Exposing the Building-Loan Operator and Speculative Builder

In The Tenement House Problem, attorney Robert W. DeForest and social reformer Lawrence Veiller call the public’s attention to the corrupt speculative system of building tenement houses. DeForest and Veiller observe that while the landlord is commonly recognized as responsible for the evils of the tenement building, the deceitful behavior of the building loan operator and the speculative builder goes unnoticed by the general public. For DeForest and Veiller, corruption begins with the building loan operator, who buys up plots of land which he then sells to a speculative builder, lending a certain of cash for the erection of a building on that plot of land in addition to the loan for the land itself. This speculative builder then seeks a secure permanent loan from fiduciary institutions like trust and insurance companies wishing to invest their capital, as well as a purchaser for his building at the earliest possible convenience. However, because New York State has laws in place mandating that such institutions not loan their capital on real estate exceeding 50% of the value of the property, a practice evolves in which the builder has the property over-appraised at a false valuation which then allows him to obtain larger loans from these fiduciary institutions and side-step the restrictions of the law. This false valuation also affects the prospective purchaser of the building, who is left under the impression that the property is worth significantly more than it actually is. In yet another instance of deception, the speculative builder often fills up his building with tenants immediately upon its completion, signing bogus leases so that prospective purchasers believe large rentals can be earned from the building. When the prospective purchaser does purchase the building, he often learns the property is worth significantly less than its estimated value, and that it was built shoddily and sometimes even illegally using what is known as the “lumping system.”
          The authors wisely recommend instrumentalizing public knowledge against the building loan operator and speculative builder, suggesting that building law violations be made public to ward off prospective purchasers likely to be victimized by this process. “Publicity,” as Veiller and DeForest put it, “is the one thing the builder cannot stand.” In addition to dissuading prospective purchasers from buying such a building, exposing the public to the corrupt practices of these two figures also exposes their relative needlessness. After all, as the authors remind the reader several times over the course of the essay, “The building loan operator adds nothing to the value of the property.” He and the speculative builder are merely middlemen, and could be eliminated from the process entirely if investors built tenement houses directly with their own invested capital.
           By deflecting attention away from the landlord and toward higher echelons of real estate corruption, Veiller and Deforest attempt to inform the public of larger systemic injustices. While they assert that “the investor,” at whose expense the building loan operator and speculative builder both profit, “must be awakened to a knowledge of the existing facts,” I believe that the essay also functions to educate the general public toward larger wrongdoings. The landlord is such a familiar figure to the average New Yorker. This narrative of the “evil slum-lord” is a convenient one, partly because it provides tenants with a visible focal point for their frustrations and partly because the landlord is the major authoritative figure of a property with which a layman interacts from day to day. In actuality, processes of corruption begin with the speculative work of the building loan-operator and the builder, two figures with which the public is rarely acquainted. Their relative obscurity to the public is exactly what allows loan operators and speculative builders to continue to profit from harmful practices. Whereas the landlord is certainly not faultless in many of these situations, the public should realize that attributing all corruption to a rather marginal figure in the overall process only detracts attention away from the public harm done by speculative builders and loan-operators.