Yves here. As we’ve discussed in previous posts, the amount of housing being wareshoused by the super-rich in “world” cities has hit the point where prime residential neighborhoods are becoming glitzy ghost towns. I recounted how on my last visit to London a few years back, Chelsea near Sloane Squarew was freakishly empty and also wanting in services you’d expect to see in a normal residential neighborhood, like pharmacies (“chemists” in Commonwealth-speak) and dry cleaners. Similarly, formerly popular restaurants in Kensington have closed because there are too few locals to keep them going.
Sydney, Melbourne, and more recently Auckland have been see a huge influx of Chinese buyers, distorting the overall housing market. And a lot of this appears to be laundered money. From Richard Smith by e-mail:
A plausible explanation for the crazy house prices in Oz and NZ (but no crash): money laundering from China
http://www.interest.co.nz/news/81902/how-clean-are-our-banks-mortgage-books-we-have-been-contacted-local-stories-about-sameThe mule wildly exaggerates his income (the familiar part of the story), but then pays down (almost) the whole mortgage early with a big lump sum.
The proceeds of the eventual property sale would be clean funds.This is low risk business for the banks (LTV aggregated over the loan portfolio is small) but also not very profitable (because of the early repayment). So they’ve noticed.
Rumours that 40% of NZ resi business is basically this wheeze, not sure about Oz but they certainly have some of the same.
New York and San Francisco have also seen distortion of the market, as reflected by Brooklyn prices ramping up dramatically (I don’t have current figures, but in 2014, 70% of the real estate purchases in Brooklyn were by foreign buyers). But Vancouver has long been the preferred destination for Chinese money. The idea of taxing vacant property seems like an obvious and long-overdue measure. I hope it catches on here
By Leith van Onselen who has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs. You can follow him on Twitter at twitter.com/leithvo. Originally published at MacroBusiness
Yesterday I published a disturbing report aired on Tuesday’s SBS Dateline examining the large-scale migration/investment of wealthy Chinese into Canada’s city of Vancouver, which has forced house prices to astronomical levels and left a swathe of empty homes.
The Dateline segment follows a report presented to the City in March which found just under 11,000 empty homes in Vancouver, most of which are apartments or condos.
Amid growing pressure, Vancouver’s mayor, Gregor Robertson, has stepped up his call for a tax on empty homes, arguing that if a home is being treated like a business then it should be taxed accordingly. From Bloomberg (video above):
“We’re looking at new regulation and a carrot-and-stick approach to making sure that houses aren’t empty in Vancouver,” Robertson said, including a tax on vacant homes. “If you’re not using your property — either living in it or renting it out — then you have to pay more tax. Because effectively it’s a business holding, and should be taxed accordingly.”
UBC Professor, Tom Davidoff, has gone further, arguing for Vancouver to introduce taxes for those that own homes in Vancouver but do not pay taxes in the city:
“People who purchase homes but aren’t landlords, of course that would include vacant homes. But would also include homes run by so-called astronaut families, where people might actually live in the homes but nobody pays taxes in Canada”…
“If people who live and work here are being outbid for homes by people who do not live and work here and don’t pay taxes here, that other class of homebuyers ought to be paying higher property taxes”…
“We would take you to an extra 1.5% property tax if you’re not a landlord, if you don’t pay income tax, if you’re not a CPP recipient where you haven’t lived in the home for a long time. So we protect people who have been working in the community for a long time”…
As noted in Dateline’s report, the vast majority of wealthy migrants to Vancouver have contributed very little in either taxes or economic activity to the city:
IAN YOUNG: The primary bread-winners that arrived under those schemes, we are talking multi millionaires here were only paying an average of $1,400 in income tax each year. You know, they were declaring less income than refugees in many cases. The Government doesn’t like sharing a lot of this information either.
Journalist Ian Young has been closely following Canada’s immigrant investment visa program, which peaked in 2010.
IAN YOUNG: There were 35,000 applications that year, and virtually all of them, basically they were all mainland Chinese, millionaires, who just flocked to these schemes, so it was really just insane.
Ian‘s research found that the businesses started by millionaire migrants employ on average a grand total of one person.
