Allowance for income from building. The next charge against gross rents is for interest on capital invested in the building, this being figured at the same rate as the capitalization of the ground rent, after an allowance for depreciation has been made.

[This charge of interest on capital invested can be looked upon only as estimate made at the moment of investment, in the belief that the form and style of building is being suitably chosen. After the building is done, the amount properly to be charged against gross rents on account of the building would have to be judged from other conditions than the amount invested, and the investment may be deemed to be either partly or wholly lost. This is strikingly brought out by the pictures and the accompanying explanation which appear in the text at this point.- Ed.].

Net ground rent. The final residuum constitutes the ground rent which represents the competitive premium paid for location. "Where there is no residuum of ground rent in city land it does not follow that the land has no value, but usually that the improvements are not suitable, so that the value must be estimated under a different utilization. If the improvement is a suitable one, absence of ground rent may be due to temporary drop in rentals or bad management, all city land normally yielding some ground rent.

Ground rents and various utilities [page 145]. In reviewing the evolution of value x in urban land, the first step is to conceive of the naked site apart from the buildings, having only the qualities of location and extension and without value until there is competition for land. . . . Exchange value consists of [the capitalization of the ground rent] modified by future prospects. Ground rent is the residuum after deducting from gross rents all operating charges, taxes, insurance, repairs, rent collecting, and interest on the capital invested in the building. Ground rent is a premium paid solely for location and all rents are based on utility. Utilities in cities tend constantly toward specialization and complexity, business being broadly divided into distribution, administration and production, and then indefinitely subdivided; and residences being divided into as many classes as there are social grades. In so far as land is suitable for a single purpose only, its value is proportionate to the degree to which it serves that purpose and the amount which such utility can afford to pay for it. "When land is suitable for a number of purposes, one utility competes against another and the land goes to the highest utilization. . . .

1 [In the following paragraphs the statements made regarding "value" are almost all true also of rental-value and of usance-value, although they are made in the text in relation to capital value. - Ed.]

Different uses of land. The factors distributing values over the city's area by attraction or repulsing various utilities are, in the case of residences, absence of nuisances, good approach, favorable transportation facilities, moderate elevation and parks; in the case of retail shops, passing street traffic, with a tendency towards proximity to their customers' residences; in the case of retail wholesalers and light manufacturing, proximity to the retail stores which are their customers; in the case of heavy wholesaling or manufacturing, proximity to transportation ; and in the case of public or semi-public buildings, for historical reasons, proximity to the old business center; the land that is finally left being filled in with mingled cheap utilities, parasites of the stronger utilities, which give a low earning power to land otherwise valueless.

Proximity and accessibility. Value by proximity responds to central growth, diminishing in proportion to distance from various centers, while value from accessibility responds to axial growth, diminishing in proportion to absence of transportation facilities. Change occurs not only at the circumference but throughout the whole area of a city, outward growth being due both to pressure from the center and to aggregation at the edges. All buildings within a city react upon each other, superior and inferior utilities displacing each other in turn. Whatever the size or shape of a city; and however great the complexity of its utilities, the order of dependence of one upon another is based on simple principles, all residences seeking attractive surroundings and all business seeking its customers.