Tax avoidance behind Metro’s disconnect between housing and income

After census figures this week revealed alarming gaps between housing costs and average incomes in Metro Vancouver, a veteran real-estate analyst blames the disparity in part on tax avoidance.

Published on: September 15, 2017–Last Updated: September 15, 2017 8:47 AM PDT

An analyst argues the big disconnect for housing prices in some parts of Metro Vancouver and the reported incomes in those neighbourhoods can be blamed on tax avoidance.

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 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 claim 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.

“The Americans would never tolerate such free riders,” says Richard Wozny, head of Site Economics Ltd. and author of report, ‘Low Incomes and High House Prices in Metro Vancouver.’

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 on tax data and housing costs 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 large 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 Hymanand Richard Kurland, and SFU professor Josh Gordon, who have pointed to loopholes in tax and real-estate laws that allow avoidance and evasion.

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.”


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