IAN YOUNG: Clearly the immigrant investor program, has just been abject failures, in terms of fostering economic growth and in terms of fostering business growth and jobs.
At least a tax on so-called “astronaut families” would deliver some benefits to the resident population and discourage Vancouver from becoming just a resort town for wealthy foreigners, rather than a community.
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If Hong Kong can’t make it work, then it’s hard to believe Vancouver can. It’s an empty gesture to the peons while the mayor keeps whoring to the developers and rentier class.
As Hong Kong’s attempts to move empty flats into the market shows,.Any tax will either be easily gamed by the wealthy or written so broadly that it hurts everyone directly or indirectly, speeding the lower income locals out of the voting base and out of town as the rentiers/developers have always wanted, This money flowing in from China, Thailand, even Singapore is dirty money, used to buy bolt hole. Even 10% of CND 1M to buy this kind of insurance is nothing, when the owner is awash in filthy lucre.
Your policy proposal, then?
Some places have mines, others factories, others financial institutions–everywhere has real estate developers, District Attorneys (or their equivalents), and cops. These three groups tend to dominate (or at least influence) every locality. In many places an alliance of the three run the show behind the scenes.
The level of pandering to these three groups is astounding and ubiquitous. In most places they are literally a law unto themselves.
Not a tax, the money will get the tax law written so it is either ineffective or the burden isn’t distributed in an equitable way.
The first policy proposal is transparency, which would allow an educated electorate to engaged with policy setting. The immigration investment scheme was a scam from the get-go that an electorate should never have allowed to come to be.
However this assumes the electorate has enough educated intelligent members who have not rotted their brains on consumerism to make it work. Probably the electorate is greedy and short term focused, and not terribly well educated, then it’s easy to sucker them into backing scams and the current political parties and their system in Canada, and no policy solution is going to work. Is that defeatist enough for you? I’d suggest the locals of Vancouver do like their grandfathers, kill some more native people and drive them off their land so they can start building another city further up/down the coast, and let the Vancouver turn into another Chinese ghost city.
Declare empty dwellings blighted, and have the local government size them.
Economically blighted, and damaging to City Businesses (which damages profits).
The laws on urban blighted exist already.
Blight laws were written by the wealthy, by bankers, developers, etc to dis-enfranchise the lower classes.
Think about it, the rich can afford to hire “house sitters” or rent their houses on special conditions at a loss.
「子曰：’不憤不啟。不悱不發。舉一隅不以三隅反，則不復也。’」
“Confucius said: ‘I can not open up the truth to one who is not eager to get knowledge, nor help anyone who is not anxious to develop himself. When I have presented one corner of a subject to any one, and he will not deduce the other three, is there any value to repeat it?'”
Seriously, think first.
http://www.nakedcapitalism.com/2016/05/links-52116.html#comment-2601828
No price is too high when paying with loot.
The same thing is happening in Toronto.
When one considers the tens of thousands of State Owned Enterprises in China, and the head of each one is a corrupt party official stealing millions or tens of millions from the Chinese peasants, either their savings or central bank issued loans where money gets diverted, the scale is astronomical.
Grand theft China.
This is astounding.
. . . China Central Television, the state broadcaster, appeared to confirm rumours about the enormous sums that had been stolen. In a report on the Sina Weibo website, that was quickly deleted by censors, CCTV said Mr Zhang had $2.8 billion in his overseas accounts and that Mr Liu had taken up to 1 billion yuan (£95 million) in bribes.
The figures had been circulating previously on China’s rumour mill, but the report by CCTV appeared to be an official confirmation.
Where is the opportunity for a Canadian worker living in Vancouver or Toronto to steal, and get away with, tens of millions of dollars to compete in those housing markets?
IAN YOUNG: There were 35,000 applications that year, and virtually all of them, basically they were all mainland Chinese, millionaires, who just flocked to these schemes, so it was really just insane.
Ian‘s research found that the businesses started by millionaire migrants employ on average a grand total of one person.
The person employed was the millionaire himself, and his jawb was to count his stolen money, just to make sure it was still all there.
Amen!
