee say that "both assessors and land valuators are accustomed to value ground apart from buildings in the ordinary course of their calling," this is the method referred to. This is an apparently simple operation, but would be most misleading in practice, if generally used. It is only applied in exceptional circum- stances, as, for instance, when there has been a sale of a property on which the building is old and out of date, and an estimate of the value of the site is required. In that case, the value of the old building is calculated, and, being deducted from the price, the balance is treated as the value of the bare ground, but nothing turns upon it. The owner does not reconstruct or a buyer purchase upon such estimate, but upon an estimate of the return from a new building. The process is a rough test, not a principle of valuation, and to adopt in practice for assess- ment purposes would produce most uncertain and inequitable results. Rental is only to a slight extent dependent upon CHANGE BY CHARACTER OF BUILDING 23 the age or character of the building. An old may yield quite as good a rent as a new building, or a plain building as an ornate one, but the character of Difference In the building would make an immense difference on ^^^^ ^f^f^ ... caused by the land value. A building which costs ;(^iooo may character of produce as large a rental as one which costs ;^2000, *^^ building. but this would make a difference of ;^iooo in the land value, although the areas are identical. If a man purchases a site for _;^5000, and by an expendi- ture of ;/|io,ooo erects a building which produces ;^iooo a year of rent, the land value would be ;^i 8,000 less ;{^io,ooo — that is ^^8000, or ;^3000 more than the site cost. If the building, on the other hand, cost ^^ 13,000, but produced no more rent, the site value would be ;/^i 8,000 less ^^13,000 — that is, ;/^5000, or the price that was paid for it. If, however, the building cost ;^2o,ooo, with still the same rental, there would be no site value at all. To put the case in another way. Take two similar and adjoining sites ; on one there is an old building of the value of ;^iooo, the whole producing a rent of /1 1 00 a year; on the other there is a new building which has cost ;^'5ooo, the whole producing ;^500 a year. If both rentals were capitalised at eighteen years' purchase, the value of the one site would be ^800 and of the other ^^4000, and yet they are identical in area and advantages. Take any street in the central area of Glasgow, and attempt to arrive at site value by valuing the property and deducting the cost or value of the structure, and you will obtain the most extraordinary results. In one block with the same frontage, adjoining and similar sites 24 NO METHOD PROPOSED Deducting cost of building from valuation of site and building not a satisfactory method for ascertaining land value. No other method suggested. will vary from 500 to 1000 per cent. The return from the site depends upon the use to which it is put and the plan and capacity of the building. The value of the site depends upon the return it gives through use. It is unnecessary to labour this point. The Select Committee take the same view. " To adopt in all instances the method, useful enough in some, of deducting from the total value the cost of the buildings and then taking the sum left as the value of the land, it was shown, might, and would, lead to very anomalous results. This cannot be doubted. For a dear and ornate building may not always yield so high a rental as a cheap and plain edifice. And the cost of a building is not always a reliable test of the rental it will fetch." The exact method that should be followed, the Committee say, must depend upon the circum- stances, and be left to the intelligent valuator. That, however, does not advance the matter. No intelli- gent valuator appeared before the Committee to suggest any other method of ascertaining land value, and no other method is known in practice. In a vague way it was suggested that the intelligent valuator is to take a rate per square yard ; but that is merely re-stating the question in a different form. It was proposed that an average figure should be taken, but on that basis obviously one site would be undervalued and another overvalued. It has been proposed that rental should be taken as the basis. It is suggested that a percentage should be taken on the value of the building and deducted from the gross rent, and that the balance would represent TO BE LEFT TO VALUATOR 25 the land value. This would not be more reliable. In every case the structure itself would require to be measured, cubed, and valued, and the usual allowance made for management, repairs, and the like. This is practically the same process as that first mentioned, differing slightly in form. It just means that the value of the site is the capitalised value, less what is attributable to the particular building upon it ; high with a cheap and productive building, low with an expensive and low-rented one. Turn the matter as you will, and follow what- Committee ever method ingenuity can suggest, the value of P''°P°^^ ^° the site is its estimated productive power as built, valuator to The quest is for a hypothetical tenant of a hypo- fi'^d a method. thetical building. There is not one determinate element in the problem. To state a problem, and to make no attempt to show that it can be solved, but to assert that it can be done by an expert, is wonder- fully like an admission that it is insoluble. In the present instance, moreover, the Committee fail to provide the expert with the elements required for the solution of the problem. It is like asking a surveyor to measure an inaccessible height without giving him the angle of elevation, the length of the base, or some other element. To adopt as a basis of valuation a system founded Proposed upon hypotheses and not upon fact, a system for ^^y''^.*?/ which the Committee find it impossible to suggest unworkable. any method of working, a system which, if carried out on the only plan that has been thought of, would lead to the most glaring absurdities, is not one which will commend itself to the intelligence of the public. 2 6 REASONS FOR SEPARATE ASSESSMENT Site is assessed under present system. Reasons for separate site assessment. Present use does not always exhaust value of the site. It was at one time maintained that under the present system of assessment the site wholly escapes taxation. This the Committee show is a mistake. The yearly value of the composite subject, land and buildings, they say, " necessarily includes the value of the site. To apply, therefore, as the law at present does, a standard of rating arrived at by taking the yearly value of land and buildings together, neces- sarily means that site values are included." This being so, the question naturally arises, why should the site be valued by itself for assessment purposes t If a building is entirely suitable for the site both as regards cost and construction, site and Duilding will contribute in due proportion to the rent. If a building does not, as it is technically termed, exhaust the site, the capabilities of the site are to a certain extent dormant, and the rent pro- duced by site and building together are less than if a more suitable building was erected. As rent is the present basis of taxation, the land is in this case, it is said, escaping its proper burden of assessment. The owner having a small burden of taxation to meet is thus able, it is argued, to hold the land indefinitely and to await a rise in the market, when he would sell, and pocket a handsome profit, which has not been subject to local taxation. That he should do so, and do so legitimately, is in accordance with the rules that regulate the ordinary affairs of life. In this case, however, the advocates of the new standard maintain that it was the community that created the increase, and that consequently it belonged to the municipality. If a man holds 5000 quarters of HOW TO BE ASCERTAINED 27 wheat for the rise and realises a profit, it was the same community that created it, but it is not claimed for the municipality, which, it may be explained, is by no means the same as the community. If the granary in which the wheat was stored likewise increased in value, it is not easy to understand why this increase should not belong to the owner. Every member of the community profits by the presence of the other members, and could not live without them. The community of Glasgow is dependent upon and flourishes because of other communities all over the world ; and land, like other values, is affected quite as much by these as by the local community. It is unnecessary to dwell on this ; but assume, If ntes to be for the moment, that sites which are not fully '"^' ^^ f , ' J assumed value Utilised ought to be valued not upon their actual, in a different but upon an assumed or estimated return in some '^f^'> , " Other state existing only in the imagination of the ascertained? assessor, the same difficulty is present as in the case of a site fully developed. There is, in addi- tion, the further difficulty of determining the manner in which it is to be assumed that this site ought to be utilised. It would open the way to the wildest suggestions if the assessor were free to say that each site ought to be used in a particular way, as, for instance, that a tenement should take the place of a villa, or business offices of a dwelling-house, or a warehouse of a tenement ; that a six should take the place of a three-storey building, that brick should be used in place of stone, or cement in place of brick. These and the like suggestions would, however, be open to the assessor, if the principle 28 UNBUILT LAND Assessment of unbuilt land in urban districts. Slozu increase of value. contended for were put into operation. The result would be absurd, as the advocates of the scheme admit. What they say is that such a thing would not happen ; that no intelligent valuator would ever make such a proposal. Unfortunately, all valuators are not intelligent, and why should the country be asked to adopt a scheme founded upon no principle, and dependent for its working wholly upon the good sense of an official ? There is the further absurdity that, as the valuation is an annual one, the assessor could suggest a new use each year. The revaluation of sites not fully exhausted, leads to the point which has influenced the minds of most of those who support the present move- ment, and which gave it weight in the Town Council of Glasgow. This is the present assess- ment of unbuilt land in urban districts. Land on the fringe of Glasgow, or of any other large town, which is used for agricultural purposes, and yields a rent of £2 to ;^3 an acre, is gradually required for building purposes, and, when it is so, is sold at ;/^400, £s^o, or £1000 an acre, in many cases converted into a feu-duty or ground annual of £20, £'^S-> ^^ ^^5° ^ year. The increase in value is not the product of a day; land is not worth £2 one day and £20 the next. The larger value is the growth of a long period. If an owner now gets ;^500 for an acre of land, it is precisely the same as if he had sold it at ;^i87 five-and-twenty years ago, or £']o fifty years ago, taking interest at four per cent. When SLOW INCREASE IN VALUE 29 the j^500 is reached the assessing authority gets advantage of the increase, and is in the same position as if it had begun to assess on ;^i87 twenty-five years earlier. If a future payment is discounted for its present value, the former could not be assessed when by lapse of time its full value was reached, as this would be double taxation of the same amount. The increased value, it is contended, is the ln<^reased i c \ • 1 -1 value clamed product or the community, and passes mto the to be the pro- hand of the seller without having paid taxation duct of the to the municipality during the time the land was •^' ripening. As has been pointed out, the expendi- ture of municipal taxation does nothing for such land. It may be conceded that the presence and require- ments of a growing population does create the demand ; and that the value is determined by the value of the nearest adjoining land occupied by buildings of the character for which the unbuilt land is suitable. Whether the increase is a proper and to be subject of rating is a different question, but let it pass. Assume that such uncovered land ought to be rated upon an estimated dormant value, can this be carried out in an equitable manner } I think that it cannot, and if it could, it is not worth doing. Of the 12,490 acres ^ which constitute the area Vacant land of Glasgow, there are 3000 acres unbuilt on. This ^'^ Glasgow. 1 This figure I took from the Parliamentary Blue Book, Cd. 2889 (1906). The official figure given by the Assessor of Glasgow is 12,796 (Report, Ou. 2839), as brought out in Appendix, p. 98. 30 VACANT LAND is mostly land on the outskirts, brought in under recent extensions. If the present predatory scheme of annexation contemplated by the Town Council were given effect to, 15,542 acres, practically all vacant land, would be swept within the municipal net. The whole of the 3000 acres are treated as land ripe for building, merely because by Act of Parliament they have been included within the municipal boundary, and the intelligent assessor, of whom we hear so much, would no doubt find that the 15,542 acres were also building land. Area required Consider the case of the 3000 acres. The area buildim ^^ \'A.