The U.S. Treasury Department has launched a new initiative aimed at identifying anonymous cash buyers of luxury properties.
Currently, purchasers can hide their identities by acquiring real estate through limited liability companies or other shell vehicles that prevent their names from being linked to any specific address. The new rule requires title insurance companies to identify cash buyers of properties above $3-million (U.S.) in Manhattan and above $1-million in Miami – the two metropolitan centres being initially targeted under the project.
The law is aimed at stopping money laundering, an activity many suspect is occurring in the Vancouver real estate market as well.
Meantime, in Australia, the government ordered the sale of another eight residential properties that were acquired in violation of new foreign-ownership laws (which restrict offshore buyers to purchasing new homes only) that were brought in to respond to growing cries that offshore buyers are driving up house prices. The sale of the eight now brings to 27 the number of homes the government has seized after declaring they were bought illegally, mostly by Chinese nationals.
I mention these two items mostly to draw attention to the complete lack of action that is taking place in Canada to address the same real estate madness occurring elsewhere.
On Monday, a group of economists from the University of B.C. and Simon Fraser University – frustrated over the inability of the provincial government to do something to address what has become a festering public-policy issue – unveiled a plan of its own.
Under the proposal devised by the 10 economists from the universities' business schools, a property surtax of 1.5 per cent would be levied on vacant properties whose owners have no or limited taxable earnings in Canada.
The academics estimated the surtax could generate as much as $90-million in Vancouver alone, a sum they suggested could be redistributed to tax-paying residents of the city.
What many like about the idea is that it would target non-resident foreign owners, tax evaders and others who are using the proceeds of crime to buy homes in Greater Vancouver and laundering their dirty money in the process.
Now, it's not a perfect solution, admittedly. And as B.C. Premier Christy Clark indicated on Monday, there could be problems implementing it. As an example, she cited a university professor who goes on sabbatical for a year in China and isn't using her house. Is she going to be taxed? Or a senior citizen who finds himself in hospital for a long stretch of time. Would he be taxed, too?
It's certainly fair enough for the Premier to flag these potential issues. But I still think the plan has a lot of merit. And I'm sure there are enough smart people in the province's ministry of finance to come up with plausible solutions to some of these impediments.
Personally, I'm not sure about the idea of redistributing the surtax money to residents. Why not use it to build rental stock or help first-time home buyers some way?
But those are details that could be hammered out later. The broader point here, I think, is that it's taken a group of economists to come up with the first real, thoughtful effort to try to address the affordability crisis. Increasingly, governments around the world, prompted by an upset citizenry, are trying to do something about the same problem.
In Canada, we hear the federal government is trying to learn more about the issue. But we haven't seen anything from Ottawa or the B.C. government that suggests they're prepared to go to the same kind of lengths the U.S. Treasury Department is, for example, to try to identify, and penalize, those largely responsible for what is happening.
The surtax that the university economists are recommending would not be a panacea. It is doubtful it would do much to stem the tide of foreign money pouring into Greater Vancouver real estate.
But at least it begins to acknowledge we have a problem and that it needs to be addressed somehow.
And if governments in this country don't have time to think of ways to address the situation, maybe they can listen to others who do.
Gary Mason