If everyone in City Hall owns at least one property, and probably several, then anything they say they are doing to cool prices is against their self-interest. Given that they are all regular, professional
conmenpoliticians, what are the odds that they will put the common good ahead of their own interest? Given that all the money and power not elected to office, but which holds the key to those doors is equally invested in the process, and that the discontented don’t come close to a plurality of voters, then theconmenpoliticians are just going to figure out how to whip more money out of the people.http://time.com/4363897/hong-kong-welfare-road-apartment-property-marinella/
. . . what are the odds that they will put the common good ahead of their own interest?
Zero. All current owners are pinching themselves at their brilliant investment acumen, and welcome the loot with open arms. Now it’s a question of when to sell. Do you hang in for another year and get an extra couple of millions, or if you wait too long, a couple of million less?
The Chinese can print money in infinite digital quantities and dish enough out corrupt officials to keep this going to infinity and beyond. Soon an average house in Vancouver could be $50 million.
When a homeowner finally sells, all capital gain is tax free.
James Madison (along with Adams, Washington, etc) was always worried about the tyranny of the majority, but how much more abuse can be done with a tyranny of the plurality. “Measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority. ” He was a bit of a fool though. Here it’s a simply plurality of money, tightly focused in an alignment of interests. It will be easy enough for this block to divide those outside it into multiple interest groups to be herded like calves to the slaughter, just as city, state, and national politics has worked in most of the USA. It will be interesting to see what happens to Sander’s movement, but I expect it will slowly lose headway as conflicts of interest within it are given time to work their “magic”.
If the owners aren’t residents, they presumably do not vote. And money-driven politics is a US model, as a result of the need to buy TV ads. Not sure politics works that way in Canada., particularly on the mayoral level.
The costs for a successful campaign have been ramping up pretty fast at the local/municipal level recently. Sufficiently that some mayors have been agitating for a cap on the campaign spending based on a formula related to population size. The provincial government is very much a right of centre/neo con type and took a dim view of the proposal.
Vancouver (the municipality vs the larger metro vancouver area which includes 15+ municipalities) is a strange beast for elections. They are one of a handful of places in the world (I believe) that do “at large” voting vs ward style voting. Every candidate is on an enormous piece of paper, and you are required to vote for 12 Councillors, and 15 parks reps, and 1 mayor, etc from large alphabetized lists of names (with party affiliation just under their name).
It’s been critiqued for years as dis-empowering neighborhood politics, emphasizing money/donations as necessary to get your message out, and preventing smaller groups from focusing on an area to get a toehold in the process. So Vancouver’s municipal landscape (favoring higher spending parties, no spending caps) is certainly open to undue influence of cash.
But Yves, their money votes.
Exactly. Their money funds those TV ads. They don’t need to actually show up at a ballot box. Money is speech, SCOTUS says so.
not sure if it’s the same in canada? do they have publicly funded elections or restrictions on ad buys?
Historically, Canadian political parties chose their candidates through nominating conventions held by constituency “riding associations.” Thus the money in Canada can exert it’s influence behind closed doors and doesn’t have to use the media except as an exercise in long term propaganda, mostly done through ownership.
Thus Canada has even more effective anti-democratic filters than conventions, super-delegates, caucuses, and all the other hoopla the USA oligarchy had to come up with in order to give the appearance of democratic action while maintaining real power.
It’s the policy of not allowing for land ownership in the PRC that drives wealth to be parked in countries with higher regard for private property rights. This policy above all others will undermine all efforts to raise the economic motivations on the mainland from money making to wealth generating. I find it so difficult to explain this simple fact about the mainland economy to outsiders since it seems so counterintuitive that the world’s second largest economy can have grown so quickly while still functioning as a feudal society. The saddest part of the matter is that this same policy will drag down other localities before it’s ever resolved.
I think this is a brilliant idea, for the reasons Yves said: Chinese millionaires don’t (and can’t) vote.
Their presumptive lobbying group, real estate agents, has also been recently disgraced in Canada, and especially Vancouver. Agents have been buying houses *themselves* for hundreds of thousands less than market value, then selling them on to a buyer, pocketing the difference. It’s essentially insider trading: the agents know the market value, but the seller doesn’t.