\\'^ in Glasgow required for building purposes is roughly about 60 acres per annum. I believe those in authority think that this is too high an estimate. In Edinburgh the area required is about 15 acres. Taking the requirements, however, at 60 acres a year, and assuming that building is confined to this area, it will be fifty years before the vacant land in Glasgow is taken up. Take ;^iooo an acre for one-third of the area, and j^50o an acre for the remainder, which are fair values, and assume that the 60 acres are disposed of in the proportion of one-third of the dearer, and two-thirds of the cheaper land, this would mean sales to the extent of ;^40,ooo a year. It is manifest that the value of the ;^40,ooo to be paid 50 years hence is a very different figure from the same sum to be paid next year, and so in proportion in the case of inter- mediate payments. If the land was all of the same character, was in one lot and in one hand, Value of the vacant land. IN GLASGOW 31 it is easy to reduce each future payment to a present value, and to assess upon the sum of the separate values. But the land varies in character, is scattered over an area many miles in length, is of all shapes and sizes, and belongs to some 50 to 100 different proprietors. It would be impossible, therefore, to deal with it upon a uniform basis, and only a random figure could be put upon most of it. It would be impossible to say when any particular lot would be taken up, and with the greatest care of the most intelligent valuator some land would be valued too high, and some too low. It would not help an owner who suffered from a high valuation that his neigh- bour had a correspondingly low one. It would merely aggravate the injustice. The fact that the value of urban land is in many Increase in cases imperceptibly growing, although it does not ^'^ ^^ do so to the extent that is popularly assumed, and that this accretion of value is not subject to taxation, lends a certain amount of plausibility to a scheme intended to bring it within the compass of assess- ment. To base that attempt upon the ground of return for benefit received is inadmissible ; but taking it upon general grounds, it will be seen that nearly every other form of capital has a similar increment. Enormous quantities of stocks are held in the expectation of a rise in value. That increase does not arise from anything done by the ^^,^uld be holder, but from the general prosperity of the assessed if country, from the well directed industry of the whole ^^^^^ ^^^ community. If taxation was based upon capital capital. 32 ASSESSMENT OF values, as it is in some countries, the increase in the value of stocks, as well as of land and of every other kind of property, would from year to year become liable to assessment. Taxation upon capital is not, however, the principle adopted in this country. It is found in practice to have many drawbacks, and if it was in force in this country now, the experi- ence would be that not only would it fail to attach all capital, but that it would be far more uncertain and irregular in its operation than taxation of actual existing revenue. Assessment of The revenue which would be obtained by the r rtf« « in 2is,^Q^sm&nt of vacant land on the basis of land (jlasgow zoould yield value would be a comparatively small amount. very trifling j£ ^^ ^^y^^ ^^^ ^^ ^^^^^ ^^ unbuilt land in Glasgow at the values 1 have given — ;^iooo an acre for one-third of the area in the more central parts of the city, and at ^^500 an acre for the remainder, — and assess this as in the Glasgow Bill at 4 per cent., it would represent an annual value of ;/^8o,ooo, and as it is now assessed at about £jooo this would represent a gain of ^^73,000 a year, or about I J per cent, on the total rental of the city. Taking municipal taxation as now at 4s. per £y and parochial taxation at 3s. per £, this would give for municipal purposes £1460 a year, and for poor and school rates ;^I095 ^ Y^ar, while the actual sum levied for municipal purposes is about ;^90o,ooo, and for poor and school rates ;/^500,ooo a year.^ ^ Under the Poor Law Act certain deductions are allowed from the gross rental, and owners and occupiers are assessed on amount. VACANT LAND IN GLASGOW 22 My estimate is considerably in excess of what would be realised, as I take the whole area as if it was building land, and as if it was sold now ; while for actual assessment purposes it would probably be found that part of it was not building land, and in any case an allowance would be made for postponed sales. 4. WHETHER ASSESSMENT ON LAND VALUE WOULD REDUCE THE PRICE OF LAND AND RENTS AND WOULD DIMINISH OVER- CROWDING. The Select Committee say that the indirect effect of the adoption of the new standard of rating will be to stimulate buildings and improvements, to bring more building land into the market, to lower rents, and to diminish overcrowding. No attempt is made to support the statement, and it will not bear examination. If it was the case that the adoption of the new standard would bring more land into the market, the result would be to lower the price, or in other words the land value, and to a corresponding extent to increase the rating. As all land, vacant slightly different sums. The parochial and municipal areas are not identical, but taking the parochial area of Glasgow the figures for the year 1905-06 were: Assessable Actual Rental. Annual Value. Owners, - - £^,0()2,i^66 ^3>i 86,393 Occupiers, - - 3,946,603 3,060,508 These totals embrace certain properties which are exempt from assessment by Statute and Government property which is not assessed. c 34 TAXATION OF LAND VALUES or covered, is to be assessed at full land value under the new system, the covering of an area would not increase the assessable valuation. If land valued at ;^ioo a year was rated at ^^50, that is I OS. per £^ but by the increase of the supply fell to ;^8o, the rate would require to be Increased increased to 12s. 6d. per £. If the pressure of taxation has fixation was to make the holding of land more caused specu- . , ° lation and rise difficult and precarious, speculation would become of price of land j.-^^^ y^^^ Alfred Russel Wallace found that in in America, . , rr r • r i j • i America the effect or taxation or land on capital value was to cause very rapid change of owner- ship. No one will hold it long on account of the taxes. It passes from hand to hand, each holder trying to make a profit, until a builder is found. The effect is to raise land to a price quite as high or higher than in this country. The increased price of course increases the price of building, and the and in New rents of houses. In New Zealand the rapid rise in Zealand. values has caused speculation in spite of the land tax and its assessment on land values ; and in places where land suitable for building sites is limited, high rents have been maintained, notwithstanding the tax.^ The result in this country would be to increase the price of land, although this would arise in a different way. If a special assessment was laid upon land values land would not come into the market unless the tax was heavy. If the owner had to sell, the loss would fall wholly upon the owner of the land at the date of its imposition. A tax of 2s. means a levy of one-tenth, and a tax of los. a levy of ^ Blue Book, Cd. 3 191 (1906), p. 26. WOULD NOT LOWER PRICE OF LAND 35 one-half of the capital value of the property. Assume Taxation of the value of a plot of ground to be ^5000 and the ^^tlTfaU tax laid on. If the owner desired to sell, the wholly upon purchaser would not pay /cooo, but /cooo less ^"^^^^^^^ ^'^^ ;^500 or ;^2 500, according as the tax was 2s. or imposed. I OS. per £. Take the latter case. He would hold land worth ^5000 at ;^2 500, and have ;^2 500 which he would invest and from the income pay the tax. The loser would be the seller. The purchaser could afford to hold the land as if no tax had been imposed. Its price for building purposes would not be reduced. This would not stimulate building or improvements. Whatever be the rate of tax, it falls only upon the owner at the time of its first imposi- tion. Even if it was 20s. per £, a purchaser could afford to pay a nominal price and take over the land. Companies would be formed to take up all land brought into the market through pressure of taxation, and would find plenty of profitable business. They would purchase, less the tax, and could hold Price of land for a better price than the original owner. The ^^.gj^^fise tendency would be to create a monopoly. Many individual owners might be ruined, but the land would be brought into fewer hands; there would be less competition amongst owners, and prices would rise. Rents would not be lowered, but would probably be raised. It is often overlooked how small a factor the price Price of land of the land is in rent. Take an ordinary four-storey '^ ^""'"f^'^o^ f ^ tn rent. tenement in Glasgow on ground costing los. per square yard, which is an average price ; not more than one-tenth of the rent represents land. In the 36 COST OF LAND A SMALL FACTOR case of a ;^io rent, £i represents the cost of land; the remaining ^() represents labour in the shape of wages for construction, wages in getting and preparing material, and so on. If for any reason the price of land was reduced by one-half, the only effect upon a ;^io rent would be to make it ;^9 los., and upon a £20 rent to make it £i(). In recent years a new type of house has sprung up in suburban areas. These are single cottages, or small self-contained houses, in terraces, costing, inclusive of site, from ;£400 to £600. These houses have been erected on ground costing from £iS'^ ^o j^500 an acre. If you take land at ;/^300 an acre, and terraced houses of fourteen (and some builders put fifteen) to the acre, and cottages ten to the acre, and in each case costing, inclusive of site, ;^450, land represents in the one case less than one- twentieth and in the other one-fifteenth of the cost of the house. If the land cost nothing, the price of the cottages would be ^^420 and of the terraced houses £,^2<). Capital will not be sunk in building unless there is a return of at least 5 per cent, clear after meeting all outgoings. Interest upon the cost of the structure is the dominating factor in rent. Overcrowding Overcrowding, it is said, would be diminished by ^imitiThd^ taxing land values. Overcrowding is a misfortune that all deplore. It does not, however, arise from want of house accommodation, but from inability of the poorer members of the population to take advantage of the opportunities offered. There are IN RENT OF HOUSES 37 always a large number of unlet houses in Glasgow, and the number is exceptionally great at present;^ but this does not prevent overcrowding. These houses are mostly workmen's dwellings. The per- centage of unlets of more highly rented houses is comparatively small. If rents could be reduced to a nominal amount, families might spread out, but with the high and increasing price of labour it is impossible to reduce rent materially. If land was had for nothing, the ;/^io house would still be ;^9 : too large a sum for those who suffer from over- crowding. If the houses were built in the suburbs on free land this would not help matters. The rent would still be £<), and, in addition, the occupant would have to lose time and spend money in getting to his work. The increase of wages and the shortening of the hours of labour are most desirable in themselves, but they have a serious effect on the price of production, especially in the case of such articles as houses, where machinery cannot be used in constructing them. 5. WHETHER THE ASCERTAINMENT OF LAND VALUES IS PRACTICABLE, WITH DUE REGARD TO ACCURACY AND ECONOMY. Turn now to the question of the cost that would be involved in making a valuation of land values. It is evident, from the nature of the subject, that such a valuation would be tedious, troublesome, and 1 There were in Glasgow, in 1905-06, 175,277 dwelling houses with a percentage empty of 7.7 ; and £'ioj,-j;^l, or 5.3 per cent, of the whole assessable rental of the city was unlet. 38 ASCERTAINMENT OF LAND VALUE expensive. The Committee do not deal with this aspect of the problem, but it is a practical question, and has a most material bearing upon the scheme. Land value The valuation to be entered upon the Valuation ^olecarefulh -^^^^ ^^ ^° ^^ ^ considered and reasoned figure. A ascertained. return must be made by the owner, and this return must be checked by the assessor. A valuation must precede the return, and a revaluation would in many cases be necessary on the part of the assessor. The assessing authorities certainly treat the matter in a very perfunctory fashion. Mr. Harper, the Statis- tical Officer of the London County Council, in his evidence before the Royal Commission on Local Ftews of Taxation, said : *' 1 could value a site worth /cooo assessors. ^^^ • r ■ j , t very possibly m rive mmutes; and when 1 am covering a district, and taking site after site, after having got my mind well saturated with the trend of values in the district, I can value a number of sites in a very short time." The assessor of the City of Glasgow told the Select Committee that the valuation of Glasgow would be an easy matter, that he would require some assistance, but he could finish it in a year at a cost of from ;^6ooo to ;^8ooo. The valuation of land value, the Committee them- selves admit, would be a difficult matter, but if it is to be carried out in the manner indicated, it would be a burlesque. The assessors are not valua- tors, and are probably not conscious of the care and Owners would experience necessary for making a valuation. While 7het7pfan. ^^^ assessing authorities may be prepared to perform the responsible duty which it is proposed to lay upon them in this off-hand fashion, the owners CARE REQUIRED 39 whose properties are to be valued will certainly take more pains to ascertain the figure which should be inserted in their returns. When a man lends money upon the security Care with £■ 1 ^1 11 which valua- ot a house, or proposes to buy one, he does so tiom are made. upon a valuation. If an owner is to be assessed upon the valuation of his house or factory split into two parts, site and building, he will require a similar valuation to guide him in entering a figure upon the Schedule issued to him by the Assessor, and for checking, if need be, any alteration made on his return by the Assessor, The valuation will be just as precise in the one case as the other. It would, however, be more troublesome to make a valuation for assessment than for lending purposes. It is not generally necessary to ascertain the value of the structure in the latter case. For assessment pur- poses the value of the structure would always be required. This means that the building must be measured and cubed, and a price per cubic foot applied to the amount. Much diversity of opinion arises upon the rate at which cubing is to be taken, and still more upon the rate at which depreciation is to be estimated. The Glasgow Bill required the value to be stated per square yard, and whether asked for by the Assessor or not would be necessary for the purposes of the valuation. The quantity can only be ascertained by measurement. The title area, in most cases, includes the half of one, sometimes of two streets and of a lane. This area must be measured and calculated and de- ducted from the gross amount so as to ascertain 40 COST OF LAND VALUE SURVEY net building ground. Presumably it is not in- tended to assess the owner upon the area of street which he has dedicated to the public. Cost of land There is no official return of the number of value survey hereditaments in Glasgow/ and consequently there is no very reliable basis for calculation. I estimate, however, that the total cost would not be less than ;^5oo,ooo, that is ;/^340,ooo on the part of the owners and ;^ 160,000 on the part of the Assessor. To get at the value of the land, site and building must first be valued together, which means a valuation of the whole property in the city.