Douglas Todd: Lax politicians betrayed Vancouverites (Part 2)
Canada
Second of two parts
It is not just Vancouver’s pleasant mountains and beaches that have lured so many of the world’s multimillionaires to the city’s real estate.
Metro Vancouver homes have become unaffordable in part because regulatory loopholes and lax oversight have made it easy for wealthy individuals to manipulate Canada’s legal systems to buy and sell city homes as commodities.
In last week’s column, I explained how Immigration Canada failed for decades to monitor its business immigrant program, which was key to rising Metro prices. The Canada Revenue Agency has also looked the other way while mansion owners dodged income taxes.
This week I look at two more supposed guardians of the public trust, which have been disturbingly impotent in the face of stratospheric housing costs.
Canada’s anti-money-laundering arm, Fintrac, has been largely ineffective, and the B.C. government has for years been sluggish about protecting constituents.
Even though B.C.’s real estate industry has been flying high on foreign capital, most Metro residents have been devastated.
They cannot deal with how this small city’s real estate market has become one of the top three havens, according to the Hurun Report, for the trillions of dollars now being generated in China, to name the largest source.
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Such property speculation in Metro has taken place while Canada’s federal, provincial and municipal politicians have, since the 1980s, been heading off on splashy trade missions to solicit foreign investment.
As a result, many have had a vested interest in denying the dark side of the globalized forces they have unleashed.
Here’s a look at how Canada’s anti-money-laundering agency, and the B.C. government, have fallen short in their duties:
Fintrac’s failures
Long before the Panama Papers were released in April, federal and provincial authorities were warned Vancouver was a hub for money laundering.
The Panama Papers, which revealed how the elite avoided taxes through offshore shelters, reinforced that Metro Vancouver has far more than its share of multimillionaires hiding their global assets.
Postmedia reporter Sam Cooper recently reported that the Financial Action Task Force, based in Paris, found Canada has been “non-compliant” with the watchdog’s basic expectations for cracking down on money laundering.
The agency said Vancouver’s vulnerability to “Chinese officials laundering proceeds of crime though the real-estate sector” has been under-estimated by Fintrac, which is meant to gather intelligence on illicit financial networks.
Canada’s “law enforcement results are not commensurate with the money-laundering risk. And asset recovery is low,” said the Paris-based agency. Vancouver’s “real estate business is exposed to high-risk clients, including politically exposed persons, notably from Asia, and foreign investors.”
Lawyer Christine Duhaime has helped reveal how Canada’s tepid anti-money-laundering efforts have been hamstrung by bankers and realtors.
What’s worse, when Fintrac tries to enforce it’s own rules, lawyers like Christine Duhaime have revealed how it has been hamstrung by the lack of information provided by bankers and realtors. Many have been waving through suspiciously large transactions.
Internal reports showed Fintrac reviewed 800 real-estate firms in Canada and found 60 per cent were deficient in their monitoring of potential money-laundering. Almost none of the realtors were fined.
It all brings UBC geographer David Ley, author of Millionaire Migrants, to the disturbing conclusion that Fintrac, as well as the country’s immigration and tax departments, are “silent sentinels, reluctant public gatekeepers of the housing market.”
In a recent talk (go here for video) Ley said:
“There would seem to be a systematic malaise in institutions whose actions impact the housing market, which extends beyond the silences of the provincial and federal governments. Under-resourced, overly forgiving, unwilling to take on tough tasks: They have all contributed to higher housing prices.”
B.C. negligence
Even with federal politicians’ many displays of passivity, it’s arguable the B.C. government has been more negligent.
That includes its long-standing unwillingness to provide data on how much foreign money has been streaming into Metro Vancouver.
“Foreign money coming in clearly benefits the property developers and realtors who are major contributors to the B.C. Liberal Party,” says Justin Fung, of HALT.
While virtually ever other country makes data on foreign ownership readily available, the B.C. Liberals and the real-estate industry stubbornly refused to admit offshore speculation even existed, labelling concerned citizens as xenophobic.
Finance Minister Mike de Jong, Housing Minister Rich Coleman and Premier Christy Clark, who have been most responsible for the intransigence, stated last year they had little intention of intervening in what they deem a laissez-faire market.
When the B.C. government finally began this summer to release snippets of information about foreign ownership, it wanted voters to believe it had just started collecting the data. But experts said it was there all along.
“Foreign money coming in clearly benefits the property developers and realtors who are major contributors to the B.C. Liberal Party,” says Justin Fung, of Housing Action for Local Taxpayers, or HALT.
The B.C. Liberals’ have been painfully slow to act, in part, Fung suggests, because they have taken in more than $12 million in party donations from the real estate sector — including from offshore.
What does Metro need now?
At least the federal and B.C. governments have in the second half of this year admitted to Metro’s housing tragedy.
In June I wrote a column headlined: “Ten ways to ease Metro Vancouver’s housing crisis.” The proposals did not require a PhD in public policy. Others have suggested them.
Surprisingly enough, after years of political inertia, six of the recommendations have in the past five months been instituted, or at least promised.
No. 1 on my list was a tax on foreign buyers, which Clark and de Jong brought in in August, seemingly inspired by the B.C. Liberals poor standing in polls. The 15-per-cent tax has had an impact, however unclear.
Another recommendation I supported was a tax on empty houses, which the city of Vancouver instituted this week.
In regards to my no-brainer on money-laundering, Ottawa promised this fall, like Australia, to close the Titanic-sized loophole that allows Canadian lawyers to launder illicit cash.
In line with another common suggestion, the federal Liberals also moved to help people avoid personal bankruptcy by making it harder for Canadians to obtain mortgages.
B.C., in addition, has this year indicated it’s ready to clip the wings of shady realtors, by taken away the right it had previously handed the industry to regulate itself.
Finally, and most easily for politicians, many municipalities continue to boost housing supply by increasing zoning density.
In addition to taking seriously these common-sense reforms, politicians need to do much more to offer hope to Metro residents who need housing security.
But it will take greater political will. And more policy imagination.
One innovative idea, for instance, comes from Jonathan Kesselman. The SFU policy specialist recommends reducing foreign real-estate speculation through a progressively rising property tax, which would be offset for those who pay Canadian income tax.
However, even if such potentially far-reaching ideas were instituted, they will do Metro residents no good if they are unenforced.
Last year B.C.’s Rich Coleman, minister responsible for housing, joined Finance Minister Mike De Jong and Premier Christy Clark in saying he had no intention of intervening in what they consider a laissez-faire real-estate market.
In fact, unenforced laws are worse than none at all. They give voters the illusion of protection, when there is none.
Overlooking regulations is the modus operandi of banana republics, or fake democracies, which are highly dependent on foreign capital.
Most banana republics have high-minded-sounding laws and regulations on their books, but they generally serve as mere window-dressing.
In such mock democracies politicians mostly do the bidding of those with power and money.
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