October 1, 2015

Out-of Town-Topic: Housing, Immigration and Taxes

I’m off to Portland (and no, not because of this).  So until I return, here are a few articles I’ve saved for an ‘Out of Town Topic.”  First, this piece from September 26 by The Sun’s Doug Todd which touches on housing, immigration and the basic issue of fairness with respect to taxes:

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Disparity: Canada failing to crack down on mansion owners who plead poverty on par with the Downtown Eastside

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Who will pay the taxes for universities, health care and rapid transit if residents of some of Metro Vancouver’s exclusive neighbourhoods are reporting poverty-level incomes?
Some homeowners in tony parts of the west side of Vancouver and Richmond are claiming to have income as low as people struggling in Vancouver’s poor Downtown Eastside.
The tax unfairness caused by the growing phenomenon of mansion owners alleging poverty can be traced largely to Canada failing to catch trans-national migrants who refuse to report their total global income at tax times. …
Statistics Canada data shows the upscale neighbourhoods in Metro where more than 30 per cent of adults are reporting poverty have a high proportion of immigrants …
In addition, a large collection of adjacent neighbourhoods in north-central Richmond, where roughly 40,000 people tend to own either pricey houses or condos, has an unusually strong percentage claiming low incomes. …
Immigration Canada is aware of the reported-earnings anomaly. It released data this year showing refugees to the country appear to earn more income on average than the hundreds of thousands of immigrants who have arrived via the businessinvestor program. The latter were required to temporarily invest $800,000 in Canada.
Many of the Metro households in fashionable neighbourhoods that claim low incomes appear to follow the well-documented “astronaut” scenario of investor immigrants, in which husbands often work offshore while their school-age children live in Canada. …
UBC geographer David Ley says Canada’s business-investor immigration programs have led to “200,000 people coming to (Metro) Vancouver … in the last generation.” …
The tax implications for Canada are disturbing. How many Canadians who are rich in assets and property, but low in reported income, are not paying their fair share for public services. How many are even receiving welfare cheques and GST refunds because they are “poor?” …
And although Ottawa brought in legislation in 2013 that required Canadians to declare their foreign assets, Vancouver immigration lawyer Samuel Hymn said neither the federal nor B.C. governments are cracking down on people who pay sky-high prices to buy Canadian houses but don’t pay taxes on global income.
That goes for both overseas property owners who are avoiding taxes through a legal loophole — by becoming non-residents for income tax purposes, for example — and for those residents acting outside the law by not reporting global income, Hyman said.
Advocates of economic globalization, like the Vancouver Board of Trade and B.C. real estate magnate David Choi, have traditionally opposed foreign-asset disclosure laws, says Millionaire Migrants.
But even left-wing stalwarts, such as Vancouver New Democrat Jenny Kwan, have spoken against foreign-asset disclosure legislation, in the name of intercultural sensitivity.
Non-disclosure of assets is a cultural trait of ethnic Chinese, Kwan is quoted saying in Millionaire Migrants. “The Chinese are very private about their money.” A law requiring them to disclose assets, Kwan said, “goes against our culture.”

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This was not a new story, but Todd’s piece ratcheted it up, requiring a response from those who would otherwise prefer not to touch it:

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Sun - todd

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The Globe’s Kerry Gold had also pushed the issue last week: 

Denying flood of foreign money makes solving housing crisis even harder

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If we’re going to move toward a solution to the housing affordability crisis, we have to get beyond foreign-money denial.
We’ve heard a lot lately from a small but influential camp of foreign-money deniers. If they do concede that foreign money is jacking up Vancouver property prices, they’ll only admit to it affecting the extreme high end. That’s safe territory, because relatively few people can afford a house that costs more than $3-million. It lulls people into mistakenly believing it’s a rich person’s problem. …
How is it possible for foreign wealth to have no impact on the entire market? Not so long ago, Vancouverites dependent on local incomes used to be able to afford homes in Dunbar, Kerrisdale and Point Grey. Residents were teachers, social workers, professors, doctors and lawyers – anybody with a decent income could afford a nice home. The days of upward mobility are over. …
“There is no firm line between high-, medium- and low-end,” analyst and consultant Richard Wozny, whose company works on major real estate developments for developers and landowners, said. “Prices are on a continuum. Strong sales in one price range [have an impact on ]adjacent price ranges, and it affects the entire market. Overwhelming demand and a severe shortage of supply [affects] all housing. The market distinction between the east side and west side of Vancouver is an example of how higher values in one area spread to another.
It’s the gentrification of everywhere.”