^ Mr. Henry's estimate of £6000 to ^(iSooo ^ I applied to the Ordnance Survey for information and received this reply : " In carrying out surveys plots are not surveyed separately by this Department, although all divisions are shown between contiguous dwelling houses and out-buildings when they have separate doors. The Ordnance Survey is not concerned with property boundaries, and no information is available as to the number of separate plots there may be within the City of Glasgow." My estimate of cost is based on 65,000 hereditaments. If there are more the cost will be more. If there are fewer the cost will be less. 2 That value I estimate, as I will afterwards show, at j^86,5 50,000. My figure therefore for the owners' valuation works out at something under a half per cent, on the value. By calculating my estimate of cost, ;^500,ooo, on my estimate of the annual land value, ^^5 7 7,000, Mr. Harper (Report, Qu. 11,570) makes the percentage 86| ; but his method is erroneous. The capital value of site and building together must be ascer- tained before the value of the site separately can be ascertained, and the annual value again is arrived at by taking 4 per cent, on the latter. My point is that it will cost the owners j^340,ooo to obtain valuations of property amounting to ^86,550,000. IN GLASGOW 41 is of the Assessor's cost only, and over and above the ordinary expenses of his department, which are about as much more. If he was pre- pared to take the figures supplied by owners, the expenditure of his department could be kept down ; but I have no doubt that experience would show that even the checking would cost a very large sum and would be a very tedious process. The Register of Streets which the Corporation recently made up in accordance with the provisions of an Act, which they got Parliament to pass, has cost, it is reported, up till the present time, ;^20,ooo. It is not yet off their hands, and we are now told by the Town Clerk " that it is im- possible to make a register containing the existing width of every particular part of every street in Glasgow without making an actual survey of the whole of the streets of the city, which would involve enormous expense and possibly a great deal of liti- gation." A survey of every property would be still more tedious and still more expensive. 1 consulted an experienced valuator, who told me that it would take himself and his whole staff forty years to carry through the valuation required for the first survey. My figures as to cost allow nothing for litigation. Litigation. The cost of appeals in reference to the valuation of properties of a special character in the personal occupancy of the owners, which the Committee take as their guide, ranges from £100 to ^1000 each. The Committee say that at first appeals would probably be numerous. The Register of Streets 42 AGRICULTURAL LAND gave rise to some 5000 appeals, and these are still to be disposed of. It is easy, therefore, to see that a large sum of money could be spent upon appeals. Such appeals determine no principle and bring no finality. There are just as many appeals under the Valuation Act at the present time as there were when it first became law. Difficulty in I have referred only to the case of urban land, but caseofagri- ^^ valuation of agricultural land would be quite as cultural land. . . - . troublesome. Buildings, fences, and the like, would be excluded ; but planting, draining, levelling, re- clamation, and many other improvements, would have to be considered. The natural productivity of the land of Scotland is almost nil. Much of it has been brought to a high state of productivity by the well-directed expenditure of labour and capital. Land that now rents at 30s. to 40s. an acre would not fetch is. an acre if it had been allowed to remain in the condition in which it was 1 50 years ago. But without raising the question of induced productivity, the valuation of land, without buildings, fences, and roads, would be very difficult. Without these acces- sories, it could not be used. The problem would not be to ascertain the probable rent of the land in its actual condition, but the rent which a hypothetical tenant would give for the land in a condition in which it could not possibly be. Land values in It is said that land is valued apart from improve- ments in New Zealand, and in some of the States of the Commonwealth of Australia, and that the system works well. That is true to a certain extent. But LAND VALUES IN NEW ZEALAND 43 the circumstances are wholly different. Taking the case of New Zealand, it is to be borne in mind that the greater part of the property that is valued is agricultural or pastoral land. That land has all been acquired from the Crown, within a comparatively recent period, at prices which are known. There are large tracts still unsold, which have a fixed price. Great part of the agricultural land is in its natural state highly productive. Over thousands of acres the plough can be set agoing without clearing, drain- ing, or any other preparation, and the return of wheat per acre is higher and of better quality than in Scotland, after all the time and money which have been expended in making our soil. The improve- ments in New Zealand are very slight — a few wooden houses and some wire fencing. Grassing — that is, laying down the land in English grass — is the prin- cipal item. All these are, however, easy to allow for. In New Zealand, municipalities have the option of assessing either on land values, or on annual values, as with us. Where the basis selected is land value, the ascertainment of the value is comparatively simple. There are plenty of vacant town lots with a fixed price, which are a good guide in determining the value of similarly situated lots. Where there are buildings these are mostly of an inexpensive char- acter; and, although some sites are more valuable than others, there is nothing approaching the range of prices that there is in Glasgow and other large towns in the United Kingdom. There is far greater uniformity of value over the urban area than here. Some towns in New Zealand assess on land value. 44 NEW YORK CITY Urban assess- ment in Nezv Zealand. In Sydney and Melbourne assessment is on annual value. In New J'ork site and build- ing separately valuedy but assessment is on the joint value. Others on annual value. It is said that the former have advanced in prosperity because of their method of assessment. That many of them have been prosperous is undoubted ; that such prosperity is in any way connected with the manner of levying local rates, rests merely upon the unsupported state- ments of those who advocated the change. In some towns the rental method of assessment seems to have been very inefficiently carried out. The City Council of Wellington state that under that system " rental values on lands could, by simple manipulation, reduce local taxation to a farce." ^ Little wonder that they tried a change. In other places the rental system is fairly and successfully administered. The towns which adhere to the old method are quite as prosperous as those which have adopted the new. Taxation of land values prevails in New South Wales, but has not been adopted as the basis of taxation in Sydney. There is no taxation of land values in Victoria. In Melbourne local rates are levied on annual values, as they are in Sydney. The advance in the price of wool, and the develop- ment of the frozen meat trade, have been most profitable to both New Zealand and Australia. The prosperity of both countries has resulted from general commercial causes. It has nothing to do with the method of raising taxation. In New York City taxes are levied upon the capital value of property, both real and personal. In valuing real estate, the assessor under a recent law discriminates between the value of the land and the ^ Blue Book, Cd. 3 191 (1906), p. 30. ESTIMATED AMOUNT OF LAND VALUE 45 value of the buildings, but the tax is laid upon the sum of the two. Owners of built property have no interest in challenging the separate valuations, and the tendency is to increase the site value at the expense of the building. The splitting of the valu- ation was introduced as a check upon the valuation of vacant land, which it was contended was entered at too low a figure. By getting a separate value of land which was covered with buildings, it was thought that a guide might be obtained for valuing bare ground. How far the scheme has been successful, it is impossible to say, as it has been in operation for only three years.^ 6. THE ESTIMATED AMOUNT OF THE LAND VALUE. Putting aside all questions as to the difficulty of ascertaining land values, or of the expense of doing so, the next point for consideration is whether the assessment of land values would be a suitable basis for levying local taxation. That it would not be Land values so scarcely admits of doubt. If a new system is to ^°^ suitable as be introduced, it should be a system that will super- i^^^i taxation. sede the old. It would be folly to have two different systems working side by side, some rates levied on the old basis, and others upon the new. Land values assessed at 20s. per £ would not meet one third of the rates now being raised. The Scottish League for the Taxation of Land Values have the most exaggerated ideas of what these values are. They point to the case oi New Apparent high York City, where, taking the assessment figures in ^^"f^'y^L^" 1 See infra, p. 83. explained. 46 NEW ZEALAND the aggregate, the value of the land is 60 per cent. of the whole ; but it is to be remembered that there is an immense extent of vacant land in New York. City. Its area is 209,2 1 8 acres, or about three times that of London, while its population is one million less. A large area of vacant land valued as building land, necessarily adds greatly to the land value of the city, and lowers the proportionate value of buildings. But in the central area, where there is the dearest land and most expensive buildings, the value of the land seldom exceeds that of the build- ings, and is in many cases less. In sections at some distance from the business part of the city, the buildings are generally of considerably greater value than the site. How misleading such figures are when taken in the lump and without analysis is shown by this, that the value of the buildings per acre of the area of New York is only $7095 or £1^1^, as against ^6000 per acre in Glasgow, while in fact the buildings in New York are probably ten times as valuable as those in Glasgow. Explamtion In New Zealand towns, land and buildings are of N^^^Z / d ^^°^^ equal value, taking the sum totals of the valuations, but they embrace large quantities of vacant land. Wellington, which is pointed to as evidence of the success of the new system, has a population of 7.2 per acre, and the value of its buildings, according to the returns of 1905, was only ;^747 per acre. In other words there are only what is equivalent to two small cottages with 3.6 inhabitants per acre over the whole municipal area. PoUokshields, which is the most Relative value of site and SITE AND BUILDINGS IN GLASGOW 47 thinly populated ward of Glasgow, has a population of 1 3. 1 per acre, and consequently is nearly twice as densely populated as Wellington. The majority of the buildings in New Zealand towns are of a com- paratively inexpensive character, and it may well be that in many cases they do not exceed the value of the site. In PoUokshields the value of the buildings is from five to twenty times the value of the site. The position in this country is entirely different. Take the case of Glasgow : — In the case of good central property, in a few instances the value of buildings in the site may exceed that of the building. In many ^^^^iP^- cases the relative values are about equal. In other cases the building may be from three to four times the value of the land. In the case of shop and tenement property the value of the building is, as a rule, four or five times the value of the land. In the case of tenement property the value of the building is from eight to fifteen times the value of the land, and in the case of private residences the value of the building is from ten to twenty times the value of the land. Keeping in view these proportions and the fact Rental of that by far the greater part of the buildings are '^^S°'^- dwelling-houses and one half of the whole rental is derived from this class of property,^ a fair estimate ^ The number of houses and their rental increases more than any other kind of property. Dwelling-houses including Hotels. ^^j^, ^^^^^, y^,^^ Year. Number. Annual Value. of *he City. 1885-86, - 120,458 ^1,316,496 ^3»395.«04 1890-91, - 123,951 1,356,029 3,455,510 1898-99, - i55»974 2,143,920 4,621,694 1905-06, - 178,148 2,579,478 5»77o,57' 48 LAND VALUE OF GLASGOW of the relative value of land and buildings is one- sixth for the land and five-sixths for the buildings. The gross rental of Glasgow for the year 1905-6 Its capital was ;^5, 770,000.