The battle is about to begin.
Local real estate experts are submitting their testimonies for both sides of what promises to be a hugely significant lawsuit, not just for British Columbia, but for other provinces.
A foreign buyer is claiming that the B.C. property transfer tax for foreign buyers is unlawful and discriminatory, and she’s setting in motion what could become a class action lawsuit, with potentially huge costs to the province if it were to lose.
The summary trial for the case runs the week of June 25, and again on July 16. A judge will determine whether the foreign-buyers tax is legal, in response to the lawsuit filed by Chinese citizen Jing Li against the province of B.C.
At this point, Ms. Li is, technically, waging the battle on her own. But she also represents all foreign buyers who paid the tax and who would become part of a potential class action, her lawyer, Luciana Brasil, says. Ms. Brasil couldn’t give a number, but said she’s heard from a lot of buyers.
“This is the kind of case that no one individual would have the resources to prosecute on her own,” she says. “We have heard from lots of people who are interested. Our class definition is everyone who has paid the tax up to the certification of the case.”
As well, the Class Proceedings Act is currently being amended to automatically include non-residents in a class action, Ms. Brasil says, so the number of plaintiffs could significantly grow.
The summary trial is unorthodox because usually there would be a drawn-out process to determine whether the case would qualify for class action certification. In this case, the Crown asked the judge to first determine the legality of the tax, which is more efficient and economical for everybody involved.
“Because if the tax is legal, then it’s end of the case, but if illegal, then it also allows us to have a very good understanding of what are the grounds of illegality and tailor the certification to match that,” Ms. Brasil says.
And if the judge determines the tax is legal, don’t expect it to end there, she quickly adds.
“Nobody should be under any misunderstanding that this case will be decided at first instance. I think this case is so big and important – regardless of who loses, the case is going to be appealed, and it will go to the court of appeal. And it may eventually end up at the Supreme Court of Canada.
“It’s not an easy case. But is an important case we thought it had to be brought. The fight is far from over. It’s not going to end at this hearing.”
Ms. Li’s legal team is arguing that the foreign-buyers tax, which is now 20 per cent of a property’s fair market value (it was 15 per cent at the time of her purchase), has violated foreign treaties, is not within the province’s power and discriminates against non-residents on the basis of national origin, which, they say, is contrary to Canada’s Charter of Rights and Freedoms.
Experts who’ve submitted testimony on behalf of Ms. Li include University of B.C. professors, economist Tom Davidoff, associate professor of sociology Nathanael Lauster and history professor Henry Yu, as well as mathematician and data analyst Jens von Bergmann, who is a consultant. UBC economist Tsur Somerville and Simon Fraser finance professor Andrey Pavlov have submitted affidavits on behalf of the province. It’s a point of interest that the two lead economists on the proposed B.C. Housing Affordability Fund – Prof. Davidoff and Prof. Somerville – have filed affidavits for opposing sides in the case.
“We have a multifaceted group of experts, bringing lots of evidence to this case,” Ms. Brasil says. “[Prof. Davidoff] brings two things: He is also not only an expert but also a factual witness, because he was one of the signatories of the BCHAF proposal put forward by all academics, including the defence’s experts. So he brings that in factual evidence. On expertise, he talks about how it works and whether or not the tax achieves the purposes that we understood were the purposes that it was designed to achieve.
“When you get to this breach of charter claim, there is going to be a component about whether it was the right tool for the job, or whether it is arbitrary at the end of the day.”
The province has a lot at stake. A loss for the province would mean substantial repayments to all those who’ve paid the tax. That means the province would have no choice but to appeal. But because the plaintiff would likely appeal, it means the case could drag on for years. Ms. Brasil, whose law firm specializes in class action suits, is one of several lawyers representing the plaintiff, including constitutional expert, Joseph Arvay.
The plaintiff, Ms. Li, is from China. She obtained her degree at the University of Saskatchewan before settling in Burnaby. She was forced to pay the tax after she made an offer on a $560,000 townhouse in Langley, according to court documents. If she reneged on the deal, she says she would have lost her $55,900 deposit. Because of the tax, which was introduced by the BC Liberal government in August, 2016, she was looking at an additional cost of $83,850, she says in her affidavit. She went through with the sale, with the help of borrowed money from her family and friends, which, she says, put her further into debt.
“Overall, the message I received from the tax and the many public comments thereafter, is that I am not welcome in Canada,” she says in her claim. “I felt that the tax unfairly labelled me and many others like me as being the cause of housing unaffordability in the [Greater Vancouver Regional District].”
“I feel the tax penalizes me despite no wrongdoing on my part. I understand that many people in the GVRD have been frustrated and even angry with the housing situation. However, I feel that this anger has been directed towards people like me and other Asian nationals, due to unfair biases and stereotypes which the tax has further reinforced,” the claim says.
The plaintiff’s lawyers will argue that the foreign-buyers tax was based on nationality, as opposed to other tax measures. For example, the B.C. Housing Affordability Fund taxes those who own empty homes, or who don’t contribute to the economy, at a surcharge of 1.5 per cent.
