The watchman and southron. [volume] (Sumter, S.C.) 1881-1930, 1922-01-04
Capitalization
On Farms Low
Average of Only 3.54 Per
Cent-Cheapsr to Lease
Than Buy Sometimes
(New York Times.)

ectleS amounts 10 o.ot per cent VI
the value Of the land, it has been
found through investigation begun
by the department Of agriculture
TO discover a method for making
accurate land appraisals. Study was
made of the census returns from
$4,000 farms. The farms cXamin-
ed, although they comprised only 9
per cent Of all the farms in the
country, included 33 per cent. Of
all rented farms.
The total value of these farms
was $2,G79,317,0 600 and the gross
rent S94,9G0,45S. They average in
value $iG,950 and were rented for
$60074. Their valuation per acre
for land and buildings was $153.67,
and their rent per acre was s5.45 j.,
or 3.54 per cent. The gross cash
rent fer a year was only a twenty
eighth part of the valuation. In
other words, considering gross
rents, merely the land was held
on what the English would call
"twenty-eight years purchase
This leaves out Of account the
advance in price of the land by
which landowners have been com
pensated for low rents. In the
seventy years from 1850 to 1920
the money value of an average
acre Of farm land for the United
States advanced at an average an
nual rate Of . per cent compound
ed. For many owners Of rented
farms this advance in land prices
was sufficient to compensate for
holding land with small gross rents.
The low ratio is not evidence of
poor farm lands, for the facts
show that the best land in the
country is conaprehendcd under
lower ratios than land in sections
with much inferior soil The quality
of the land is no explanation Of the
ratios of rents to valuation. In
many sections the principal reason
for the low rate appears to haye
been the expectation Of gain from
advance in land prices.
Even if increases in land prices
are added to net rents it appears
that American farm properties
have been capitalized at modest
rate compared to government
bonds, farm mortgage loans and
gilt-edge securities in general. This
may be partly because of lack Of
appreciation by farmers OF invest
ment opportunities in other fields
ard partly because OF easy over
emphasis Of ones chances to make
especially large gains from ad-
vances in land prices. Another i'm
portant consideration, perhaps, is
the appeal ownership OF farm
home makes to an owner who
wants to hold it for himself or his
children.
Tenant farming is not likely to
be given up by operators who can
hire all Or considerable part OF
the land and buildings they need
for 3.54 per cent. Tenants who
would have to borrow money would
naturally hesitate to buy land they
could hire at less than the mort
gage rate. This may account for
the large proportion of land oper-
ated by lessees in the low ratio
sections Of the country.
Appreciation Of land prices may
have added such large increments
to the value of tenant farms in
some sections as to make it easy
for landlords to refrain from rails
ing cash rents to Il corresponding
extent a slaclleninE of advance
in land prices, such as came around
1890, when prices Of farm products
were low, doubtless would cause
landowners to give greater ccnsid-
Grafton TO rental income lin th>ir
calculations. II unable to antici-
pate n gain in value in addition to
their rental income, the speculative
motive for acquiring and renting
farm lands would subside, and land
values probably would be revised
downward to an extent that would
permit a larger. rate Of returns
from rentals.
Wherever rental ratios are small
compared with returns on other
reasonably safe investments, it is
possible that expenditures foi
drainage. irrigating or clearing
land will, not yield an adequate re-
turn. 1t is clear that the rate OF
capitalization Of raw land must be
considered seriously before bring
ing new land into use. 1t is true
, the data indicates comparatively
high rates Of returns in sections
where large areas Of new lands
are available. But the figures do
not discriminate between the rate
OF return on reclaimed and reclaim
able land from the rate on other
lands in the same county.
The significance of sectional vari-
ations is made more evident by re-
gional summaries. Cash tenant
farms in selected North Central
counties showed an average rental
ratio of 2S9 per cent; in Pacific
counties, 4.2G per cent; in New
England and Middle Atlantic coun-
ties, "A? per cent; in mountain
counties, G.34 per cent, and in
Southern counties. 1.26 per cent
The states whose selected counties
showed the highest averages We're
Arkansas. 1906 per cent; Missis-
sippi, 1904, and Arizona, S.37. On
the other end Of this scale We're
North Dakota. 2.17: South Dakota.
2.52, and Nebraska, 2.59 per cent
Some counties showed perCeutag ge&