^ The capital value of that rental I take at 1 5 years' purchase, which is a fair and reason- able figure. This gives ;/[8 6,5 50,000 as the capital value of land and buildings. I allocate one-sixth of that amount to land, that is ;^ 14,42 5,000, and five- sixths to buildings, that is ;^72, 125,000. The fixed factor which we have is the rental, ;/[5, 7 70,000. Deal with that sum as if it was the rental of a single property. The rent received from a property is a gross amount subject to deductions for repairs and maintenance, for insurance, manage- ment, unlets, contingencies, and rates. These amount to 27 per cent. Now 27 per cent, of the gross rental is ^^1,557,900. Deducting this leaves ;^4,2I2,IOO. Land value The annual return on Land Value under the r^Ti^^^a Glasgow Bill was fixed at 4 per cent. Four per cent, on ;{i4,425,ooo is ^^577,000. Deducting this from the remaining rental leaves ;^3,635,ioo to provide a return upon the capital expended on buildings. That return could not be taken as less than 5 per cent. To pay this upon the ;^72, 125,000 representing the buildings requires ^^3, 606, 250, leaving ;^2 8,850 as a sinking fund to provide for replacement of buildings at the end of 60 years. Put in tabular form, the calculation stands thus : The Gross Rental of Glasgow 1905-6 was- - _ - - - ^5,770,000 ^ See Appendix, p. 97. ^577,000. VERIFICATION Taken at 15 years' purchase, Proposed to be allocated : One-sixth Land, Five-sixths Buildings, 49 - £S6,sso,ooo 14.425,000 - 72,125,000 ;^86,55o,ooo The Rental of- - - - - ^5,770,000 is subject to the usual deductions for repairs and maintenance, insur- ance, management, unlets, and contingencies and rates. Taken at 27 per cent.,^ _ _ _ 1,557,900 or leaving as net rental, - - ;^4,2i2,ioo of which there is taken as appli- cable to land ;^ 1 4,42 5,000 at 4 per cent.,- _ _ _ _ 577,000 Leaving - - - ^^3,63 5, 100 To meet return upon Capital invested in buildings at 5 per cent., ;^72, 1 25,000 at 5 per cent., - 3,606,250 Leaving - - - ;(,'2 8,850 or ^ per cent, as Sinking Fund for replacement of buildings at end of 60 years with interest at 3^ per cent. 1 Made up thus: Landlord's taxes, 2S. 6d. per ;^ or \2^ per cent.; repairs, 10 per cent. ; insurance, 4s. or i per cent.; management, 3 per cent. ; unlets and contingencies, 2 per cent. = ^7iTr P^'' cent., taken at 27 per cent. so COST OF BUILDINGS IN GLASGOW The figure I put upon the buildings can be verified : — Ferijication . The Dean of Guild Court in Glasgow deals with all new buildings erected, and with all additions to and all alterations upon existing buildings ; and application has to be made to that Court by any proprietor who wishes to build a new house, or who wishes to alter or add to an old one. Since the year 1872 the Master of Works, who represents the public interest in the construction of buildings, and is an official of the City of Glasgow, has published an estimate of the value of the buildings which passed through the Dean of Guild Court ; and I find that from 1872 down to 1906 a sum of ^^40,2 50,000 was spent upon new buildings, and alterations of and additions to old buildings ; ^ but there are certain buildings that do not require the sanction of the Dean of Guild Court, which, however, con- tribute to rental — railway works and other things of that description ; and if these were added the amount would be about ;^47, 000,000. That sum is a fair representation of the cost of new build- ings in Glasgow for the thirty-six years between 1872 and 1906. Now I think we may take as the value of existing buildings in Glasgow in 1872, and in the areas added to the city in and after 1892, and which did not pass through the Glasgow Dean of Guild Court, a further sum of ;^40,ooo,ooo. This gives for buildings ^^87,000,000 ; but take it at ;^8o,ooo,ooo. Loss by the destruction or removal of buildings and their replacement by others ^ See Appendix, p. 99. TEST BY SINGLE BUILDINGS 51 must be allowed for. Part of the buildings in the earlier period would be removed and new ones substituted in the later period. Take this at 10 per cent., that is, ;^8,ooo,ooo, leaves ;/^7 2,000,000. This shows that the estimate ot the value of buildings, arrived at by capitalising the rental at fifteen years' purchase, is pretty accurate. The total land value, I am satisfied, does not exceed £^yj,ooo a year. Seeing that the municipal rates alone amount to about ;/^90o,ooo, it is obvious that they could not be met from an assessment of land values at the rate of 20s. per £. Then there are, further, the poor rate and school rate, amounting together to ^^500, 000. Test the matter by an ordinary case. Take a Test iy four-storey tenement built on 400 square yards of ^^"f^^"^ ground, costing los. per square yard, or ;^2oo for the whole. This at four per cent, would be ;^8 a year. The rental of such a tenement may be taken at ;^I20 a year. The present rates are about 7s. per £^ or £^2. The land value of ^^8, assessed at 20s. per £,^ would thus be £'T^/\. short of meeting the sum required. It is suggested, no doubt, that the land values of central property would be high, and would make up the deficiency elsewhere. There may be a few properties in which the site is of greater value than the buildings, and some in which they are equal, but these are exceptional cases. In most central property the value of the buildings is in excess of that of the site. I take a building in the central t>y central area, where the site may be taken at ;^40,ooo or j^2 8,000, according to different views, and the 52 CITY ASSESSOR'S ESTIMATE Land value insufficient to meet local assessments. Deficiency would require to be made up by occupiers. City Jssessoi's Estimate. building at ;^6o,ooo, which was its cost. The rental is ;^6ooo, and the local assessments at ys. per l^ amount to ^2100. If the site be taken at the higher of the two figures, the land value would be ;^i6oo, or ;^500 short of the sum now assessed for present requirements. This is not an exceptional, but a typical case. Whether, therefore, the matter be dealt with in the aggregate or by typical cases, the result is clear that land values, instead of being a mine of wealth as has been supposed, would do little more than meet one-third of the sums now raised for local purposes. The landowner, having paid 20s. per £ of land value, could not be taxed a second time. If therefore the assessing authorities of Glasgow levied the whole ;^577,ooo, they would require to get the remainder of the money required for municipal purposes from the occupiers. In other words, the occupiers would be worse off than under the existing system. I am aware that Mr. Henry, the City Assessor, gives a very different estimate of the land value of Glasgow. He entirely discards rental, estimates the area of building land within the city, after deducting streets and open spaces, etc., at 8500 acres, or 41,140,000 square yards, and takes this at an over- head rate of 30s. per square yard, bringing out a capital value of ;^6 1,7 10,000, which at four per cent, gives an assessable value of _^2,468,400. Mr. Henry apparently applied no check upon his calcu- lation. If he had done so he would have seen that his estimate is wholly erroneous. The one fact we have before us, as I have already VALUE OF AGRICULTURAL LAND 53 said, is the rental. That rental cannot be capitalised at more than 1 5 years' purchase, and at this rate gives for the capital value of land and buildings _ _ _ _ ^86,550,000 Deduct Mr. Henry's figure for land, - 61,770,000 Leaves - - - ^^ 2 4, 7 8 0,000 Erroneous. as representing the total value of the buildings, while we know that the cost of the buildings erected in Glasgow between 1893 ^^'^ 1906 was, exclusive of railway buildings, ;^24,486,587, or just Mr. Henry's figure for the whole buildings in the city. The result over the country would be equally /« f^^^f^y surprising. There are large areas in Scotland where Irishes land the agricultural rent does not represent five per value would cent, on the value of the farm buildings and fences. ^ "^ * If these are not to be taken into account the value of the land itself would be nil. There would be many parishes in Scotland in which there would be no assessable value and no rate. In their Report the Select Committee propose Railways as to exempt railways from the operation of the new '«'^^^^'''^^ r J f improvements Standard. This was proper as regards the Glasgow z^ould require Bill. That Bill related solely to the burgh of ^j ^^ f ^'^'^^'^ Glasgow, and the railway property affected was ^^/^^ practically station buildings. It was pointed out that the valuation of stations is now based on the cost of land, and that to assess them upon land value would be to assess the sam.e subject twice, and the Com- mittee accede to this view. If, however, land values 54 ASSESSMENT OF RAILWAYS are to be ascertained all over the country, and are, hereafter, to be the basis of assessment, and improvements are to be relieved of taxation, the same rule should apply to railways as to other improvements. The value of the land on which a railway is laid is relatively small. The value at which it is assessed arises wholly from the use to which it is put. If agricultural land, if factories and houses are to be valued as unimproved land, railway land must be treated in the same way. If a railway passes for a couple of miles through moorland, the parish has the benefit of the traffic of the railway all over the system. Such land in its natural condition is probably not worth Effect on rural more than 6d. per acre per annum. As a mile valuation. Qf railway requires ten acres of land, these two miles would therefore be of the annual value of I OS. per annum if there was no railway. The railway is rated at, say, ^^400 a mile, so that, instead of I OS., the parish gets an assessable value of _;{^8oo a year from the industrial use of the land and the general business of the railway company. This is a clear tax on industry, and if other forms of industry are to be relieved railways require the same consideration. The railways pay one-tenth of the whole local rates levied in Scotland. 7. THE PROPOSAL TO ALTER THE INCIDENCE OF LOCAL TAXATION AND TO RENDER FEU- DUTIES LIABLE TO ASSESSMENTS. BUI and Clause 7 of the Glasgow Bill proposed that feu-duties. where land was burdened with a feu duty or ASSESSMENT OF FEU-DUTIES ^s ground annual, the owner of the land value should be entitled to relief, from the feu-duty, of the assessments he paid in the proportion which the feu-duty bore to the land value. This was on the assumption that the owner of the feu-duty received part of the produce of the land, and there- fore of the land value. In the debate, on 23rd March, 1906, upon the second reading of the Bill, the Lord Advocate (Mr, Shaw), speaking on behalf of the Government, said : "The existing system in Scotland might Position 0/ t^e have its defects. He thought it had its defects, and there was scope for a large and far-reaching measure dealing with the relations between superior and vassal, and even providing for the commutation of feu-duties. The Govern- ment proposed to follow the skilled opinion referred to. It did not matter who paid. The thing was what was going to pay. The land itself was going to pay, and the provision, by way of deduction, by the man who paid, from some other body who got something out of it, had no effect upon the community as a whole, and, accordingly, the principle ot the clause was intact. The seventh clause of the Bill was, no doubt, a protest against the system under which land had been held up, and profits had been got. But he desired to associate this great and salutary reform with no violence whatever to existing con- tracts, and with no invasion of rights sanctioned by the State. Under these rights sanctioned by 56 VIEWS OF THE GOVERNMENT Committee differ Jrom the Govern- ment and follow the League. Feuar by law pays all assessments. the State interests had grown up, investments of money in trade unions and friendly societies, and great trusts like the Heriot Trust, and others. All these things had grown up on the theory that the State had guaranteed a fixed net monetary return. But new contracts they might affect, and they ought to affect — and he proposed if the Bill went to the Grand Committee on Law to insert a single line making the seventh clause operative with regard to future transactions in land." — {The Parliamentary Debates, 4th Ser. 154, col. 776, 777-) The Bill did not go to the Grand Committee on Law, but was sent to the Select Committee, whose Report has been already referred to. The Select Committee, by a majority of one, have taken a different view from that of the Government as explained in reference to the Glasgow Bill ; and recommend, in accordance with the view of the League for the Taxation of Land Values, that the owner of the land value should have right of relief against the owner of the feu-duty where there is a feu-duty, no matter when it was con- stituted. The reasons adduced in support of the proposal are beside the mark, and have no substance. The Solicitor-General for Scotland has made a series of speeches explanatory of this part of the Report, but has failed to justify the proposal. He admits that by the law of Scotland, the owner of land is bound to pay all local rates, and that in the eye of the law the feuar is the owner. It requires VIEWS OF THE COMMITTEE 57 no clause in a feu contract to impose this liability upon the feuar. It is competent to insert in the feu right a clause under which he undertakes the liability, but such a clause is not necessary. The liability is there whether anything be said about it in the feu contract or not. There is no difference of opinion up to this point. The majority of the Select Committee, however, contend that this obligation does not apply to new rates, and quote a passage from a judgment of Earl Cairns in a Scotch Appeal in the House of Lords. The quotation is accurate, but does not in the least support the contention. The case arose over a If superior clause in a feu charter by which not the feuar, "■^ ^^ ^ f^ ' relieve the but the superior bound himself to pay the local