February 7, 2016

A deliberate lack of understanding

“Poor Canadians – they just don’t understand.”

– Former realtor’s assistant Lynn Yang

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I’m posting this today from The Globe and Mail’s investigation into the ‘assignment’ scam corrupting the Vancouver real-estate industry because already PT is getting comments on it.
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Globe
 
Globe 2

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Kudos to The Globe and journalist Kathy Tomlinson for doing the hard investigative work into a critical story. (What an embarrassment for The Sun, which isn’t.  At least The Province has Sam Cooper.)
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This – and more articles like it, which seem to be coming out weekly – are devastating for the real-estate industry, brokers and realtors in particular.  But I don’t think it’s a lack of understanding within the industry, nor among the regulators, nor their political masters.  I think it’s deliberate avoidance.  (‘Sorry, not enough data.’)
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So why the silence?  Have the industry leaders and regulators really nothing to say? Are they too scared?  Are they waiting for public confidence to collapse so completely that it will force the also-silent political leaders to take unpleasant actions?  Are they waiting for an ‘externality,’ deus ex machina – resulting in a market collapse without their fingerprints on it?
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I’d love to hear from Bob Rennie about now, because I expect it would be after consultation with Christy Clark, to whom he gave so much support.  Or perhaps that’s unnecessary because the upcoming Budget plans to address the matter.  (Though somehow I expect it will be targeting municipalities more directly than the real-estate industry.  Watch out for your CACs and DCCs, mayors.)
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In any event, what will it take to break the silence?

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  1. Reblogged this on Rob Nordrum and commented:
    Reblogging this from Gordon Price’s PriceTags Blog as his intro is much better than what I was going to write. Great article from the Globe. We meed more pieces like this that examine the issue deeper than the superficial “Vancouver is un-affordable” approach many have taken lately. Yes, we have a problem with real estate affordability and until we have a better understanding of the mechanics and workings of the real estate world it will be difficult to craft effective policy to better manage it. Articles like this are a great start both at creating new policy, but also helping to lift the veil of secrecy behind the real estate industry. Kudoos to the Globe.

    1. Post
      Author

      Community Amenity Contributions and Development Cost Charges.
      CACs are negotiated by the City where a rezoning would result in a significant increase in the value of the land. The City then receives a percent, usually large, of that increase for public benefits. Development Cost Charges are a flat fee calculated on the size of the development for amenities in the district zoned for that particular DCC requirement.
      Still pretty ITB stuff

  2. Incomes are over-taxed. 30% (20% federal plus 10% provincial) for incomes under $90,000, and close to 50% if over $200,000. This is far too high. Real estate and consumption is under-taxed, for both Canadians, but especially for non-Canadians.
    ==> Real estate, beyond a modest home is not mere shelter which ought to be lightly taxed, but consumption. Why not charge GST and PST on purchase – minus a rebate for locals and seniors, or 1% per $1M up to 15% ?
    As such, why work to make an extra $100,000 as an affluent and capable lawyer, accountant, realtor, engineers, inventors if one can buy a house for $1-2M and sit on it tax free and make a dew hundred thousand to $1M in a few years tax free. That is common sense behavior. Worse still, foreigners pay no extra tax at all, and neither do affluent immigrants and “fake Canadians” who are merely here to wait for their passport, while consuming expensive healthcare or education.
    Yet no provincial politician likes to rock the boat, and tie real estate to a SIN number for controlling tax evasion as this needs federal and provincial cooperation. Both sides seem to like to avoid that to not upset the Chinese investment community.
    Politicians, primarily on the provincial level, but also on the federal level, have failed real Canadians trying to live in MetroVan or GTA.
    We need to tax residential real estate three ways:
    a) on purchase
    b) while holding
    c) when selling
    More for non-Canadians but also for Canadians and in parallel lower income taxes. We need to learn from rational behavior of affluent immigrants: declare income abroad, pay no income taxes here at all as they are so high, buy the most expensive house they can afford as property taxes are very low, consume little, and use free services such as education or healthcare for the kids and the wife while husband works abroad / stays abroad a lot of the time.
    If we did it like booming Texas, where property taxes are roughly triple to here and state tax is 8%, yet state income taxes are 0, we’d monetize this rational behavior and spur job & economic growth !

    1. On this you and I agree.
      I say ask every tax payer (owner, renter, family member, etc.) to declare a principle residence. That way government would learn which homes are owner occupied and which are revenue/recreation/speculation properties.
      Then put sales tax on every transaction.
      Add a non-refundable tax credit on the federal income tax form for “Principle residence acquisition”.
      So if you’re buying a home to live in, you get an income tax credit equal to the sales tax. Net cost to that class of buyer: zero
      Everyone else would pay the tax. Canadians looking for a home would have a permanent 12% advantage over every other prospective buyer.
      Having to pay a hefty tax up front means fewer people would see buying a second/third/fourth property as a good investment. While that should reduce the number of empty houses it would also reduce the number available for rent and thus drive up the cost of renting.
      To offset that impact I would introduce a small renter’s tax credit.
      Introducing sales tax on real estate would have an impact on the market. It would suppress investor demand and give those looking for a home to live in a big negotiating advantage. In the short term prices would fall. In the long run supply and demand would do their thing and prices would start rising once again, but not as quickly.
      The effect would be biggest in the recreational property market where absolutely everyone would have to pay 12% more. That’s a necessary side effect of making a tax that’s simple to understand, simple to collect and difficult to avoid. Besides, the tax should bring in enough additional revenue to permit a reduction in income tax rates. Over time that should put more money back into the pockets of the wealthy than a one-time tax on their Whistler condo cost.

