Evening star., 1941-02-15
Consistent Policy
0nDepreeiationUrged
By Realty Leaders
Serious Danger Arises
From Increasing Rate,
Convention Told

Important influences are affect
ing depreciation of fixed assets in
the American investment structure
that have not hitherto been present
within our experience or that have
not affected them before to the
present degree" K. Lee Hyder, Chi
Cago, past president of the American
Institute of Real Estate Appraisers,
asserted at sessions arranged by the
institute as the South Central re-
gional conference of the National
Association of Real Estate Boards
Just closed in New Orleans. They
must be considered in estimating the
amount we should set aside in ap-
praising real estate and other fixed
assets to cover the depreciation we
may anticipate for them in the
future.
The influences are not all in the
same direction. Some forces are
prolonging the economic lives of
properties beyond their normal span.
Some are tending to shorten the
lives of these same properties. Most
serious of these influences at present
at work are inconsistencies in the
laws and regulations concerning the
treatment of depreciation as applied
by different agencies of the Federal
Government. They are important
contributors to the chaos that pre-
walls today in our practice as to the
matter of depreciation. Until or
unless We develop some consistent
national policy in the matter chaos
will continue"
Two Trends Listed.
Mr. Hyder listed as important
economic charges tending to in
1uence the provision that must be
set aside for depreciation in valuing
fixed assets these trends:
/. The chronological advance in
materials and equipment which has
greatly speeded up the rate OF
obsolescence.
2. The economic conditions COM
bining to produce higher conStruc-
ton costs and lower returns TO cap
ital, thus removing the incentive for
new investments and resulting in
extending the operating lives OF
properties that during another day
would have been scrapped and re-
placed. He said:
"As the result of the first factor
We find that the empirical data OF
life expectancy accumulated in the
past is of little use in present esti-
mates. RefrigeratorS, building ele-
vators, boilers, radiation, plumbing,
electrical equipment, as well as
structural materials and standards,
have changed amazingly overnight
and this during a period when
new construction was at the lowest
ebb of the present generation.
Structures Used Longer.
"Offsetting this We find in the sec
ond factor the incongruouS condi-
ton whereby the entire structure is
being used longer than before, even
though at a lessened utility, simply
because even the lower income will
help to pay the taxes and We can't
afford to rebuild under the present
wage levels and the return that can
be realized. 1t is this factor that is
creating our 'slums and 'blighted |
areas
inconsistencies in governmental
requirements and attitude are a /
factor of the situation which make |
It virtually impossible intelligently !
to analyze and control the others. /
Not long ago the Bureau of Internal .
Revenue issued new manual to its .
field agents containing revised .
tables of property lives which very .
materially heightened the allowable /
life expectancy Of innumerable items |
and thus decreased the amount of |
deduction for depreciation in arriv-
ing at net taxable inComeS-and this |
in the face of forced speeding up .
of facilities in service which must |
inevitably result in shorter rather ,
than longer lives. At the same .
time the Securities and Exchange /
Commission is bringing pressure to /
bear to require more drastic writing |
down of assets for depreciation A
still different policy is followed by .
the Federal Power Commission and .
other agencies empowered to regu-
late our public utilities and natural
resources.
The effect of this seemingly
minor question of depreciation is
really tremendous.
Our graVest danger is the in
creasing rate of depreciation of our
entire economy as we have hereto
fore reflected it upon our national
balance sheet"