feuar, rates. The object of the clause was to alter the common law liability. If there had been no clause the feuar would by law have been bound to pay the rates. He bargained with the superior that the latter should do so, and the question at issue was whether under the clause the superior was bound to pay all rates whatever and whenever imposed, or only rates existing at the date of the feu. The Court decided that he was liable this miles only for rates existmg at the date when the reu existing rates. was granted or rates of the same character afterwards imposed. The feuar was left to pay all new rates because this was his legal liability. So far therefore Feuar pays from supporting the Report, this decision confirms the proposition that the feuar is liable for all rates old and new. The Solicitor-General probably holds this view 58 TO CHANGE INCIDENCE OF TAXATION Proposal to alter incidence. A violation of rights sanctioned by Parliament. personally, as in arguing the matter upon the platform he takes another ground. He says, " We are now going to change the standard of valuation ; land values, not rental is to be the standard : We are going to create a new system of assessment, and if we place part of it upon the owner of the feu-duty as being part owner of the land value, no contract is infringed." True there would be no breach of contract by the feuar personally, but there would be a gross violation by Parliament of the rights which it has created and on the faith of which contracts have been made. If a man sells a piece of land in consideration of a feu-duty of £iQ) a year, the bargain is that he is to get the {jio clear of deduction and the feuar is to pay all rates. The feu-duty is calculated upon this basis. If the superior undertook to relieve the feuar of the rates he would increase the feu-duty. When the feuar accepts the common law liability he takes this into account in the feu-duty he agrees to pay. A familiar example of the manner in which liability to rates affects feu-duty is the case of stipend. All land is subject to teind and con- sequently to the payment of stipend. Feuars often desire to get rid of the burden, and it is not an uncommon arrangement for the superior to undertake it, and this payment he can estimate, as the stipend cannot exceed the teind and the teind cannot exceed one-fifth of the agricultural value. When the superior does this he simply adds so much to the feu-duty. The rates which fall upon the feuar, as owner WOULD VIOLATE RIGHTS 59 of the land feued, are calculated on the annual rental, which the Committee admit includes the value of the site as well as of the buildings. The Site now feuar is owner both of the site and building, and ^"^"^^M ... °' local rates. their jomt value determines the amount he has to pay. No contribution is exigible from the superior, to whom the feu-duty is payable. The whole returns from the land, all the rent and all the benefits which accrue to it, belong to the feuar. To enact that assessments should hence- forth be on site alone would not affect the principle on which present liability is founded. The feuar would still remain liable for the rate, but because it is now to be laid wholly upon site value the owner of the feu-duty must, it is said, contribute. A proportion of the assessment now paid in respect Committee of the buildings is to be levied from the feu-duty, ^^^i ?.,. & , _ •" shift liability although the owner still enjoys the whole profits, from ozvner If an owner now pays /'40 a year of rates for ^fl^*^^ '5 J . ^ ^ ^^. ^\ owner of property producmg a rental or /, 100 a year on ji^u-duty. which there is a feu-duty of £,10 a year, and if hereafter he was to be rated for the same sum on land value of £,^0 a year he would, on the new scheme, get one-half of the rate from the owner of the feu-duty, whose property would thus be extinguished for the benefit of the owner who had undertaken to pay all rates of every kind, old and new. By shifting the standard of valuation the Solicitor-General proposes to relieve the owner of a burden which the law says he must bear, and would place it upon the superior, who the law as clearly says has nothing to do with it. A more violent 6o UNJUST INVERSION OF LIABILITY An unjust inversion of liability. Committee find parallel in Valuation Act. It does not support then. Lord Cairns' opinion of n similar contention. or more unjust inversion of liability, a more clear invasion of rights sanctioned by the State, it would be impossible to imagine. The Committee seek to find a parallel for their proposal in a proviso in § 6 of the Valuation Act of 1854, under which long leaseholders are entitled to deduct from their rent a proportion of owner's rates corresponding to the rent paid to the landlord. The leasing of land for building purposes, it may be explained, has never been popular in Scotland, and the number of long leases in existence is small. As they fall in, they are almost always when possible converted into feus. In referring to the Valuation Act, the Committee, however, overlook § 41, which provides that nothing contained in this Act shall render liable to assessment any person or property not previously liable to assessment, which is exactly the opposite of what they propose. The object of § 6, which they quote, is to facilitate the collection of the rates by making the tenant responsible in the first instance, but not to render him ultimately liable for assessments for which he would not other- wise be liable. He is to have right to recover from those who were previously liable. Nothing can be more pertinent than the language of Lord Cairns in delivering judgment in an appeal arising upon the point : " I think it would be violating the letter and the spirit of the Act if, with reference to persons so situated who were lessees at the time when the Act was passed, and who had made their bargains on the footing of the law as to assessment as it then stood, we were to hold that they, notwithstanding these SUPERIOR IS NOT AN OWNER 6i express words of the 41st section, were now to be liable to an assessment from which they were previously to the passing of the Act exempt " {M'Laren v. Clyde Trustees, 28 th May, 1868, 6 M., H.L. 81 ; Paterson, Appeal Cases, 1595). The Committee endeavour to justify their proposal Committee by alleging, as the League do, that the superior is '^^ j^^' ^^^ the owner of lands, and that feu-duty is truly the rent of land. The statement made by the Govern- ment in the House of Commons was made in the knowledge of the exact position of a superior, and why it should now be suggested that they did not understand it, is not apparent. The position advanced is, however, one which cannot be maintained. A // u not so. feu-duty is not rent, and a superior is not a heritor. The case of a lease is wholly different. No matter Relations of how long may be the period of the lease, the land- ^^p^rior and , J , • • TT • u landlord lord has a reversionary mterest. rle remains the wholly heritor of the land, and subject to the assessments different. which by law fall upon the heritor or owner of land. In granting a feu he ceases to be heritor, and the whole burden of rates passes to the feuar, who is rated on the full value of the property irrespective of the feu-duty, interest on loans, or any other charge. This is well explained by Lord Neaves in Traquairs Trustees v. Heritors of Innerleithen .^ 9th December, 1870, 9 M., p. 240. In creating a feu the proprietor, no doubt, retains a nominal interest in the land. He still appears as infeft in it, but that infeftment covers merely the annual payment called the feu-duty. The property in the land is transferred to the feuar, who can do with viere creditor. 62 FEU-DUTY IS AN ANNUITY it as he thinks proper, and reaps all the profit. If land feued at 5s. a square yard becomes worth ;^5o a yard, the increase all goes to the feuar. The superior gets merely his original feu-duty. So little interest has the superior in the land that if he puts his foot upon it against the wish of the feuar he could be ejected as a trespasser. The superior has no concern with the imposition or expenditure of local rates. He has no vote in respect of his so-called estate in land ; his feu-duty derives no benefit from local expenditure. If benefit accrues to the land, that benefit enures to the feuar alone. Superior a The superior is nothing more than a creditor for his feu-duty, with a charge upon the land as security. As put by Lord Kinnear, in a recent case, in which the owner of certain land constituted feu-duties and sold them, " What they (the land owners) have given to the purchaser of the feu-duties in return for the sum . . . [paid], is neither the land apart from the houses nor the land and houses together, but a feudal right which will enable him to recover from both a perpetual annuity " {Inland Revenue v. Cardonald Feuing Co., 6th Nov., 1906, 1907, S.C., p. 41). Lord Colonsay and Lord Curriehill use similar language (Dixon v. Mutter., 3rd March, 1858, 20 D. 721). Like any other secured creditor, the owner of a feu-duty is entitled to recover payment from the land. The remedy is different in form from that of the holder of a bond and disposition in security, but the result is the same. The latter sells the land and pays himself. A superior cannot do so ; he may take back the land, but he cannot retain it SALE OF A PERPETUAL ANNUITY 63 if the feuar pays up what is due. The Solicitor- General endeavours to draw a distinction between a feu-duty and a bond debt by saying that the capital amount of the latter is known, and that it can be repaid by the debtor or called up by the creditor when necessary. That is so, but the feu-duty is none the less a debt. The terminable nature of a bond is in many cases a disadvantage, and the perpetual character of a feu-duty is in many an advantage to the debtor. It is not uncommon in practice for a man to create and sell a feu-duty instead of borrowing. Thus, if an owner wants ^^looo, he can borrow it on bond, say, at 22 P^^ cent. ; but he can also create a feu-duty or perpetual annuity of ;^35, which, according to the values prevailing before the present attack, would bring _^iooo, and it might be more. The bond could be called up ; the feu-duty could not. The sale of a perpetual annuity is a common Sa/e of a method of finance. When government wants money P^^'P^^"^' ° _ •' annuity a it sells an annuity, either perpetual or subject to common redemption upon specified terms. Local authorities "'/'^"^ °f ^ . ^ , ^ , finance. and public bodies borrow in the same way. When an undertaking is acquired by a local authority the price is generally converted into a perpetual annuity. Thus we have Glasgow, Edinburgh and Dundee Water annuities and Gas annuities. The same rule is often followed in the case of railways. When a large railway takes over a small one it pays, not a sum in cash, but agrees to pay a perpetual annuity of a fixed amount. The debenture, prefer- ence and guaranteed stocks of a railway or any 64 GROUND ANNUALS other company are different in name, but are in substance the same as perpetual annuities. The holder gets nothing but a stated annual return, which is simply a perpetual annuity in another shape. Debentures are terminable ; debenture stock is per- petual, and is often secured by means of a mortgage upon land, and mortgage debenture stock is to all intents and purposes the same as a feu-duty. A perpetual rent charge is also another known and usual method of finance. In that case the holders have a charge upon some piece of property in security of their annuities. They cannot call up the debt. They cannot interfere with the property. Their sole right is to recover payment from it in the event of the annuity falling into arrear. Ground Besides feu-duties there is another well-known method of creating a perpetual burden upon land, that is by means of a ground annual. At one time subinfeudation was often prohibited by contract, and in the case of property held by burgage tenure teuing was incompetent. In these cases the device of a ground annual was resorted to. The differ- ence is that where a ground annual is created the land passes wholly from the seller. No nominal estate remains with him. The ground annual is in terms, as it is in fact, a mere annuity secured in perpetuity on the land. " The creditor in a ground annual is a creditor in perpetuity tor payment of a certain sum annually. Now that payment is secured on land, that is why it is called a ground annual ; it is an annual payment secured on land. I have already said that payment Annuals. AUTHORISED INVESTMENTS 6 s is due in perpetuity, and in order to ascertain the amount of the debt we must capitalise the annual payment in the ordinary way. The capitalised value is the amount of the debt. Now the annual payment is just the return or rent to him on this debt. It appears to me such an annual payment is indis- Indistinguisk- tinguishable from interest. I cannot distinguish ^/^^fi°^ - . . ° interest. between the position of the respondent and the position of a creditor under a bond." (Per Lord Young in Bell's 'Trustees v. Copland i^ Co.