5. 1?ent in practice, rent is the annual payment made for the use of a property which may be a city house, a village cottage, a farm, pasture land or a mine. In each instance, the payment made is called rent. One view of rent is that the interest on improvements and the payment for the use of ground constitute rent. This theory, however, confuses the idea of capital return with the large and important problem of economic rent. It is stated that the net ground rents in Boston for 1914 amounted to $40,000,000, and that in Greater New York they aggregated more than $200,000,000. Even then, the vast sums named do not include the interest upon capital invested in buildings and improvements.
Ground rent is, therefore, to be distinguished from conunercial rent. The definition for this last term is the annual site value of land; in other words, com mercial rent is what land is worth annually for use. It is interesting to inquire just what the use of land includes. The ordinary lease states in legal terms, "the enjoyment of those rights and privileges thereto pertaining." Enumerated, these are: the right and ease of access to water, health inspection, sbwerage, fire protection, police protection, schools, libraries, museums, parks, playgrounds, lighting, railway, tele graph and telephone service, churches, public schools, government and order, and many other collective and social advantages. In the case of village property, many of the privileges would not be included, and in consequence the rent would be lower. The same is true of the farm whose rent value is measured by the crop return, tho proximity to the railroad station and the village constitutes one element in the value of the place.
6. House most households rent forms a very important item in domestic expenditure. In a survey of Hamburg, in 1874, it was found that there were nearly 15,000 different households enumerated, in which, of those who had incomes of more than $1,500, the percentage spent for rent ranged from 3 to 10 per cent of the income; between the incomes of $1,500 and $500, the proportion spent for rent ranged from 17 to 21 per cent; and in the case of incomes under $500, the amount spent for rent was from one fifth to one-third of the family income.
The choice of a dwelling is rather closely associated with the circumstances of a calling. The greater the refinement of a family the more emphasis is likely to be placed upon the character of the house, but it is to be recalled that even in such instances the means and the income must set the limits of the demand. Con
sequently a large house yields a less proportionate rent than a small one; this fact accounts for the rapid growth in the number of apartments and flats. The rent to be paid will be determined by the marginal utility of any given group of houses. This is the point where the demand and the supply meet. If there are 150 houses vacant, and 75 people are willing to pay $60 a month, and 50 people, as much as $55, possibly 20 people would pay $50, and 5 would pay $45; then the rent must be $45 if all the houses are to be rented.
House rent and, in fact, rent for buildings of any kind, is composed of two parts ; one, the payment for the ground, and the other, the interest on the capital invested in the building. In Berlin it was found that the ground rent is about 40 per cent of the house rent. The ground rent in towns, unlike the rent of agricul tural land, owes its value solely to location. The builder is not going to pay anything for ground un less he is assured that he can get a good return for the building. This attitude is the cause of that land speculation which tends to check the immediate supply of land, tho in the course of time the price that is asked conforms to the demand.
In some cases, the monopoly situation is so marked that those who wish to do a particular type of business must locate in the most advantageous district and pay the rent, whatever it may be. Wall Street in New York City is an example of this kind. Parts of Lon don are congested with certain kinds of business and constitute centers around which these lines of busi ness crowd. In fact, every large city furnishes many examples of land monopoly and high rents.
7. Limitations upon rent.—There are, however, limits to the rents that can be exacted. As the city grows in population the tendency is toward the erec tion of more expensive buildings. The need of heavier and more substantial foundations becomes aTeater with the number of stories. The elevator service must be frequent to meet the needs of tenants high above the street, level. Thus, the law of dimin ishing returns applies in regard to the cost of erecting and operating a building of this kind. In actual practice the agents for high office buildings find that the first two stories rent at high prices. The next ten or twelve stories, being shadowed by adjacent buildings, will bring a lower price than the stories above the surrounding roofs.