NORTH ISLAND LAND VALUERS’ ASSN.

Shannon News, 7 April 1926, Page 4

NORTH ISLAND LAND VALUERS’ ASSN.

HAND VALUATION .PROBLEMS. (By Mr J. B. Richards, President) The formation of this association was chiefly prompted by a realisation of the advisability of restoring the confidence of investors in land se-. eurities. Boom and slump conditions had rudely shaken that confidence and it was felt that every assistance towards * promoting a process of stabilisation of land values should be rendered. This may sound somewhat altruistic, but members will agree' that the discussions at our various 'meetings have moved in that direction rather than towards conserving the interests of land valuers particularly. Bearing this In mind, and having in view the divergent opinions on land valuation, 1 have ventured to assume that further disquisijtion might be acceptable and profitable. One fact must never be overlooked —the products from the land represent 98 per, cent, of the value of our exports and upon those exports the whole question of our prosperity rests. The town dweller may congratulate himself on his immunity from fluctuations of income as compared with the country producer, and decide that city investments are safer and more profitable, but in the final analysis all town and city investments depend upon the prosperity of the primary producer. This truism is apt' to be overlooked and even denied when conditions which are obviously transient indicate the opposite. Probably the most important of the objects of our Association is the second ,as set forth in our book' of rules, viz.: “To promote it, uniform method and basis of valuation. Investigation invariably leads first ol all to a definition of terms. We must therefore come to a decision of the meaning of the term “value.” Some may say that is a simple matter. I wish it were. Most producers will say with emphasis and conviction “land is worth what you can make off it.” This we may term the “reproductive value,” and it is only partially satisfactory. It presumes that due allowance will be made for working expenses, interest on. capital employed and reasonable prices for primary products, but it contains no attempt to define what are reasonable wages or working expenses, interest or prices, nor does it establish what is reasonable/ production. It is well known that the disparity in production on farms of equal area and quality is often very great, due to the varying competency of the farmers. “Reproductive value,’’ therefore, if finally accepted, would be subject to violent fluctuations in response to variations of prices, working costs and interest charges. Moreover, the likelihood of increase or decrease of ruture value must be a factor in present-day value. An owner might be wisely content on the one hand to hold a property which gave him a very small annual profit if he were quite satisfied that a considerable increase of value would accrue m the near future, or, on the other , hand, he might demand what would appear as exorbitant profit if he feared deterioration of asset. The comfort and convenience of the owner would* be likely to affect value , similarly. The property which imposes hardship, discomfort and perhaps risk of life or limb on its owner would certainly inspire in a prospective purchaser a determination to get paid in proportion to the disabilities to be faced and this would depreciate value accordingly. “Reproductive value,’ , ’then, although containing much to recommend it, is not sufficiently comprehensive to include all the factors which constitute value. We- must look further afield. The officers of the Government Valuation Department may be assumed to have studied this matter very thoroughly arid members of Parliament probably have to some extent. The * needs of the department at one time chiefly concerned assessment of taxation, but the functions of government now extend to lending money, purchasing land and assisting settlers \both in town and country. Departmental duties have extended accordingly and Government valuation work should be carried out not only by efficient officers but on well thought out principles. The interpretation of “capital value” of land in the Act of ,1908 is the same as in the Act of 1925, which comes into force on Ist April this year, and we may therefore 'assume that a better interpretation has, not occurred to either the officers of the Department nor to members of Parliament. I|t reads as follows: — ‘‘Capital value of land means the sum" which the owner’s estate of interest therein, if unencumbered by any mortgage or other charge thereon, might be expected to realise at the time of valuation if offered for sale on such reasonable terms and conditions as a bona fide seller might be expected to require.” . This may be condensed into the common term “market value,’’ and in effect it is a recognition of the wisdom of public opinion. The, public is apparently presumed to take into consideration all the factors affecting value and the task before a valuer consists largely in estimating that public opinion. In order to do so satisfactorily, the valuer must, have intimate and extensive knowledge of all the factors which affect the public opinion. Thus in abnormal times when market values ar e unduly inflated or unduly depressed, the valuer should be prepared to express his .opinion on prevalent market values. The earning capacity of a property must be fully considered and the expenses receive due conf sideration. Prospects of increase in | alue or deterioration of same are