^ 13 March, 1896, 23 R. atp. 6sz-) The reason given by the Committee for proposing Reasons given to subject feu-duties to taxation, "that a superior is ^y Committee the owner of lands," does not apply in the case of a duties do not ground annual. There are many thousands of ground ^pplpo ground ^ • r^^ , . . ^ ., annuals. annuals m Glasgow, and it is rutile to suggest that because the technical method of constituting them is different from that of constituting feu-duties, they should be differently treated in a question of taxation. It may be that the Committee propose that ground annuals should follow the fate of feu-duties, but if they do, then the sole ground upon which they propose to impose the taxation fails. Feu-duties and Ground Annuals are investments Investments in for trust funds authorised by Parliament, and very ■^,^^^7^'' ^"'^ large amounts have been purchased and are held as annuals. investments by testamentary and other private trusts and by public trusts for religious, educational, chari- table and benevolent purposes. In Glasgow alone public trusts hold feu-duties and ground annuals of the value of upwards of ;^ 100,000 a year, and E ee TO STOP FEUING A DISADVANTAGE private trusts and investors to probably twice that amount. These feu-duties and ground annuals are by law free of local assessments. The owners of the lands upon which they are charged are alone liable for such assessments. They were constituted and have been acquired as investments upon this footing, and to enact that their owners should now be bound to pay local assessments and proportionately to relieve the owners of the land would be to cancel this bargain in the interest of one of the parties without even the excuse of public advantage. A tax of 2S. per £ would mean the forfeiture of one-tenth of their value. If the tax reached 20s. per £ it would mean their extinction. A step so extravagant and inequitable is one that no British Parliament is likely to take. The agitation has, however, had a serious effect upon the market value of feu-duties and ground aunuals. These are now and have for some time past been practically unsaleable. This does not affect those who do not require to sell. In many cases, however, as for instance the winding up of a trust or the realisation of a sum to meet a trust purpose, the position is highly inconvenient. Taxation The threat of taxation has also seriously checked IkuinJ"^ feuing. No one is going to sell land or houses in consideration of a feu-duty if that feu-duty is to be made subject to local rating. If the amount of such rating was fixed and unalterable it might be practicable to provide against it, but it is impossible feuing. CONCLUSION 67 to do so when the rate might be one shilling or twenty shillings per pound. If future feu-duties are to be rated it means that none will be created and land will be sold for cash, and if credit is wanted it will have to be arranged for by means of an ordinary mortgage with some modification to meet the circumstances. Considering the advantages which the feuing system presents in developing building, there seems no object in putting an end to it, as would necessarily follow if feu-duties were singled out for local taxation, while every other form of investment was left free as now. Conclusion. The present systems of valuation and assessment Rating on land ^1 r.j L Lir- value would may not be perfect and may be capable or improve- ^ r^^^ ment. What change is required and how it should sion, produce be made are questions which deserve careful con- ^"°"^fj^^^^ ^"'^ T- _ _ would not sideration. To substitute as the basis of assessment supersede the land value, for the annual value of property in its ^•^'^^'»? •11L system. actual condition, would, were it practicable, be no improvement, but the reverse. It would cause endless confusion and would lead to far greater anomalies than any which now exist. It would be uncertain in its operation, and costly in its adminis- tration ; its produce would be small, and it would not supersede the existing system. That system and the new system would run on side by side. Why then is the new system pressed ^ The answer ^'^^ siheme u r I 'T-.i 1 • • r 1 ""' ^ scheme of is not far to seek. The driving power or the move- taxation, but of ment for the taxation of land-values is the League, confiscation. 68 CONCLUSION and its professed aim is to destroy private ownership in land. Land and capital, they say, must belong to the State, for the good of all. All wealth and all exchange value, according to this doctrine, is the result of labour and of labour only, and to the labourers, the real producers, all wealth should belong. These propositions, like most sophisms, have a specious appearance, and have misled the unwary. The majority of the Town Council of Glasgow and the majority of the Select Committee have fallen into the net. The Report is in substance and in effect merely an echo of the programme of the League. " Let the individuals who now hold it still retain, if they want to, pos- session of what they are pleased to call their land. Let them continue to call it their land. Let them buy and sell, and bequeath and devise it. We may safely leave them the shell, if we take the kernel. // is not necessary to confiscate land; it is only necessary to confiscate rent. . . . We already take some rent in taxation. We have only to make some changes in our modes of taxation to take it all" (Henry George, Progress and Poverty^ p. 364. London, 1881, 8vo.). THE METHOD OF VALUING LAND FOR ASSESSMENT PURPOSES IN SOME OF THE COLONIES AND IN SOME FOREIGN COUNTRIES. THE METHOD OF VALUING LAND FOR ASSESSMENT PURPOSES IN SOME OF THE COLONIES AND IN SOME FOR- EIGN COUNTRIES. NEW ZEALAND. The Government Valuation of Land Amendment The Valua- Act, 1900, of New Zealand (1900, No. 17) provides ^^°^ ^°^^- that the annual Valuation Roll is to show — (i) The name of the owner. (2) The name of the occupier. (3) The description and area of the land. (4) The nature and value of the improvements on the land. By improvements is meant work done or Improve- material used on the land by the expenditure of ^^^^^'' capital or labour, in so far as the effect of such work or material used is to increase the value of the land, and the benefit thereof is unexhausted at the time of the valuation. (5) The unimproved value of the land. That is the sum which the owner's estate Ummproved therein, if no improvements existed thereon, might be expected to realise at the tim« of valuation if offered for sale on such reasonable terms and con- ditions as a hona fide seller might be expected to require. 72 NEW ZEALAND Ctip'italvalue. Assessment Court. Remedy of Valuer- General if value fixed too low. Remedy of owner if value fixed too high. (6) The capital value of the land. That is the sum which the owner's estate therein might be expected to realise at the time of valua- tion if offered for sale on such reasonable terms and conditions as a hona fide seller might be expected to require. There is a special tribunal, called the Assessment Court, for fixing values. If the Valuer-General, that is, the representative of the Crown, is of opinion that any land has been fixed by the Assessment Court at less than its capital value, he may (1900, No. 17, Section 30) give notice to the owner requiring him to consent to a certain specified sum being fixed as the capital value. If the owner consents, or if a sum is agreed between him and the Valuer-General, the Valuation Roll is altered accordingly. If the owner does not concur in either of these courses the Government is entitled to acquire the land at the sum specified in the Valuer-General's notice. If, on the other hand, the owner is dissatisfied with the value fixed by the Assessment Court, he may (Section 31) give notice to the Valuer-General that he requires the capital value to be reduced to a certain specified amount, or that the Government may acquire the land at the sum specified in the notice. On receipt of such a notice the Valuer- General may reduce the value to the sum specified or to a sum agreed with the owner. If he does not do so the Government is entitled to take the land at the amount specified in the notice. If they do not exercise the option the capital value is reduced in the Valuation Roll to the specified figure. NEW ZEALAND 73 The values entered on the Roll are not determined Revision of yearly, but only when it appears that the Roll is ^^^"^^'on out of date. A revision may then be made, but before any revised values can take effect the district must be gazetted for revision by Order in Council. The ordinary Government land tax and the gradu- Government ated land tax are both levied on the total unimproved ^<^^" ^^''^^^d. °^ 1 riij/TiJT '-r'A unimproved value of the land (Land and Income Tax Assessment value. Act, 1900, No. 49). Local rates are assessed in some Local taxes districts and burghs on capital value, in others on assessed on the unimproved value, and in others on the annual '^'^^!^^ ^^ "/' IT ^ ^ ^ unimproved value. One or other, not all of the systems, is in value, or force in the same district or burgh. (The Rating ^^f" 74 NEW ZEALAND Towns which have adopted the various modes of assess- ment. Examples of improved and unimproved values. proved Value as the basis of valuation for the assess- ment of municipal purposes are : ^ Area of Acres. Population. 1905. Wellington - _ _ Christchurch _ _ _ Invercargill _ _ _ 7,408 4,598 1,040 54,000 48,737 6,750 Amongst those which adhere to Annual Value are : Area of Acres. Population. 1905. Auckland - - _ - Dunedin - - - - Timaru _ _ _ . 1,762 1,800 1,100 38,069 25,114 7,000 A number assess on Capital — that is, Improved Value. They are mostly the smaller towns. Amongst them is : Area of Acres. Population. 1905. Eltham - _ - - 1,590 1,400 The improvements, that is, the buildings, in a New Zealand town are a great deal less valuable than in an old town such as Glasgow. Examples of the Improved and Unimproved Values of a few towns for 1905 may be given : ^ Wellington Auckland - Invercargill Timaru Eltham Rateable Properties 15,087 8,336 1,800 '»7i9 400 Gross. Rateable Values. Capital Value. ^''^Z^^^ Capital Value. £ 13,196,877 7,484,326 1,320,711 888,526 175,444 £ 7,663,128 3,745,465 522,696 325,921 98,215 £ 11,303,764 6,968,213 1,162,985 789,326 168,316 Unimproved Value, £ 6,628,651 3,517,452 451,912 294,917 93,594 ^ I^ew Zealand Official Tear Book, 1905, p. 190. 2/^. p. 534. NEW ZEALAND -j c^ There is a Government Survey of the whole of the land in town and country ; and the area of each rural holding and of each town lot is known and delineated on an official plan. There is still a great deal of land in the hands of the Crown with a fixed price per acre. The price at which the land in the hands of private owners was acquired is known in every case. Much of the Crown land is disposed of Disposal of in terms of a recent Act on lease for 999 years, the Crown lands rental bemg 4 per cent, on the cash price or the land. The object is to allow the settler to expend his capital on improvements and to pay interest merely on the price of the land. In the year ending 31st March, 1905, upwards of 173,000 acres were taken up in this way. While the New Zealand valuation system has been 'No evidence pronounced by many to have been very successful, ^^'^^ valuatton there is a considerable body of opinion on the other advantageous. side ; and it has been stated that its object was to relieve country properties of State taxation at the expense of town properties, and that in this it has failed in consequence of the improvements in towns being more valuable than in the country. I can say nothing as to the accuracy of the statement. The towns which assess on annual value seem to be quite as prosperous as those that assess on land value. COMMONWEALTH OF AUSTRALIA. There is a Land Tax in the States of New South Wales, South Australia, and Tasmania. In the two former it is levied on the unimproved value of the 76 AUSTRALIA land — that is, the land without buildings and other improvements. In Tasmania the tax is levied on the capital value — that is, land, buildings, and other improvements together. In Victoria, Queensland, and Western Australia there is no Land Tax. In Sydney and other towns rates are levied by assessment on annual value ; in New South Wales municipal unoccupied land being specially assessed as after explained. In Queensland, local authorities raise their local rates by assessment on the unimproved value of all rateable land. Some details may be given as regards New South Wales and Queensland. NEW SOUTH WALES. Land tax. A Land Tax is levied in New South Wales annually at the rate of id. per £ upon the unim- proved value of all lands subject to taxation, Land Tax Act, 1895 (57 Vict. No. 16). Under the Land and Income Tax Assessment Act, of 1895 (59 Vict. No. 15) Sec. 10, a land tax, to be fixed from time to time, is to be levied on and paid by every owner of land in respect of all land of which he is the owner for every pound of the unimproved value thereof, as assessed under the pro- visions of the Act, after deducting the sum of ^240. " Unimproved Value " is defined (Sec. 68) to mean " the capital sum for which the fee-simple estate in such land would sell, under such reasonable conditions of sale as a bona fide seller would require, NEW SOUTH WALES 77 assuming the actual improvements (if any) had not been made." Where there have been levelling, reclaiming, erection of retaining walls, and the like, the cost of such works is to be deducted from the capital sum. " Improvements " includes houses and buildings, fencing, planting, excavations for holding water, wells, ring-barking, clearing from timber or scrub, or sweet briar, or noxious weeds, or laying down in grass or pasture, and any other improvements what- soever, the benefit of which is unexhausted at the time of valuation (Sec. 68). Under the Municipalities Act, 1897 (Act 23 of Municipal 1897), Municipal rates are (Sec. 141) levied upon [^^^'Ji^'^'j^" the annual value of rateable property. In the case of unimproved property it is assessed on six per Vacant land. cent, upon the capital value of the fee-simple thereof. Rates are payable by the occupier, but landlords Rates are and tenants may make any arrangement they think ^'^'^^ . ^ ^ . . ... occupier. fit in reference to their ultimate liability for rates (Sec. 141). By Sec. 264 it is provided that this Act is not Sydney. to affect the Sydney Corporation Act of 1879. Under the Sydney Corporation Act of 1879 (43 ^•^^^^^"'^"^■f- Vict. No. 3) an assessment book is (Sec. 103) from time to time made up showing the gross and net annual value of all premises liable to be rated in each of the wards in the City of Sydney. In assessing the average annual value of unoccu- pied land, such value shall be deemed to be a sum not exceeding six per cent, per annum on the estimated capital value of such land. 78 QUEENSLAND QUEENSLAND. value Local rates. In Queensland the assessment of local rates is regulated by the Local Authorities Act of 1902 (2 Edw. VII. No. 19, 1902). Part XI of that Act relates to the valuation of land for local assessments. Unimproved " The value of any rateable land shall be estimated