Evening star., 1932-06-26
Bad Financing Cause
OF Excessive Rents
To the rditor of The star,

IL must nave Deen WIN great SaLlS-
faction that the thousands of tenants
in Washington read in a recent issue
Of The Star the story Of Senator Cap
per's interest in the rental situation
here. It appears that very thorough
and comprehensive investigation is
| being made. and those renting here
may look forward to relief from the
unfair burden placed upon them BY the
landlords.
Senator Capper mentioned that some
of the letters coming in to him charge
those owning or managing properties
with combining to keep up rents in the
City Of Washington. In my opinion
| there's no doubt but what that charge
is absolutely correct. However. don't
believe the rentals are being artiflciallv
held up merely for the SAKE Of getting
all the tenant will bear. The reason
f, lies much deeper than this. I would
hazard the guess many landlords would
willingly lower rents to proper levels If
by so doing they did not endanger their
investment.
The crux OF the situation is the
financing of these real estate invest
ments. Real estate values on properties
are dependent upon incomes derived
from those properties The amount of
money loaned on mortgage is based on
the forced sale value-with fixed as
sessment for taxation as guide. Many
Of the apartment buildings in Washing
ton were erected during building boom
periods, when construction loans and
refinancing were easily taken care OF.
! As a matter of fact, construction loan
money was so freely available that
builders went ahead in leaps and
bounds, putting up building after build
ing, with no apparent thought on the
very serious subject Of supply and de-
mand. The point is that they built
and sold greatly overvalued and over
| financed structures, and it was up to
/ the new landlord to make money on
his investment.
With such q fragrant disregard for
the maintenance Of sound and sensible
values on the part of those responsible
for such an orgy of building. Is 1t sur
prising that we have witnessed in the
last two years such long list OF fore
closures on properties2 As real estate
values receded to near their true level
equities that represented nothing more
than bloated supervalues were wiped
out and secondary mortgages suddenly
had to take over the suffering proper
ties. In many cases where there existed
second trust that, too, was carried
away in the wreckage. 1t Is here, l
believe, that the tenants trouble can
be traced. Under such conditions,
where often Is per cent Of the former
value was in the equity and that was
wiped out through foreclosure, 1t would
seem obvious that corresponding reduc-
tions in rentals should be in order. Un-
fortunately, the tenant in such sltu-
alton is the victim of vicious circle.
! If the landlord lowers the rents his
property produces less income, and In
the eyes of the finance and big insur-
ance companies If it produces less in
come its value is lowered, and as direct
| consequence of this the mortgage in
veStment is proportionately endangered.
1t is my firm belief that the finance
| companies, having no desire to be
forced to take over title to and man
agement Of these properties, on which
| they loaned perhaps an abnormal
amount of money on mortgage, and
with the desperate intention of protect
ing their investment, have combined to
artificially maintain real estate values
by holding up rents far above their
true present level.
venture to suggest that in the COM
nlercial building field the real estate
financing is worse than in the apart
ment and residential fields. know Of
many cases of merchants, especially
around the center of the city, who find
| it practically impossible to keep "out OF
the red" and not because there is no
volume of business, but because they
have silent partner in the business
who takes an abnormally large percent
age of the gross income, yet assumes
| none of the responsibilities usually in
| cumbent upon. a. partner. This silent
partner is. OF course. the landlord.
The cid saying. Ito err is human, to
| forgive divine" seems to take the power
| out of our hands to forgive these land
| lords and flnanciers for the mistakes In
| judgmentath they made in the real estate
| investment field. However, there's no
reason why the tenants of Washington
should have to bear the financial bur-
den they now do in order to protect real
estate and mortgage investments OF
others. The landlords and flnanciers
should take their medicine, If they
must, and not attempt through devious
and scheming means to foist upon the
thousands Of renters of Washington un-
| fair and inequitable burdens for the sole
purpose of protecting their own In
| terestS.
1t is to be sincerely hoped that much
will be accomplished by Senator Cap
per's committee. If the blanket pay
| cut Of Government employees becomes
| law it will be absolutely imperative to
cut rents here. That is the most i'm
mediate help that can be rendered. but
| / hope the committee will go deeply
into the matter of recommending some
form of legislation to curb wild orgies
| of overbuilding that not only answer no
real demand, but, what is worse, de-
preciate all existing real estate and
! throw things into the bad muddle they
now are in. I hope that permanent
solution will be offered for this per-
picking problem. JOHN THORNTON.