RELATION OF LAND INCOME TO LAND VALUE. 69 
The size of loan that can be made with safety depends upon the 
relation of the earning power of the land to its value in the long run. 
What the lender really wishes to know is what the long-time rate of 
return on the appraised value will actually he. This involves a de- 
termination of what the future incomes will be, and this at the pres- 
ent time can not be done with any degree of accuracy. But it can 
be shown what the future incomes are anticipated to be, and this 
knowledge is highly important for any institution making mortgage 
loans. If the anticipated increases in income are large relative to 
the land income at the time the loan is made, a credit institution 
should know this, for then it is in a better position to exercise its 
own judgment, on the basis of all available evidence, as to how 
much of this anticipated increase in income and the present land 
value which is based upon it is justified. They can then determine 
their loan policy for such an area. If, for instance, such institutions 
find that loans equal to 50 per cent of the value of the land are safe 
and conservative in an area having half of its land value based upon 
anticipated increases in income, loans equal to a larger proportion of 
the land value can be safely made in areas having only one-third or 
one-fourth of its land value based upon expected increases in income. 
Furthermore, areas having high percentages of the value based 
upon expected increases in income will have relatively low rates of 
return on the appraised value for a number of years after the loan is 
made. For this reason borrowers on the average will find it more 
difficult to meet interest payments in the early years after the loan 
is made than borrowers in areas having lower percentages of the value 
based upon expected increases in income, if the average loan bears 
the same ratio to the land value in both areas. This fact is a further 
and important consideration in formulating a loan policy for differ- 
ent parts of the country. 