at the fair average value of unimproved land of the same quality held in fee sirnple in the same neigh- bourhood " (Sec. 195 (i) )• "Where land is held by trustees under a grant from the Crown, or under a Statute, subject to restrictions upon the mode of its use, the value of the land shall be estimated at a reduced amount, and the amount of the reduction shall be proportionate to the extent by which the availability of the land for profitable use is reduced by reason of such restriction" (Sec. 195 (8)). Special provision is made for valuing land under gold mining leases or other tenure peculiar to gold fields or mineral fields, and for land held under lease or license from the Crown under the laws in force for the time being relating to the occupation and use of Crown lands. In certain of these cases the valua- tion is held to be a sum equal to twenty times the amount of the annual rent payable under the lease or license at the time when the valuation is made. There are also special provisions with respect to the valuation of tramways, gas mains, and electric lines, and hydraulic mains. For the purposes of making valuations, a local authority may employ valuers (Sec. 200). Every such valuer shall make out and return his valuation QUEENSLAND 79 in the form set out in the Act or to the like effect. Valuation That form, in addition to the name and occupation ^''^^■ of the owner and occupier, requires the following information to be set out (Sec. 194): — Nature of tenure — whether freehold, mining tenure (stating nature of tenure) part of building, or held under licence, or otherwise from the Crown, giving particulars, or under restrictive conditions or otherwise, and whether occupied or not. Situation and area of land, county, and parish of town. ion /"Acres Number of porti ' « ,, ^ Area] Roods Allotment ji l c y 1- • • Irerches. bub-division When the valuation is by law required to be based on the annual rent state the amount of the annual rent. Value. There is a Valuation Court and if any person Valuation thinks himself aggrieved by the valuation of any land he may appeal to this Court (Sec. 205). Rates are payable in the first instance by the Rates arc occupier, but he has right to recover the amount ^^'^-^^^•/^ ^,'^^ from the owner. The local authority is entitled right to recover to recover direct from the owner. It is open, f^°"' °'^'^^''- however, to the owner and occupier to make any agreement they think proper in reference to the liability for rates (Sec. 226). 8o NEW YORK The Act of 1902 repealed : — The Valuation Act of 1887 (51 Vict. No. 4, 1887). The Valuation Act Amendment Act of 1888 (52 Vict. No. 8, 1888). The Valuation and Rating Act of 1890 (54 Vict. No. 24). These Acts applied only to valuations for local purposes. The Act of 1902 was amended to a slight extent by the Local Authorities Act Amendment Act of 1903 (3 Edw. VII. No. 7, 1903). Assessments on capital value of real and personal estate. Valuation at selling price. "New law. CITY OF NEW YORK. It has always been the rule in New York, as it has been in all American cities and in the States and Counties, to levy assessments, both state and local, upon the capital value of both real and personal estate. In New York and elsewhere the assessors are bound to value real estate at its selling value. These assessments vary greatly, and in many places the values placed on adjoining lots vary to an extra- ordinary degree. To endeavour to bring about greater uniformity an alteration was made by the State legislation in 1903 enabling the City of New York to have the valuation of land returned both upon its improved and its unimproved condition. NEW YORK 8 1 This provision is to the following effect: — The Charter of the City of New York. Chapter XVII. Title I. Sec. 889. — It shall be the duty of the Deputy Tax Depufj Tax Commissioners, under the direction of the Board of ^^^"''[""^^^f 1 A duties in Taxes and Assessments, to assess all the taxable assessing tax- property in the several districts that may be assigned Me propeit;^. to them for that purpose by said board, and they shall furnish to the said board, under oath, a detailed statement of all such property, showing that said deputies have personally examined each and every house, building, lot, pier, or other assessable property, giving the street, lot, ward, town, and map number of such real estate embraced within said districts, together with the name of the owner or occupant, if known ; also the sum for which, in their judgment, each separately assessed parcel of real estate under ordinary circumstances would sell if it were wholly unimproved ; and separately stated, the sum for which under ordinary circumstances the same parcel of real estate would sell with the improve- ments, if any, thereon ; with such other information in detail relative to personal property or otherwise, as the said board may, from time to time, require. Such deputies shall commence to assess real and personal estate on the first Tuesday of September in each and every year. — {As amended by Law of 1903, Chapter 454.) There is then made up " the annual record of the assessed valuation of real and personal estate " in 82 NEW YORK Annual each borough constituting the City of New York. record. 'X\\[s is Open to the public from the second Monday in January until the first day of April. It may be corrected if necessary. The Deputy Tax Commissioners next make up the total aggregate amount of the assessed valuation of real and personal property appearing for each of the said boroughs on the second Monday of January. It is the duty of the Board of Taxes " to fix such valuations of property for the purposes of taxation throughout the City of New York at such sums as will, in their judgment, establish a just and equal relation between the valuations of property in each borough and throughout the entire city." /&., Sec. 899. The Comptroller of the city submits to the Board of Aldermen a statement showing the amounts necessary to be raised, and they then order and cause to be raised by tax the sum necessary after making all proper deductions for revenue otherwise accruing. Taxes are a lien upon real estate until paid, and if not paid after three years the collector of assess- ments may take proceedings for the sale of the property. Improvements. Where land is taken compulsorily for parks or streets all moneys paid by the city " except such part thereof as the board of estimate and apportionment shall direct to be borne and paid by the City of New York shall be assessed equally and proportionately, as far as the same may be practicable, upon the lands NEW YORK 83 and premises benefited by the improvement, and Improvement shall be a lien and charge thereon." — (Section 1003 ''^^' Charter of Greater New York.) As regards real estate the taxes are laid upon the aggregate value of the whole, not separately upon land and buildings. When the new system commenced the Deputy Tax Commissioners were already in possession of full particulars of the extent, area, character and value of every plot as it stood with or without buildings. Naturally the judgment of the assessors is not infallible and substantial errors are, I am informed, numerous. The Annual Report of the Commissioners of Taxes and Assessments^ ^9^5i (New York 1905, 8vo.), does not distinguish between the valuation of land and buildings, and gives merely the aggregate. The assessed valuation of real estate in the several Assessed Boroughs constituting the City of New York for ^^^"^f^"jf the year 1905, was as follows: — city. Borough. Manhattan The Bronx Brooklyn - Queens Richmond - Assessment Roll. 5,820,754,181 274,859*593 940,982,302 140,404,990 44,581,235 ;,22i, 582,301 I have ascertained from other sources that the above total for the Greater City is made up thus. Land - - - $3»737>023,82o Buildings - - 1,484,558,481 $5,221,582,301 84 NEW YORK and that the above total for the Borough of Man- hattan is made up thus : Land - - - $2,965,936,711 Buildings - - 854,817,470 $3,820,754,181 One of the explanations given by the assessing authorities of the large proportionate value repre- sented by land alone is that many parcels are unimproved, while many other parcels of land are imperfectly improved, and a very small proportion of the whole are fully improved. As site and building are not separately assessed, the owner of a built property has no interest in challenging the apportionment of the gross value between the two contributing factors. The value of land and buildings in the case of first class office central property is put at about half and half. Thus : Rxampki of Office Building S.W. corner William Street and valuation. Exchange Place, 19 stories high. Land _ _ _ _ 11,175,000 Buildings - _ _ 1,275,000 $2,450,000 Office Building S.E. corner Broad Street and Exchange Place, 20 stories high. Land - _ _ _ $2,180,000 Buildings - _ _ 2,820,000 $5,000,000 Mutual Life Insurance Company Building, Nassau Street, 5 to 9 stories in height. Land _ _ _ _ $5,750,000 Buildings - - _ 3,250,000 |q,ooo,ooo NEW YORK 85 Queen Insurance Building, William Street, 17 stories high. Land . _ _ _ $428,900 Buildings _ _ . 386,100 $815,000 Fuller Building, 23rd Street and Broadway, 20 stories high. Land . . _ . $1,755,000 Buildings _ _ _ 1,000,000 $2,755,000 These figures are what might be expected, experi- ence being that the value of the site increases as the building more completely exhausts it. No reliance, however, can be placed upon particular figures as establishing a general rule without knowing the circumstances of the individual cases, the situa- tion, nature of occupation of the building and the like. In the case of New York there is no return of the No return 0/ rental or annual value of the particular properties which ^^"^'^^ ^'^''*^- is the only reliable factor in estimating capital value. The tax valuations in the United States do not seem to be regarded as reliable data for anything beyond the collection of the particular taxes for which they are made. On this subject reference may be made to an official publication of the United States : Bureau of the Census^ Bulletin 20, Statistics of Cities having a population of over 25,000, 1902 and 1903. Wash- ington, 1905, 4to. Table 38 of this publication is "Assessed Valua- 86 NEW YORK tion of Property, Basis of Assessment, Taxes levied, Tax Rate and Per Capita Assessed Valuation, Levy Tax and Debt." In this Table appears : Reported Valuation of Property Assessed for Taxation, 1903. City. Total. Real Property. Personal Property. New York Boston - $ 5,432,398,918 1,221,749,923 $ 4,751,532,826 985,594,400 680,866,092 236,155,523 using valuations. In both New York and Boston the reported basis of assessment in practice is 100 per cent, of the true value as regards both real and personal property. The following Note is added on p. 48 : Caution in " Assessed Valuation of Property. — The Valuation given in Table 38 is the reported Valuation of pro- perty which is subject to taxation for City purposes. In some States, notably in Pennsylvania, this varies somewhat from the valuation on which taxes for State purposes are levied. The reported basis of assessment in practice is the per cent, of estimated true value of property which the City officials state that the assessed value constitutes. A slight study of the figures and a comparison of those for the two years 1902 and 1903 will demonstrate how untrust- worthy the percentages for the great majority of cities are as indices of the true value of property. The figures of the table should not be used as a basis of estimates or statements concerninor the true value GLASGOW 87 of property. They are valuable only as exhibits relating to municipal taxation." As regards Glasgow there is no doubt as to the Relative relative value of site and buildings. The average 1^! °f,"^^ ^ c" and building cost of building good central office or warehouse in Glasgow. property with shops on the ground floor is from ^8 to £\o per square yard. The cost of site for such property ranges from ;C5 to ;^8o per square yard. The extreme of ;^8o is unusual. The ordinary price may be put at from ^10 to ^40. The cost of building in the case of shops and tenement property runs from £S ^° £1 P^^ square yard and the cost of land from ;!^i to £t^ per square yard. In the case of tenement property the cost of building is from £/^ to £^ per square yard and the cost of land runs from 8s. to 30s. per square yard. In the case of private residences the cost of building is from ^3 to £^ per square yard, and the cost of land runs from 2s. 6d. to 15s. per square yard. Taking Glasgow as a whole, in the case of good central property, in a few instances the value of the site may exceed that of the building. In many cases the relative values are about equal. In other cases the building may be from three to four times the value of the land. In the case of shop and tenement property the value of the building is as a rule four or five times the value of the land. In the case of tenement property the value of the build- ing is from eight to fifteen times the value of the land, and in the case of private residences the value of the building is from ten to twenty times the value of the land. 88 GLASGOW In the above calculations the prices of land are for sites exclusive of streets ; the rates of cost of build- ing as well as the cost of site are distributed over the whole area and include not only the actual ground built upon but also all open spaces for yards, courts and the like. The cost, therefore, in both cases applies to the same extent of land. Out of the total of <^5, 770,570 representing the annual rental of Glasgow for the year 1905- 1906 nearly one half is derived from dwelling houses. The figures are : Dwelling-houses _ _ _ ^2,477,763 Dwelling-houses and shops attached 44,108 Hotels and lodging-houses - - 57,607 ;^2,579,478 The rental of Warehouses and Offices amount to only about one eighth of the whole : Warehouses _ - _ _ ^^430,042 Offices and counting-houses - 294,986 ^725,028 In the case of the University buildings at Gilmore- hill, the value of the site extending to about 25 acres may be fairly put at ^60,000. The older buildings were recently carefully examined, measured and valued for fire insurance purposes. Taking the older buildings at this value and the buildings recently and now being completed at cost gives for the whole ^"705,000, or fully ten times the value of the site. PRUSSIA 89 PRUSSIA. In towns in Prussia there are two principal local assessments on landed property. These are : (i) The Land Tax {Grundsteuer). Local This was formerly a State tax. nssessments. (2) The Turnover or Transfer Tax [Umsatz- steuer). In the case of neither is there any discrimination between site and building. The Land Tax is levied either upon annual value Land tax. or upon the capital value of house and land where the property is built upon, or upon that of the land alone where the property has not been built upon. The Transfer Tax is a property sale tax, some- Transfer thing like a stamp duty. ^^'^• These will be more particularly referred to here- after. On 14th July, 1893, three fundamental laws were passed : — I. Act for the Abolition or Repeal of St.ate Act$of\%c^i DIRECT Taxes. [Gesetz wegen Aufhehung dtrekter Staatsteuern.) This Act abolished as sources of State revenue the real taxes : viz. — Land Tax ; House Tax ; Business Tax, and Tax on Mines. The first three were handed over to the Com- munes, i.e. the local authorities. 