Unless this issue is seriously addressed, it’s just a matter of time before it gets very ugly indeed.  One need only read the comments that follow the stories: As one suggested, Canada needs a Donald Trump to cut through the political correctness.  And unless reasonable people and thoughtful leaders take this one on, that’s what, God help us, we will get.

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Comments

    1. Clear-headed analysis as usual from the economist.
      The beauty of land value taxes is they shouldn’t cause economic distortions. Land is fixed, so when it is taxed it does not “vanish”. Unlike income tax or corporate tax, which discourages work and investment and causes people to move their income or businesses to low-tax jurisdictions. Same goes for consumption taxes. Economic distortions make us poorer – they should be avoided.
      It also disincentivizes the income-mobile rich from dumping money in the housing market. As well, it discourages “sitting on” vacant property. Higher land value or property taxes would reduce the incidence of empty houses and condos, which seems to irritate people.
      All this makes plenty of sense and is a practical, well-understood policy proposal…
      So, lets completely ignore it and shriek about all the bloody Asians instead.

  1. A couple observations about that Kerry Gold column:
    1) Her numbers only refer to detached houses. No mention at all of how prices for condos have gone up *much* less over the last 5 years.
    2) Her source Richard Wozny mentions both demand and supply, but Kerry’s column only touches on demand. There are painfully binding limits on the supply of housing, which are obvious if you spend even a little bit of time with our zoning codes: https://twitter.com/GRIDSVancouver/status/640544192045826049
    By all means, let’s crack down on tax evasion but the single-minded focus on foreign money is frustrating. The end goal should be housing *more* people in Vancouver instead of just reallocating the existing housing to people who are somehow more worthy by virtue of being born here.

    1. The single minded focus on foreign money? It took years to even get the mainstream media to look at how our real estate market us distorted by offshore money! It’s not the only reason but by far the biggest in Vancouver.
      I had to laugh at Red Jenny bleating about offending the cultural sensitivities of wealthy money launderers. How she manages to keep getting elected never ceases to amaze me. And why is she so concerned about Chinese cultural sensitivities? Isn’t she Canadian?

    2. What a crock of BS, “single-minded focus on foreign money”. Newsflash dude: Vancouver real estate has been affordable since the Expo lands were sold off to Lee Kah Shing and marketed to Hong kong, taiwan in the 1990’s, now in typical politically correct weak Canadian attitutudes we are expected to absorb an even more massive onslight?
      The Chinese are buying everything insight, ask anyone who’s in the real estate industry and they will tell you that they have to bring on a Chinese Realtor just to compete. And the lagging Condo market you speak of is fast exploding. Speaking with a Taxi driver lastnight he said the girl in trip before had just bought a condo near Lower Lonsdale and the Chinese man infront of her bought 5. We have never had a situation in the world where a country of 1.3 billion is frantically trying to get their money out and are fixated on a small region that cannot absorb the onslaught. If you can’t put the puzzle pieces together I feel sorry for you.

      1. A few questions:
        1) When is the last time you looked through Vancouver’s zoning code?
        2) How familiar are you with North American land use regulation in comparison to other developed countries in Europe and Asia?
        If the answers are “never” and “not at all”, then it might be worth doing a bit of reading instead of forming beliefs based on taxi driver anecdotes.

        1. What does zoning have to with it? Talk to a realtor who will let down their guard: probably 85% of property sales south of 12th and West of Main are to those with connections to China.

          1. Zoning controls the type, location, and most importantly the amount of new housing allowed. In other words, it’s a very large component of the supply curve for housing.

