Why won’t Trudeau stop real estate scammers? Gary Mason

2017/09/23 Leave a comment

Builds on earlier article by Douglas Todd (Todd: Tax avoidance behind Metro’s disconnect between housing, income):

Prime Minister Justin Trudeau is getting a rough ride for going after doctors and small-business types allegedly exploiting the tax system to their benefit.

Perhaps Mr. Trudeau would get more brownie points pursuing those gaming the real estate sector, people who are leaving a far more critical problem in their wake than anyone sprinkling income to pay a few less dollars in tax.

The latest census information underscored once again the inexplicable divide that exists between average incomes in certain parts of the country and house prices. The median total income for households in Metro Vancouver, for instance, was $72,662 in 2015 – 15th in the country. In the city of Vancouver, it falls to $65,327 – an area in which the average house price is $1.4-million. In neighbouring Richmond, B.C., the average house price is over $1-million and the median total income is a paltry $65,241.

Only when you go further out into the burbs, where house prices are lower, do incomes begin to rise. In Surrey, for instance, the average home price is $764,000 and median total income was $77,494 in 2015, according to the recent census.

In a place such as Calgary, median household income was just under $100,000 and average house price around $460,000 – so there isn’t nearly the disconnect that you see in Vancouver or Greater Toronto, where the average home costs just over $750,000 and median household income was $78,373.

In Metro Vancouver, some of the most expensive areas for housing – Vancouver, Burnaby and Richmond – claim some of the highest poverty rates.

Richard Wozny, a real estate analyst with Site Economics, has delved into the numbers in Metro Vancouver. He says that in the world of economics there is something called the median multiple, which is the ratio of income to average house price. So, if you earn $100,000 and the average house price in the city in which you live is $200,000, than the ratio is two to one, or simply two.

A median multiple of three or under is considered affordable; five and over is considered seriously unaffordable. Hong Kong, one of the most expensive housing markets in the world, had a multiple of 19 in 2015, according to a Demographia study. Australia’s Sydney, another city with extreme house prices, had a multiple of 12.

Metro Vancouver’s median multiple exceeds 20, with some municipalities such as the city of Vancouver and West Vancouver in the high 30s. And yet, the median household incomes in some of those same ultra-expensive neighbourhoods fall below the regional average. How do you explain that?

Mr. Wozny says even factoring in the likely percentage of retirees in some of these areas, the numbers make no sense. More likely, some of those buying homes for $1-million, $2-million or $3-million are not reporting their full incomes. We know that, in some cases, wealthy offshore investors are using trusts and numbered companies as well as spouses and children to buy homes while reporting little annual income.

Meantime, people in the “outer burbs” living in homes of less value are reporting more. In other words, there are people of moderate income living in Metro Vancouver who are, through their taxes, paying a greater share of the costs of the regional services and infrastructure that others, making far more income, also enjoy.

Canada has become an Eden for money launderers and tax evaders, allowing many to freeload off of others who can ill afford it. It was disclosed this weekthat since 2015, the Canada Revenue Agency has identified hundreds of millions in taxes owing in real estate transactions. Yet only three cases nationwide have been referred for criminal prosecution.

Mr. Wozny looks at a city like Seattle that has a higher median household income than Vancouver and lower average house prices. He believes part of the reason for that is because the United States has tougher regulations, including taxing worldwide incomes. This helps prevent offshore opportunists from scamming the tax system and pillaging the real estate market to the detriment of honest, hard-working Americans.

It’s ironic that the proposed tax changes that are causing Mr. Trudeau so much grief are supposed to benefit the middle class, that fuzzy demographic the Prime Minister loves to defend.

Yet, that same middle class in parts of this country are getting absolutely hosed by some who are helping to drive up housing prices, reaping the financial rewards from it, but not paying the same costs as everyone else.

It’s not fair. And the government needs to do something about it.

Source: Why won’t Trudeau stop real estate scammers? – The Globe and Mail

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Todd: Tax avoidance behind Metro’s disconnect between housing, income

2017/09/18 1 Comment

Another good piece on Vancouver’s housing prices and the underpaying of tax:

After census figures this week revealed alarming gaps between housing costs and average incomes in Metro Vancouver, veteran real-estate analyst Richard Wozny is preparing a speech for B.C. politicians that blames the disparity is in part on tax avoidance.

A reason why residents of Metro Vancouver municipalities with expensive housing tend to report lower incomes than people in less-costly municipalities is that many of the former avoid declaring their total wealth, said Wozny, whose company has produced 1,200 studies on real-estate trends in Canada and the U.S.