  3. It’s an interesting article but to people in the industry there’s nothing new here. People have been buying and selling “paper” for decades for a whole range of reasons, most of them ordinary like having to sell a house you just bought before you had to complete on a deal because you couldn’t find a buyer for your old house. I was in that situation and the fact that my agent stood to make a second commission was fine with me if she could solve my problem (she didn’t have to, in the end, fortunately.)
    Most of these transactions are completely legal and they hinge on the simple fact that there are people — in this case realtors — who believe there will be buyers in the market who will pay more than the original seller accepted. Or in Warren Buffet’s words, they believe that the commodity was mispriced for the actual market and the original seller didn’t know that.
    I have known many people who have sold houses in this market, getting much higher selling prices than they ever dreamed of getting, only to find that their houses are resold in a short period of time for much more money. Should they be upset about it because they didn’t get even more for their house?
    As Thomas Beyer and others point out, there are many ways the government could influence this situation through taxation, creating enough friction to reduce the potential windfall on resale. Will they do it?

    1. I find it interesting that there are professions who are ‘required’ to act in the fiduciary duty of their client. The article makes clear that this is not the case in this instance, with this profession.

      1. That may go on but most of the references in the article are to the buyer’s agents who do not have a fiduciary responsibility to the seller.

  4. Vision Vancouver has been every bit as silent about the real estate shenanigans, and even though it lies outside their powers to do much, they could have been far more forceful in calling for solutions. It’s hard to believe a party which sprang from COPE would do so little in fighting the resortification of Vancouver.

    1. The stepping stone between COPE and Vision Vancouver was called “Friends of Larry Campbell”. I find it revealing that the political party currently in power in Vancouver sprung from a group of insiders raising funds for an individual.

    2. I seem to recall Vision and Robertson calling several times for the BC government to enact policies on all the speculation going on, all the while ignoring the lack of policies on the city’s huge tracts of inefficiently-used land occupied by detached homes.
      Both seem to be relevant to real estate prices.

      1. In my view, the least we can get from rampant speculators, if no one is going to do anything about them, is encourage denser forms of housing on their property. Upzoned residential property will also suffer from speculation in the current environment, and denser housing could still exceed the reach of ordinary income earners in strata, but at least it will get built. The current zoning situation produces little more than empty mansions where townhomes could be. Seems no one wants to take the political risk at city hall of allowing greater residential density outside spot-zoned towers, particularly given optics of gifting speculators and developers with more FSR.

  5. I fail to see what the controversy is here. These people were promised $5M for their house, and that is what they got. Are they pissing and moaning because they realized they could have gotten more? Or is the moral panic ensuing because those sneaky Chinese realtors are “making money” off of hard-working white folk? Honestly, what is the controversy here?! Is flipping OK or not, or is it just the Chinese who aren’t allowed to flip? Somebody answer this question, please. It’s getting silly.

  6. It’s unethical if the agents are trading the properties they are representing.
    There’s really nothing wrong in going around and offering people money for what they have. Even if it’s below what the item can fetch elsewhere. If I know of a buyer that is prepared to pay X for a ’69 Mustang and I see one outside your house and offer you X-15% for your Mustang, then I’m just more familiar with the market than perhaps you are.
    What’s making people uncomfortable is that the assigning clause, which can benefit the seller as well as the buyer, allows this ‘flipping’ to happen, before the completion of a sale.
    As long as the market climbs then people can make out like bandits with the assigning clause. The moment a market crashes those same people will be badly burned. It’s a gamble.
    In any transaction you have to be happy with the outcome and any regrets later are a waste of energy. Almost all of us have stories about, “if I’d bought that, then…” Or, “If I had held on that until now..”. Sellers and buyers too should familiarize themselves with the market (It’s surprising how many people do not) and act accordingly.
    If you’re going to Morocco and you’re going to buy a rug in the bazaar, are you going to pay the first price you’re quoted? If the answer is yes, there’s nothing anyone can do for you and you should be happy knowing that you probably made someone else, mystified, but very happy.

  7. At the first presentation of the transportation report to support the removal of the viaducts, Bing Thom spoke; he said something like – “The city of Vancouver was built on immigration, drugs and real estate, and nothing has changed.”

      1. Seattle and San Francisco are built on more than that. Vancouver is unique on how low it will debase itself and its citizens at the foot of the real estate industry,

        1. I guess the point is “nothing has changed” — Vancouver’s economy still relies on immigration, drugs and real estate.
          I think that 125 years would be enough time for a city to grow up and develop other economies.

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