        2. Bob, if you can find a way to conjure up more land without levelling the mountains and filling in the sea, please by all means patent the process and make a fortune.
          Developable land in Vanouver is pretty well tapped out, hence the huge rise in average values of the land component far in excess of the rate of increase for the actual home.
          This is not to say that foreign wealth does not influence housing prices. More accurately, it influences the land value of large lots occupied by single family detached houses where there are fewer people on more land. The story is actually complex and is indeed related to land use and supply/demand.

  2. Vancouver’s unaffordability problem is real and qualitatively different from other Canadian cities. Just compare Vancouver to other cities: http://censusmapper.ca/maps/37. And that’s 2011 data, it most likely has not gotten any better since.
    On the role of foreign money, I think it’s important to use hard evidence, not personal anecdotes when approaching this. There is geographic overlap between areas that have seen higher recent immigration from China and areas where people live that have lower household income than running shelter costs. But that’s just circumstantial evidence, someone will need to dig deeper to figure find something more conclusive. Or find evidence to the contrary.
    And if foreign money is the a big part of the problem, it’s important to focus on that. So say ‘wealth migration’ or to frame it more precisely ‘Chinese wealth migration’ as most of the wealth migration comes from China. But don’t just say ‘Chinese’. The key point here is that there is nothing wrong with people working here, paying taxes and buying property from that money. The issue arises if money comes from elsewhere and prices the local workforce out of the market while at the same time not participating significantly in the labour force.
    As Reilly points out, supply is the other side of the equation and is extremely important, especially looking forward. The NIMBY mindset of ‘everything was great before group xxx arrived in my neighbourhood in not productive. Vancouver’s population has been growing, and it will continue to do so. And if supply does not increase to keep up with that pace the pressure on prices increase too. Building more affordable housing on the prime land that is currently designated for multi-family housing is a tall order. But building more affordable housing by up zoning the some of the large swaths of the city zoned single family is much more achievable. Let’s face it, a big chunk of Vancouver’s single family homes will be torn down. 1/3 of all buildings in Vancouver have building value less than 5% of the land value. The proportion is even higher when only counting single family homes. These buildings will get torn down when they change hands, people don’t spent $1.5m to live in a $70,000 house. So it will either be McMansions going up, or we rezone and build low-rise apartments.

    1. Or we get government to destroy the demand. If we are being sold a bill of goods that insists we have to import a younger population, let’s challenge that with a call for funded National daycare that encourages Canadians to have more children. We don’t need to be selling off Canada to those deriving their incomes from one of the most bellicose and environmentally unfriendly countries in the world.

    2. Hard evidence versus anecdotes? Why is there no data then? because the government knows the issue is real and don’t want to deal with it. How can our Bimbo premier say in the same sentence that Foreign capital has only a small impact on the market but when asked to tax Foreign property transactions she’s say we can’t be it would implode the real estate market and effect the economy? Give your head a shake.

  3. About time we closed these vast loopholes and monetized foreign or immigrant residential housing & investment demand for Canadian residents’ benefits !
    The tax mix has to shift from PST and incomes to include the new gold: residential real estate !
    Foreign ownership of real estate and dual citizenship is hard to control. The ONLY way is to tie real estate ownership to the SIN number. If you are a Canadian resident you have a SIN number, and have to declare all world wide income here. If not: big penalties. Or else, pay 25% or more with holding tax on real estate sale.
    Another option is to increase property taxes for all residential real estate and land transfer taxes, too but to give a tax credit to Canadian residents on tax filing time as many foreign buyers, or even many affluent folks that live here, pay little to no income taxes.
    Immigrants use up a lot of resources, especially for healthcare and education / ESL, but also policing, roads, transit or some social services which together consume over 80% of the provincial budget. Many immigrants do the rational thing and declare income abroad, pay no income taxes here but take in those expensive services. That is rational behavior of a rich immigrant with 3-4 passports. That has to stop.
    Don’t stop immigration, just MONETIZE IT better !
    How about a 1% per $1M land transfer tax ? up to 15% like in UK or Singapore ? Plus triple the property taxes with a rebate if you fill out a form that includes your SIN number so it can be traced back to your income tax filing. Any corporation or trust would immediately not get that. Only residents, once.
    We have indeed a homelessness problem, a transit problem, a healthcare funding and an education funding problem as too many immigrants or Canadians-of-Convenience, also referred to as passport seekers, pay too little in property and income taxes !