“Canada has become a freeloader society” in which some mansion owners have found ways to avoid reporting their total incomes to the Canada Revenue Agency, said Wozny, who will speak on Sept. 25 at the convention of the Union of B.C. Municipalities in Vancouver.

Census figures released this week show Metro Vancouver, which has one of the world’s most expensive housing markets, lags behind 14 other Canadian cities on average wages.

The census also exposed an apparent contradiction: Residents of Richmond, Burnaby, the city of Vancouver and West Vancouver — which have the most expensive housing costs in Metro — also have on average the highest rates of poverty.

The census data highlights “inappropriate reporting of family incomes” by many property owners in Metro Vancouver’s well-off neighbourhoods, says Wozny, head of Site Economics Ltd., who said governments need to crack down on residential property speculators.

Inadequate Canadian tax laws have allowed owners of houses that sell for more than $2 million or $3 million “to report unusually low taxable median family incomes,” Wozny said in a detailed report titled Low Incomes and High House Prices in Metro Vancouver.

“It is not logical that so many low-income residents buy expensive houses. The analogous situation would be people reporting minimum wage routinely buying Rolex watches and luxury limousines,” Wozny said.

It’s also not fair, Wozny said, that the burden of paying for Metro Vancouver’s transit systems and schools is largely borne by residents of the suburbs, such as Port Moody, where house prices are only average, yet residents have the highest taxable incomes in Metro Vancouver.

“Irrationally high-priced real estate is not harmless,” Wozny said. “There are plenty of victims, from the environment to the middle class. Simply stated, Metro Vancouver is worth more than it charges in property taxes and fees.”

When Wozny speaks to politicians at the UBCM, he will urge better regulations to target real-estate speculators, both domestic and offshore, many of whom shield their wealth from Canada’s tax officials.

“The Americans would never tolerate such free riders. Canada has become a money-launderer’s paradise,” Wozny said in an interview.

“Seattle’s incomes are far higher than those in Metro Vancouver, and its economy is many times larger, yet its housing prices are far lower than they are in Metro Vancouver. The difference is that Seattle is governed by laws that tax worldwide incomes, and which don’t allow un-monitored capital flows.”

Wozny disagrees with real-estate lobbyists who attempt to explain the radical gap between housing prices and wages by saying many mansion owners in Richmond, Vancouver, Burnaby and West Vancouver are seniors getting by on low incomes.

That rationalization doesn’t make sense, Wozny said, because most neighbourhoods in North America have similar levels of what he called “old Mrs. MacKenzie who has lived in her house since the Second World War. There are old Mrs. MacKenzies in every city.”

Wozny’s analysis also doesn’t support remarks made Wednesday by economist Iglika Ivanova of the Canadian Centre for Policy Alternatives, who speculated the reason municipalities with soaring housing prices also have unusually high percentages of people living below the poverty line ­is the latter want to live near transit lines.

Instead, Wozny’s report supports former Richmond mayor Greg Halsey-Brandt, who was the first to publicly flag how some of his city’s pricier neighbourhoods had almost as many people reporting poverty-level incomes as in Vancouver’s destitute Downtown Eastside.

University of B.C. geographer Dan Hiebert has also discovered a correlation between neighbourhoods with largw foreign-born populations and neighbourhoods that appear to have unusually low taxable incomes, despite their inflated housing prices, such as Richmond and Vancouver’s west side.

Wozny, a real-estate business insider, appreciates the analyses of immigration lawyers Sam Hyman and Richard Kurland, and SFU professor Josh Gordon, who have pointed to loopholes in tax and real-estate laws.

They say unenforced laws allow wealthy speculators to avoid taxes by using trusts or companies to purchase real estate, by falsely claiming they are not “residents of Canada” for tax purposes and by buying residential property in the name of “proxies,” such as low-income spouses or children.

Even though Wozny considers himself a fiscal conservative, he said B.C. and Canada desperately need tax-code updates so that investors who buy multiple residential proprieties contribute more to their communities.

“The public has been cynically abandoned by governments. Real-estate is an essential building block of the middle classes,” Wozny said. But hard-working people are being squeezed out of ownership, he said, by speculators who put too much demand on Metro’s real-estate market and who aren’t carrying their social weight.

“Everybody should be paying taxes,” Wozny said. “Taxes should be a privilege. We should enjoy paying them.”

Source: Todd: Tax avoidance behind Metro’s disconnect between housing, income | Vancouver Sun

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