“The BCHAF proposal was based on cross-referencing ownership of homes with people paying taxes and contributing to the economy and creating credit, so it’s a bit different,” Ms. Brasil says.
“That’s the big issue we have in this case. We think it was an arbitrary measure that just decided to target certain people based on nationality, and, by and large, it was predominantly aimed at the Chinese.”
Mr. von Bergmann is a member of Abundant Housing, a group that lobbies for higher density zoning in low-density neighbourhoods. As the founder of MountainMath, he provides data analysis reports for non-profits, government and commercial enterprises, according to his submission.
“We concluded [his input] was good because the tax didn’t have the effect of doing what they said they wanted to do, in terms of increasing affordability,” Ms. Brasil says.
Prof. Lauster has written a book called The Death and Life of the Single Family House: Lessons from Vancouver on Building a Livable City. Prof. Lauster prepared a lengthy report for the plaintiff that says the foreign-buyers tax impedes the immigration process. As well, he supports the plaintiff’s argument that it is a discriminatory tax. He says, “There are clear indications that the inception and implementation of the foreign-buyer tax has reflected and invoked xenophobic, racist, and specifically Sinophobic tendencies and sentiments. Chinese immigrants and home buyers have been the primary targets of rhetoric. A variety of historically rooted stereotypes and biases have been perpetuated targeting Chinese home buyers and immigrants.”
Prof. Lauster says fearful middle-class residents scapegoated the Chinese buyers, blaming them for rising home prices. Studies on their role in escalating prices caused a “moral panic,” and evoked “Yellow Peril” discourse, he says. He says this moral panic played out in the B.C. Legislature and in media stories.
Prof. Yu is a historian and his submission, according to Ms. Brasil, speaks to the history of discrimination toward Chinese people in B.C. and Canada.
Real estate lawyer Ron Usher, who is watching the case closely, says it will be a tough case for the plaintiff to win since other provinces already have restrictions in place that limit foreign ownership.
He refers to the case of Prince Edward Island, which for many decades has had strict restrictions on foreign buying of its properties, particularly its shoreline, even for Canadians living outside the province. PEI long ago started to worry about foreign entities buying up the island, and the province recently tightened the rules. Legal challenges to PEI’s foreign ownership laws have so far failed. Alberta, Saskatchewan, Manitoba and Quebec limit foreign ownership of farmland. As well, the case could impact Ontario, which brought in a 15 per cent foreign-buyers tax last year.
“Would Ontario be very interested in the legality of the B.C. tax?” Mr. Usher asks. “Yeah. Would the Supreme Court of Canada be interested in this as a national issue? Yes.
“Eventually, 10 judges could go at this,” he says of the likelihood of a drawn out process. “I don’t know what 10 judges would do with this, but my sense is it seems like a weak case.
“It would be very surprising to see a quick end to this, other than the plaintiff giving up. The province won’t let go of this; they have a lot at stake.”
The expert opinions do not deny the existence of foreign capital flowing into B.C.
The BC Housing Affordable Fund was the subject of much discussion with government officials in 2015 and 2016. Part of Prof. Davidoff’s affidavit includes a letter written in 2015 to then-deputy minister to the Office of the Premier, John Dyble, in which the UBC professors write: “We doubt that a property tax increase will meaningfully slow the flow of foreign capital into Vancouver real estate, but it would increase the cost of keeping units vacant while providing funds for improving affordability.”
Prof. Pavlov, who specializes in real estate finance at Simon Fraser University’s Beedie School of Business, states in his submission for the province that in the six weeks prior to the introduction of the foreign-buyers tax in the summer of 2016, foreign buyers were involved in approximately 30 per cent of residential building permits.
“Considering that some building permits represent replacement of existing properties, foreign buyers absorbed a very high proportion of the net supply increase in the region, especially in the single-family segment,” he writes. “Furthermore … foreign buyers spent nearly 50 per cent more than local buyers on their real estate purchases. Therefore, foreign investment is likely to have a larger impact on prices than an equivalent natural increase in the local population.”
“Foreign investment directly increases the demand for real estate,” Prof. Pavlov concludes. “In addition to the direct demand, foreign investment likely induces local investors and residents to also increase, or at the minimum accelerate, their real estate investments. Since the GVRD is supply constrained, the increase in demand translates into higher prices.”
The foreign-buyers tax was expected to curtail foreign investment in the Greater Vancouver Regional District residential property markets and improve housing affordability.
“Both theoretical considerations on foreign investment and the prior empirical literature on the topic support this conclusion,” he writes.
Ms. Brasil says the case will raise “interesting issues” for Vancouverites.
“I think part of the problem is there has been some discourse about why shouldn’t my kids be able to buy single detached homes? And I don’t know whether that’s a realistic expectation in a city like Vancouver or a city like Shanghai or Tokyo, where there is densification. And that’s one key issue in this case: What was the province trying to do when they talk about affordability? Which type of residence were they trying to make more affordable? Was it a $10-million home they were trying to make more affordable? Or was it an entry-level condo?”
Not all affidavits have been filed yet, and some will not be made available for reasons of confidentiality.