of vital importance. The force of demand which directly determines market value also finally determines the remuneration of the owner, provided, of course, that other factors remain equal. Thus a property which costs, say, £4OOO, which yields a gross income of £BOO and which requires £6OO for interest and running expenses would yield to its working owner £2OO. If conditions in othel walks of life indicated to the public that they Could better their position by securing property by lease or otherwise on the basis of the foregoing*, then demand would be increased and prices would rise, with the result that the yield to the working owner would be reduced by the extent of interest on the increase of price. This factor may be observed in operation in its effect on that class of city property known 'as “lock up” shops and on small area farms. Working shopkeepers in the one and working farmers in the other push the values of these classes of property beyond what a purchaser who has to pay full wages for everything can give. Yt is not my wish to enforce my views nor to extenuate those of others, but rather to induce discussion and the free expression of opinions, but 1 submit that cost of production, the force of demand and the prospect Of increase or decrease of asset must all be given due weight in estimating - value, and consequently the worth of a valuation depends on the ability of the valuer to comprehensively consider all these factors and to form reliable judgment.

“Improvements,” “Unimproved Value” and “Value of. Improvements” as defined in the Valuation of Land Act provide much food for consideration. Taxation, both central and local, chiefly depends on them, and there are large areas of land held on leases which provide for rentals based on the “Unimments had been made. “Capital proved Value” which may be defined as the Market Value if no impfoveValue” has already been referred to. and it is the whole value. “Unimproved Value” is part of the “Capital Value," and acceptance of the term “Unimproved Value” and the principles it implies involves acceptance of the proposition that “Capital Value”' can be divided into component parts. Is this effectively possible? Or is the proposition merely an ineffectual attempt to divide, the indivisible? One may anticipate the reply that it is being done all over the country and has been done for years, but is this really so, or have the efforts in that direction been merely- strenuous and thoughtful efforts to achieve the impossible? “Improvements” on land means all work done or material used at any time on or for the benefit of tbe iand by the expenditure of capital or labour by any owner or occupier thereof in so far as the effect of the work done or material used is to increase the value of the land, and the benefit thereof is unexhausted at the time of valuation. It also includes benefits arising from contributions direct to local bodies or by way of special rates on loans. “Value of Improvements” means the added value which at the date of valuation the improvements give to the land.

In the early stages of development of virgin land, the improvements might be assessed Avith reasonable accui'acy. They are more or less visible and their effect is apparent. Felling, grassing, fencing and track-making in , bush country and the cutting’ of drains in SAvamp land are small matters in the early stages of . development, but -aftfer the lapse of, say, 50 years, the task is very different. What evidence should a valuer require to establish to his satisfaction the original condition of the land? It may have beten all bush or it may have been partly bush and partly open land, and the same applies to swamp land. After the lapse of 50 years there is little to indicate original conditions. •In city property a site may have been level, sound land, or a hill which has been removed, or a swamp hole which has been filled in. _ In the case of the latter, the building foundations might cost more than the erection above ground, but it- is obviously impossible for a valuer to excavate to the foundations. ' Plans and specifications of work done are seldom available after the lapse of years and, if they Avere, would they be accepted? Yet “increas" of value cannot be accurately assessed Avithout a knoAvledge of original conditions. , Private valuation work is largely done by valuers who . have some knoAvledge of past conditions, blit such knowledge is not completely authentic and comprehensive and will moreo\ r er pass away with the indiA'idual.

Developmental work in the early stages includes work which is essential but ol: transient or partly transient nature. Bush country, for instance, demands tracks and bridges, which subsequent slips obliterate They become no longer useful or necessary, but they were essential; to development and the benefit therefrom cannot be exhausted. Sir Francis Drake and nis gallant crews in their funny little' tubs are now superseded by other men and vessels, but he opened a road from East to West and the benefit still remains. Clearing the land of stumps and making it fit for cultivation undoubtedly improves it, but the cost of same is extremely difficult to estimate with reasonable certitude. If such stumping is carried out shortly after felling, the cost is very great, but after the lapse of many years such work would cost very little. Indeed, it may involve no expense if sufficient time were allowed for all the timber of decay. There -are areas of land which once can-led splendid milling timber which to-day would be worth standing more than all the “improvements” now on the land.

Has the destruction of that timber added value to the land? Again, the destruction of bush has induced the planting of shelter trees. Are such plantations “added value” in view of the fact that they replace original trees? It is conceivable that very small expenditure of capital or labour would in some cases add tremendously to value, while in other cases the cost might exceed or about equal the “added value.” The difficulties of definition have evidently been recognised, for while j the. Valuation of Land Acts have re- j tained the term “Capital .Value” and * the interpretation thereof, “Improve- j ments” and “Value of Improve- j ments” have provoked different interpretations. These matters are worthy of your , thought. They could be elaborated very much, indeed 1 have merely indicated »what appear to me salient, points' which need solution, and I leave consideration thereof to your , candour.