[From the Principles of City Land Values, by R. M. Hurd, cited above on the subject of rents, are taken the following cogent expressions of broad experience on the subject of capitalization.]

Capitalization rate [page 129]. With an established economic rent, the sole remaining factor to transform this into intrinsic value 1 is the rate of capitalization. As capitalization rates vary with securities, Government bonds selling below a 2 per cent basis, railroad bonds and stocks on a 3 1/2 to 5 per cent basis, and industrials on a 7 to 10 per cent basis, so the rates of capitalization of urban rents vary from 4 per cent for the highest class of property in the largest cities, to 5 and 6 per cent for second-class property in the same cities, or for first-class property in smaller cities, 7, 8 and 10 per cent for tenements in the largest cities, and 12 to 15 per cent for temporary utilization or disreputable purposes in the smaller cities. The great power of capitalization rates on values is due to the fact that for every change of 1 per cent in the rate of capitalization, values may change from twelve to twenty-five times the difference in interest. For example, a property with a net income of $10,000 would sell on an 8 per cent basis at $125,000, on a 6 per cent basis at $166,000, and on a 4 per cent basis at $250,000. The lower the capitalization rate the greater the effect of any changes of values: For example, a fall from 8 to 7 per cent, adds but 14 per cent to the value of the property, while a fall from 5 to 4 per cent, adds 25 per cent to the value of the property. Moreover, as low interest rates apply to the

1 ["Intrinsic value," a term with a good many troublous implications, may be here understood as valuation, or capitalization. - Ed.] largest properties all further fractional lowering of rates results in an enormous mass of values. The marked difference between capitalization rates of high-class and low-class property in the same city indicates the large number of people who desire to own high-class property, and the few who desire to own low-class property. The reason for such preference is that with high-class property, rents are more stable and easily collected, the property is more quickly and certainly convertible, it can be mortgaged at a lower rate of interest and for a larger percentage of value, the buildings depreciate much less rapidly and the prospects of increase in value are better.

Land a slow asset. That land, even of the highest type and in the largest cities, is a slow asset, is due to a number of causes, among them being the fact that land is not easily passed from hand to hand as are stocks and bonds, land involves personal or directly deputed management, where stocks and bonds do not, there is no Exchange with daily quotations giving the values of land, as with stocks and bonds; and finally the value of land is influenced by many complex changing factors, whose effects are differently estimated by different people. Because land is a slow asset, convertibility or certainty and speed in selling it, produces a high premium for the best property by lowering its capitalization rate.

Farm acreage to city sites.1 Starting from the condition of no value in land when a city originates, let us consider the scale of average values of residence and business land in cities of various sizes, land used for other purposes being omitted as being more of an individual problem. At the outer circumference of cities land is held as acreage, the prices per acre advancing from the normal value of farm land near cities, $50 to $150 per acre, up to market-garden land, which may earn interest on $300 to $1,000 per acre, and, finally, to speculative tracts held at $500 to $5,000 per acre, whose prices are based on the estimated earnings of the land when it secures the anticipated utilization. Since the proportion of land occupied by streets averages about 35 per cent., the conversion of acreage into lots means a loss in building area of that percentage, so that with the expenses of platting, opening streets, taxes, loss of interest, etc., it is generally estimated that property bought by the acre must sell by the lot for double the acre price in order to avoid loss in handling.

1 [The following paragraphs reproduce the chapter entitled, "Scale of Average Values," pp. 133-144.]

Mechanics' residence lots. The cheapest lots in any city are those utilized for workmen's houses, varying in smaller cities from $150 to $300. The larger the city the larger the number of well-paid mechanics and the greater the effective demand for lots. A mechanic's lot on the outskirts of a small city differs from one on the outskirts of New York not only in price but in size, those in small towns having 50 to 60 feet frontage, and those in New York 15 to 20 feet frontage with usually two-family houses on them. Thus an average price of $150 for 50 x 100 foot lots in large cities would be equivalent to $7,700 per net acre after platting, or $5,000 per acre as acreage. In the outskirts of the smaller cities platted land runs as low as $2 to $4 per front foot, and there are built up mechanics' sections with street car accommodation less than a mile from the center of cities of 30,000 population, where land sells at but $5 per front foot, equivalent to 5 cents per square foot.

Better residence lots. From this figure, land for detached residences grades upwards more in proportion to the class of people utilizing it than the size of the city, to land worth $20 to $30 per front foot for the residences of small shopkeepers and clerks, and $40 to $75 for the more fashionable residences in cities of 75,000 population and under. Such residence property would have good street car service, graded streets, sidewalks, sewer, gas, water, electric light, etc., the cost of which may vary from $5 to $15 per front foot. The best residence land in cities of 100,000 to 200,000 population runs from $75 to $150 per front foot, in cities of 200,000 population to 400,-000 population from $300 to $500 per front foot, and in New York from $2,000 to $5,000 per front foot on the side streets and $6,000 to $9,000 per front foot on Fifth Avenue.

Business lots. The poorest locations utilized for shops in the small cities are ordinarily worth from $50 to $75 per front foot from which point values rise to an average of $600 to $800 per front foot for the best business property in cities of 50,000 population, about $2,000 per front foot in cities of 200,-000 population, $10,000 in cities of 2,000,000 population, and $15,000 to $18,000 in New York. Above these levels, land in the financial district of New York averages from $15,000 to $25,000 per front foot, this financial district having no counterpart in any other American city and being due to the supremacy of New York as a financial center. The highest values in London are similarly in the financial district, while in Chicago and most of the smaller cities, shopping land, owing to the large amount of retail business and small amount of banking, is worth about twice as much as financial land. The average figures given represent corner lots having not less than 2500 square feet, $350 per square foot (equal to $35,000 per front foot) having been paid thirty years ago for two small corners at Wall and Broad Streets, and recently for a small corner at Broadway and Thirty-fourth Street. An approximate scale of normal values based on the consideration that each thousand of population adds from $10 to $12 to the front-foot value of the best business locations and from $1 to $2 to the front-foot value of the best residence locations would be as follows, it being understood that the application of any such scale is limited in practice by differences in wealth, character of industries and inhabitants, topography, transportation, platting, climate, etc.