28 BULLETIN 1224, U. S. DEPARTMENT OE AGRICULTURE. 
the heavy investment in buildings. When a charge for depreciation 
and repair on these buildings and the average tax per acre is deducted 
from the gross rents in group 9 and the resulting net rent expressed 
as a ratio of the value, this group does not vary so much from groups 
10 and 14 as it did when the ratios were on a gross-rent basis, thus 
showing that a considerable part of this difference in the gross ratios 
is due to the difference in the landlords' expenses. But this is not 
the case with group 7. When this group is compared with groups 10 
and 14, the difference between the ratios on the net cash-rent basis 
are about as great as on the gross-rent basis. The reasons for this 
will be explained in the following section. 
Much of the difference in the ratios of rent to value between the 
southern and northern groups on the gross-rent basis can be explained 
by differences in landlords' expenses in the two sections of the country. 
On the net-rent basis the difference in the ratios between the two sec- 
tions is not nearly so great as on the gross-rent basis. They are still 
much greater, however, even on the net-rent basis, than in the North, 
and this is partly explained by the fact that it has been impossible 
to get true net rents in the vSouth for reasons already explained. 
The high ratios in the irrigated regions of the West are to be 
explained, in the main, by the relatively high costs that are borne by 
the landlords in these areas. These costs include payments for main- 
tenance and upkeep of the irrigation ditches in addition to those 
already mentioned. 
In general, therefore, the variations from group to group in the 
ratios of rent to value on the gross-rent basis can be explained only 
to a limited extent by the variation in landlords' expenses, for when 
the gross rents are reduced to net rents we find a large part of the 
variation is still present. The problem of explaining the variations 
in these ratios when calculated on the net-rent basis still remains. 
Furthermore, it is necessary to explain why each ratio is what it is. 
FACTORS DETERMINING RELATIONSHIP OF LAND INCOME AND 
LAND VALUE AT A GIVEN TIME. 
The ratio of rent to value, or the percentage of return on the valua- 
tion of land for any one year, does not show the rate at which land 
incomes are capitalized, nor does it show the percentage return which 
a farmer received on his investment in the long run. The fact that 
the ratio of rent to value in Iowa, for instance, has been approximately 
2.5 per cent since 1910 does not mean that a farmer who bought land 
in 1910 has received only 2.5 per cent on his investment throughout 
this period. He received considerably more than this. Nor does it 
mean that farmers are willing to invest in farm lands at this low 
rate. 
The per cent of return on the valuation at a given time is deter- 
mined by two factors — the rate of capitalization and the percentage 
of the valuation based upon anticipated future increases in income. 
The value of land may be expressed as a function of three variables : 
the rate of interest on farm mortgages, the income which the land 
earns at a given time, and the anticipated increases or decreases in this 
income. For increasing land incomes this may be expressed by the 
following equation : Let F= land value, a = annual income, i = arith- 
