Vancouver real estate allegations spark call for truly independent investigation
A group that calls itself a non-partisan political watchdog is calling for an independent inquiry into allegations of shadow flipping in Vancouver's booming real estate market.
IntegrityBC says it's responding to allegations that surfaced in a Globe and Mail investigation over the weekend.
On Monday the Real Estate Council of B.C. said it would appoint an independent advisory group to examine the technique known as shadow flipping, under which sales contracts are reassigned, in some instances multiple times, before the sale of a home is closed.
B.C. cabinet minister Peter Fassbender said the council is doing what it should to address the issue, and the province will wait to make any potential regulatory changes until after the advisory group's recommendations are put forward.
"The real estate council is there to do exactly what they're about to do now," Fassbender said. "The less regulation we have and the more self-policing we have, as in the case of the real estate industry, the better."
One real estate board agreed, arguing the council regulates its members through licensing.
"It probably won't be realtors investigating realtors," said Darcy McLeod, president of the Real Estate Board of Greater Vancouver.
"The real estate council is a regulator, and effectively an arm of the provincial government. Their authority is in licensing realtors so if somebody was found to be in significant breach, they could lose their licence forever."
But IntegrityBC believes any inquiry should be completely free of any influence of the Real Estate Council of B.C..
"If you're going to have an independent review, you don't have people in charge of the industry do the review," said IntegrityBC executive director Dermod Travis.
Instead, Travis said any allegations related to criminal activity should be referred to the RCMP, and ethical matters should be appointed to an independent party like a retired judge so the matter can be investigated at arm's length.
Several people on social media also called for an independent review.
Symptom of a larger issue
But Tom Davidoff, an associate professor at UBC's Sauder School of Business, says practices like shadow flipping are only symptoms of a bigger issue — houses being used as speculative assets instead of homes.
"Vancouver has a giant target on its back in terms of housing. All over the world there are lots of very wealthy people who want to find attractive cities in which they can park cash in real estate," he said.
The real estate they purchase may be used part of the year as a vacation home, he explained, but most of the time it just sits empty.
"You can use a house without it getting any dividends — without living in it or renting it out, and it's cheap to do so ... because property taxes are so low," he said.
Vancouver mayor Gregor Robertson released a statement Tuesday, calling for a speculative tax as a means of cooling the housing market.
He also emphasized the need for more data collection on real estate sales in B.C.
"Other jurisdictions, like the United States and Australia, have far more comprehensive data about who is buying and selling homes. It is time that British Columbia caught up with them."
The loophole that allows the shadow flipping to occur, called the assignment clause, is actually a feature on real estate contracts across North America, according to Davidoff. The only reason why it's an attractive option in B.C. is because housing prices are so variable.
"It's not going to be profitable to you to try to sell it to a new buyer if everyone knows what the right price is," he said. "In Vancouver, no one has a clue — prices changes so quickly."
To help cool Metro Vancouver's hot real estate market, Davidoff and a group of economists have suggested a 1.5 per cent property surcharge on empty or scarcely used residential property.
As for self-regulation of the real estate industry, Davidoff said there's a good case to be made for self-policing.
"Real estate agents make their money from reputation," he said. "When they lose their reputation as a professional group, it's a disaster."
However, Davidoff said the real estate council should appoint external advisors to its investigative committee to help add legitimacy to the endeavour.