    1. Funny I hear the same thing over and over again from you on this Thomas, really good ideas I must admit. But when we need your input the most at the Generation Squeeze and Give us data rallies, you like most Baby Boomers are nowhere to be found.

      1. Enlighten me to the “give us data” rallies. I have no idea what you are talking about.
        Generation Squeeze aka Generation Entitlement aka Generation-that-grew-up-coddled-with-(relatively)-wealthy-parents ? What does this have to do with this topic of immigration and housing ? Enlighten me, please ? Like, your right to get a house for a low price 2 blocks from the beach ?

    1. SW Marine already has bike lanes, but they’re an absolute disgrace. Any improvement is welcome.
      As for not being AAA, I think the money that would be required to bring SW Marine up to standard is better spent elsewhere.

      1. I don’t believe it would add to the costs significantly to adding some plants or some sort of concrete barriers. Or at least add some before right turn areas so it forces cars to make wider turns.

      2. Good points to raise at the upcoming Open House (Oct 14) on this project. Particularly at the intersections that have current issues with vehicles cutting through the bicycle lanes. Those intersections tend to be the ones that are not 90 degrees (due to the alignment of SW Marine) and which are taken at higher speeds, heading westbound on SW Marine.
        Any improvement on SW Marine is a step forward and long overdue, IMO. While the planned improvements will make it much better for confident cyclists, it remains to be seen whether this improvement will increase mode share by attracting new people on bikes.

      3. The place where I see the most cars cutting through the bike lane is one of the 90-ish degree intersections: Blenheim. One car trying to turn left causes dozens of others to re-route through the bike lane to get past. If there was a barrier along that stretch something would have to be done about left turns: massive road widening to accommodate a turn lane, or a ban on left turns at all intersections between Dunbar and 49th. If you banned them only at Blenheim the problem would simply move to Balaclava.
        I don’t know how much road widening is envisioned, but I think the addition of concrete barriers or planters would require even more widening and therefore a much larger budget.
        The only cyclists I’ve ever seen on Marine between Blenheim and Barnard have been in Lycra. Like Jeff I wonder if improving the route has the potential to change that.

  4. There are so many points to respond to. I’ll start at the top with the two main suggestions from the Economist.
    – progressive property taxes : great idea
    – elimination of property transfer taxes because it limits mobility : a worthy sentiment, but without transaction taxes residential housing stops being a place to live and instead becomes yet another commodity to trade like cattle futures. Those looking for a home are pitted against deep pocketed investors looking for a quick profit or a hedge against market turmoil.
    Desirable houses and condos are sold to investors before people looking for a place to live even get a chance to consider them. Entire buildings are sold to investors while they’re still just holes in the ground and many units re-sold before the first resident moves in. Any new “affordable” housing is thus marked up before it becomes available to those for whom it was intended. Maybe we need to have a means test for “affordable” housing that excludes anyone able to pay cash, anyone making too much money and anyone who already owns multiple properties.
    People who come here to live, work and contribute to the economic and cultural richness of the country are more than welcome. With the exception of my First Nations family and friends, we’re all recent immigrants to this place after all.
    But not everyone who buys property in Canada is doing it because they want to contribute to our neighbourhoods. Not everyone even wants to live here. Some are simply playing a game of wealth accumulation and tax avoidance. We need to identify those people and impose stiff penalties on their behaviour. Canada needs to stop being an easy mark.
    What about Canadians who treat housing as a tradable commodity? Shouldn’t they face penalties too? Yes, but they are contributing to society by living here, paying taxes and many of their 3rd, 4th and 5th homes are rented out. So the penalties on Canadian property traders need to be proportionally less than those imposed upon those who are non-residents for tax purposes.