90 PRUSSIA II. The Supplementary Tax Act. {Erganzungsteuregesetz.) This Act granted a supplementary tax for State purposes of 5 mills or i >^ per cent., on all property, with certain exceptions ; with increases of rate on higher values. This tax was intended to supplement the Income Tax and carry out the idea of imposing an additional burden on " funded incomes," i.e. incomes derived from land and capital. III. The Communal Rates Act. {Kommunalabgabengesetz.) This Act provides that local authorities may impose fees and levy special assessments for special services. Taxes may likewise be imposed upon real estate and on businesses. A supplement to the State Income Tax is also authorised. A local general Property Tax cannot be imposed and existing taxes on rental cannot be increased. LOCAL TAXES AFFECTING LANDED PROPERTY. A. The Land Tax. Communal Under § 25 of the Communal Rates Act, " the Rates Jet. imposition of certain taxes from land (Grundbesitz) is allowed to Communes (Gemeinden). Modes of " The assessment may be upon the net return or annual value [N utzungswerthe) of one or more years, the rent or letting value or the ordinary value [gemeine Werth) of the land and buildings or accord- ing to the existing or authorised classification of land assessment. PRUSSIA 91 in the commune or according to a combination of any of these methods." Four methods of assessment are thus authorised : (i) Upon the basis of annual value; (2) Upon the basis of Rent ; (3) Upon the basis of Market Value ; and (4) A combination of any of i, 2, and 3. Rent is the ordinary basis of annual value. The ^^"^ " li /- 1 1 • ^ J 1 • ordinary basis Toli or annual values is not made up yearly as m gf^.^iug Scotland, but is periodically revised. Rules for determining the annual value of buildings are laid down in the law of 21st May, 1861. The expression gemeine Werth is generally ren- Market value. dered " Market Value," which, although correct, perhaps gives a slightly stronger meaning than is intended. It is an expression well known in Prussian law. In the Allgemeines Landrecht fiir die Preussischen Staaten §§> 111-113, Vol. I., tit. 2, it is explained as follows: — § III. The benefit [Nutzen) which a thing can afford to its owner fixes its value. § 112. The benefit which a thing can afford to any owner [einem jeden Besitzer) is its ordinary value [gemeine Werth). In the contemporary Latin version of the Code this is rendered " com- mune pretium.^^ §113. Amenity [Annehmlichkeit) and con- veniency (Beqiiemlichkeit), which are appreciable {schdtzhar) in the case of any owner and are conse- quently commonly estimated, are included in ordinary value. § 114. The exceptional value [der ausserordent- liche WertK) of a thing accrues from the estima- 92 PRUSSIA tion of benefit which can arise only for certain purposes {Bestimmungen) or under certain circum- stances [Verhdltnisse). Land tax. The State Land Tax which was transferred to the local authorities was levied on the annual value of real estate. This annual value was not, however, ascertained yearly as in Scotland, but was arrived at by the State officials by taking an average of a preceding period, sometimes of fifteen in other cases of ten years. ^^'^ in In Berlin this tax is at present at the rate of 5.8 per cent, less 8 per cent, for costs. It is fixed every year according to the budget of the town. On 2nd October, 1899, the Ministry of the Interior issued a circular to local authorities drawing attention to the small return that the Land Tax gave when assessed on annual value and suggesting the Assessment on desirability of levying the tax on ordinary or market market value, value, that is, as explained in the circular and in the relative model byelaws, the actual capital value of the property at the time of assessment. A considerable number (26 out of 124) of Com- munes have adopted this system. The matter was before the Town Council of Berlin upon 13th April, 1905, and a resolution was carried in favour of assessment on the basis of market value, but this has not yet come into operation. From the discussion it appears that there are comparatively few vacant " building stances " in Berlin, but there are a considerable number of market gardens and PRUSSIA 93 other open land in the outskirts which would be made subject to the tax. It may be explained that the growth of Berlin has Growth oj been very rapid, the population having increased '^^'"' from 774,498 in 1870 to 1,955,910 in 1903. There has consequently been a great demand for building land and many complaints that land is bought up in advance by speculators and retailed as required at a large profit. In levying the tax on market value, land and building are valued together, not separately, and the tax is levied on the assessed capital value of the whole. B. The Transfer Tax. The Turnover or Transfer Tax is a municipal tax on the sale of real estate. This is a common tax in Prussian municipalities. It was introduced in Berlin in 1895, the rate being yi per cent, on all land; in 1897 it was retained at this rate as regards improved land and increased to I per cent, on unimproved land. This was increased in 1904 to I per cent, on the former and 2 per cent on the latter. C. The Building Site Tax. {Bawplatzsteuer^ This tax was founded on § 27 of the Communal Rates Act, which provides that property (Liegcn- schaften) which is increased in value in consequence of the fixing of building lines, that is building sites 94 PRUSSIA (Bauplatze) may in proportion to this higher value, be subjected to a higher tax than other property. Attempts were made in Berlin to put the tax into operation, but the court decided that the law did not apply to " historical streets " that is streets laid out before the Street-Line Law (Fluchtlinien- gesetz) of 1875 ^^^ ^^^ ^^^ '^^^ dropped. D. Increment Tax. (^PFertzuwachssteuer.) An Increment Tax or tax on increased value of real estate has recently been proposed by the Admini- strative Council (Magistral) of Berlin and has met with much opposition. The proposed tax is to be in addition to the Trans- fer Tax [Umsatzsteuer) and is to be levied when the present purchase price or market value [gemeine Wert) of the real estate exceeds by more than 10 per cent, the price paid at the last change of hands. The tax is proposed to be assessed at the rate of i per cent, of increment, if the latter be more than 10 per cent, and not more than 1 5 per cent. ; 2 per cent, if the latter be more than 20 per cent., and so on, the rate increasing in accordance with the increment. While the last price is the starting-point for the proposed tax, expenses on permanent im- provements are to be added to it, and will so reduce the increment. In the same way the expenses upon unbuilt land, interest, repairs and maintenance, are to be added to the price less corresponding receipts. Land given up for streets or squares is to be taken PRUSSIA 95 into account and the purchase price is to be calculated on the net building ground only. The proposed Increment Tax is to be assessed on sellers. The Transfer Tax is borne by purchasers. E. Sewage Tax. {Kanalisationsgehu hr.) This tax is assessed on rental and paid by owners and has been for several years, in Berlin, at the rate of i^ per cent. It is to be kept in view: — (i) That in altering the basis of the assessment Assessment on for Land Tax from annual to capital value no f^^P^f^^ v'^^'*^- new valuation is required, as there is a Govern- ment valuation of taxable property based on market value, as required under Section 9 of the Supplementary Tax Act of 1893. (2) That, as already mentioned, land and build- Land and ing are valued as one, not separately. building (3) That the Land Tax on capital market value together. is in substitution for the tax on annual value, not Tax on in addition to it. capital value IS tn suo- (4) That one of the reasons suggested in the stitution/or circular of the Ministry of the Interior of 2nd ''^^, "" '^""'^^ October, 1899, ^^^ adopting assessment on capital i^„j r^,. market value was that the value of tenement tenement houses would be assessed at a relatively lower rate ^°'*'«' f^^^P^^ than jor than houses in the residential quarters of the town, residential that is what in Scotland would be called self- ^°^^'^- contained houses. 96 PRUSSIA h^ot SO in Glasgow. The better thc bu'tlding the higher the tax . Other municipal taxes. This would not apply in Glasgow. The price per square yard paid for land for self- contained houses is not higher than that paid for tenement houses, but is rather less. The structure of the former may be more costly, but they do not sell so well when they come to be realised. No class of property is so difficult to dispose of or commands so poor a price in the market in Glasgow as self-contained houses. (5) One of the objects of the taxation of land values, it is said, is to relieve industry and the products of industry, that is, the buildings, from taxation, and to transfer it to the land alone. This is not the object of Prussian municipal taxation. On the contrary buildings are assessed in Prussia as in Scotland, the better the building as a rule the higher the tax. The only difference is that in Prussia the capital, in Scotland the annual value, of the structure, is taxed. Besides this tax, there are in Prussian towns many other municipal taxes upon industry. For instance, in Berlin there are the Income Tax, the Business Tax (Gewerbe- steuer), the Warehouse Tax {Waarenhaussteuer)^ the Malt Tax {Braumalzsteuer)., and the Publicans' Tax (Betriebsteuer) ; and it is allowable to lay a tax upon amusements, but this has not yet been done. Glasgow, 21st June, 1906. APPENDIX 97 Classification of the Rental of the City of Glasgow for the Year 1905-06. Description. Number. Rental. £ Dwelling-houses - - - - Dwelling-houses and Shops (attached) Hotels and Lodging-houses - ~ 175,278 2,664 206 44,108 57,607 Shops - - - - Warehouses - _ _ Offices and Counting-houses - - - 15,214 2,046 5,105 780,574 430,042 294,986 Stores - _ - - Workshops . _ _ Banks, Halls, etc. Schools - - _ - Churches - - - - Markets and Slaughter-houses - - 5,689 4,768 636 198 352 19 194,992 469,421 65,589 58,095 13,274 23,623 Baths and Wash-houses - - 22 6,204 Public Buildings and Institutions - - 132 80,340 Sewage and Manure Works - - 5 4,620 Public Parks - 17 1,373 Cemeteries- _ _ _ - 8 1,857 Arable and Pasture Land - - 137 3,298 Ground (vacant) - - _ 245 3,619 Minerals - - - - - - 4 2,131 Brickfields and Quarries - - 17 2,806 Quays, Ferries, etc. Telegraph and Telephone Apparatus - - - Wires ar id 78,106 10,286 Railways and Canals, &c. : Stations, _ - - Line, _ _ - ;^34i'484"\ 324,372/ — 655,856 212,762 5,770,570 Paper submitted to the Select Committee by Mr. James Henry, City Assessor, Glasgow. CITY OF Memorandum of Area, Rental Value of New during the period Area Assessable Rental. Increase. Year. Acres. Addi- tions. Total Acreage. £ £ 1872-73 ) to \ 1887-88 J 6,033 78 — — — 1888-1889 6,1 1 1 — 6,1 1 1 3,370,736 6,234 1889-1890 — — — 3,404,403 33,667 1890-1891 " ~ 3455,510 51,107 1891-1892 — 5>7So 11,861 4,033,554 578,044 1892-1893 _ 11,861 4,058,758 25,204 1893-1894 — — 1 1,861 4,165,870 107,112 1894-1895 — — 11,861 4,218,580 52,710 1895-1896 — — 11,861 4,283,928 65,348 I 896-1 897 — 450 12,311 4,432,575 148,647 1897-1898 — — 12,311 4,532,181 99,606 1898-1899 — 12,311 4,621,694 89,513 1899-1900 — 377 12,688 4,791,314 169,620 1900- 1 90 1 — — 12,688 4,952,965 161,651 1901-1902 — — 12,688 5,027,753 74,788 1902-1903 — — 12,688 5,093,057 65,304 1903-1904 — — 12,688 5,407,186 314,129 1 904-1905 — — 12,688 5,589,942 182,756 1905-1906 108 12,796 5,770,571 180,649 GLASGOW. Buildings, and Amount of Property Unlet 1872-1873 to 1905-1906. Value of New Buildings Authorised. Annual Value of Unlet Property. Percentage of Assessable Rental Unlet. Remarks. L c i3»Hi>573 — — 685,520 218,242 — 427,760 199,077 — 590,810 173,259 5.014 'City boundaries extended to embrace Police Burghs Maryhill, Govanhill, Cross- 917,930 153,123 3-796 . hill, Pollokshields, Hill- head ; also County territory Kelvinside, and part of Springburn. 1,330,680 140,414 3-459 i,275»4+5 144,024 3-457 ^467,2 3 5 142,902 3-387 1,290,400 146,500 3-42 City boundaries extended to 1,865,855 144,832 3-267 embrace Bellahouston Park and Craigton Estate. 2,106,760 122,381 2-7 2,017,330 117,045 2.532 City boundaries extended to 1,900,428 114,586 2.392 embrace Blackhill and Richmond Park. 1,559,294 127,402 2.572 2,549,698 114,963 2.287 2,260,773 139,871 2.746 2,1 18,800 187,089 3-46 1,303,502 251,134 4-493 1,440,387 307,731 5-332 J City boundaries extended to \ embrace Kinning Park. 40,250,180 GLASGOW : PRINTED AT THE UNIVERSITY PRESS BY ROBERT MACLEHOSE AND CO. LTD. UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. m^^ 3W 151SII APR J'onn L9-25,-;(-9,'47(A5618)4 44 1 UNIVERSITY OF CALIFOKNU AT UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 146 348 6