Safe to say, nobody in Vancouver will believe a word from them or their lobbyists.
There has been a string of egg on the face coverage of realtors behaving badly, getting caught, and not being disciplined by their self regulating industry.
The character of the city has been changing for a long time but has been accelerating hard lately. I think it’s concerning a lot of people. You also have elites (such as new surgeons) being priced out of the market for a detached home. I think the anger is affecting a broad enough cross section of the population that demands that something be done will only increase.
The surrounding municipalities are watching the same thing start to happen to them as well. With the whole metro area holding so many provincial electoral seats, the government will have a tough time being an obvious blocker to these proposals for very long. Indeed, one of the kick the can attempts to ‘study the problem’ was met with a bit of derision in the media.
A few years ago I was doing work for one of these Chinese overlords. After some review I noted he was braking a number of laws and brought it up with him. His response “You $hitty consultant, $hitty! FU, you $hitty! I walked out the door! Of course I saw him treating his staff like that (all of them Chinese) or worse. Well the feds caught up with him and he is sitting in a US prison.
I have been told that reputable law firms on the US coast will not take on Chinese nationalist clients. I generally do not want to deal with potential clients from Asia (excluding Japan) at all.
Of course the Clintons have a number of ties to Asians which are raping and pillaging in their own countries. This goes back to the Lippo Group and other Asians when they were in the White House and even further. They will sell their soul to Satan for a few dollars!
Is it possible for these affected countries (or cities) to implement capital controls to stop or at least slow down foreign hot money flows into real estate? Or would that violate WTO and/or other trade agreement rules?
I’m not sure this is the game plan but it would be a clever strategy for China to take its fiat currency and flood foreign real estate markets with it, particularly those of the US and US allies. It gives them an economic leverage to pull in the future. Just as Canada as an example, if you can crash real estate prices in Vancouver and Toronto you cripple the construction industry, which is the most significant private employer in the country. End result: economic crisis.
Given the combative behavior of Washington and its propaganda support of the West’s entire MSM, China and Russia must understand that WW3 is inevitable. 3rd choice: nuclear war(which no one wants). 2nd choice: a shooting war, which can spin out of control and to option 3 too easily. 1st choice: economic war. In other words, use the greed of the West’s elites against them so that vulnerable economies can be tipped over when the time comes that China needs to tip them. I’d rather see Canadians and Americans fighting with themselves than exchanging missle fire with the Asian powers.
It seems the Red Ponzi scheme still has use for the global economy. Buys us time, which our elites are using to dig bigger holes for our economies. Thus the impact when China/Russia make their move will be more effective. Time is on their side.
Just speculating but i sincerely hope this is the case. The global economy is drowning in its own debt. We’re heading for a big fall no matter what. I’d prefer not to see a nuclear winter as part of the equation.
The CBC had some banker from CIBC on this morning talking about recent comments from the governor of the Bank of Canada regarding the overheating real estate markets in Toronto and Vancouver. The bankers said that speaking with people in the industry over multiple bottles of wine got them to admit that in some corners of the market (Richmond – a posh suburb of Vancouver was mentioned) foreign buyers are approaching 80% of sales. 80%!!!!! But it’s not a bubble. He also said he expects it to continue for at least a few more years given Canada’s weak currency at the moment.
My gut feeling is that that the bust is now imminent and will probably render this discussion moot well before legislation is ever drafted.
For months now there’s been a bizarre ad campaign by the CDIC with an ATM screen that reads “Is everything okay?” That the CDIC, an institution most Canadians probably go whole years without ever thinking about, would launch an ad campaign at all is strange enough, let alone one that seems to have been thought up by Zalgon 26 McGee.
So I think I might be excused for taking all this breezy optimism with a truckload of salt.
I would like to see the something similar applied to commercial property. Empty commercial rental properties are a blight on neighborhoods and discourage local business development.
The magic words are “empty properties – blight.”
Governments have powers to manage blight.
The Solution is Simple.
More E-B5 visas to the U.S.
so they all come here
and price the locals out of
home ownership and stay
out of other world cities.
s/