Our FREE newsletters provide a daily roundup of the morning’s top headlines. Subscribe today!
Environmental and housing advocates are joining forces in Massachusetts to push a bill expected to generate $300 million per year to fund investments in clean energy, energy efficiency, climate adaptation, and affordable housing.
The legislation would double the deeds excise fee paid on real estate transactions, which hasn’t been increased in more than 30 years. The added revenue would be split evenly between programs to slow and respond to climate change and those to improve access to affordable housing — two urgent needs that are intimately connected, advocates said.
For at least a decade, housing prices in Massachusetts have climbed steadily, while supply languishes. Today, it can be extremely challenging for low- and middle-income earners to find reasonably priced housing — or any housing at all. At the same time, the impacts of climate change are becoming increasingly apparent as increased flooding and extreme heat take their toll on vulnerable communities.
“We face a housing crisis and a climate crisis, each of which is getting worse, not better, over time. Moreover, the two are completely intertwined,” said Joe Kriesberg, president of the Massachusetts Association of Community Development Corporations, one of more than 40 nonprofits and civic groups that have formed the Housing and Environment Revenue Opportunities (HERO) coalition to support the proposal.
By addressing the two problems together, the deeds excise bill could amplify efforts being made in each sector, supporters said.
Buildings are responsible for more than 40% of the greenhouse gas emissions in Massachusetts, so any money spent to develop new, more energy-efficient affordable housing, perhaps paired with solar panels, will benefit both tenants and the state’s efforts to go carbon-neutral by 2050, supporters contend. At the same time, they say, neighborhoods with a high need for affordable housing are also generally the most vulnerable to climate change effects like flooding and increased respiratory problems, so money invested in adapting to these impacts would make these communities healthier and safer.
“I can’t think of an intersection of policy that is more important to the health of communities,” said Leslie Reid, chief executive of the Madison Park Development Corp., a member of the HERO coalition.
Reid, whose work focuses on the Roxbury neighborhood of Boston — most of which is classified as an environmental justice community — envisions the additional funding being used for a range of projects in her community. Maintaining mature tree canopy and installing green roofs could help mitigate the heat island effect, which is associated with respiratory illness and increased rates of heat-related death. Building new affordable housing to highly energy-efficient Passive House standards and retrofitting existing properties could lower fossil fuel use and utility bills, while creating healthier living conditions.
In Lawrence, a former factory town in the northern part of the state, Heather McCann of community nonprofit Groundwork Lawrence would like to see an influx of revenue that could help accelerate work on a bicycle and pedestrian trail connecting different parts of the city. This network could help people from all neighborhoods access services, recreation, and jobs without using a car or walking hot, exhaust-laced streets.
“Having those connections, it gets you to parks, it gets you to the hospital, it gets you to the two big areas for employers,” McCann said.
Supporters argue the bill is needed because, while the state has announced goals and strategies for going carbon-neutral and improving affordable housing, there needs to be more guaranteed funding if these efforts are to be successful.
“I think there’s a real recognition that unless you have a dedicated revenue source, you can talk about affordable housing or climate change, but it’s not going to make much of a difference because the funding isn’t there,” said state Sen. James Eldridge, who introduced the bill in the Senate.
The Massachusetts deeds excise tax is paid upon the sale of a property, currently at a rate of $2.28 per $500 of value. A house sold for $500,000, about the median price for a single-family home in the state, incurs a fee of $2,280.
Most states have similar fees, though they go by a variety of names. The Massachusetts rate hasn’t changed since 1989, and is lower than the rate in the other New England states, with the exception of Maine.
Two years ago, Massachusetts Gov. Charlie Baker proposed increasing the tax by 50% to raise money for efforts to protect communities from the rigors of climate change. At that time, housing advocates first proposed instead doubling the fee and splitting the proceeds between housing and climate needs. Baker’s proposal did not make it through the Legislature, but the idea of increasing the tax had taken hold.
Some in the real estate sector object to the bill, arguing that a larger transaction fee would only worsen the state’s affordable housing problems.
“It would increase the cost of housing by imposing a sales tax on homes,” said Justin Davidson, director of government affairs at the Massachusetts Association of Realtors. “Taxing homes raises rents and barriers to homeownership, further exacerbating the longstanding housing affordability crisis in Massachusetts.”
Supporters of the bill disagree with this analysis. The added cost would be too low to deter a buyer already planning such a major purchase, they say.
“This bill is a very modest bill, but it will create critical income for the state that goes to housing and climate,” said Karen Chen, executive director of the Chinese Progressive Association, a member of the HERO coalition.
The bill has been introduced in both the Senate and House, and 50 co-sponsors have signed on so far, a number Eldridge considers a satisfying start. Action on the legislation is unlikely this summer, he said, as pandemic recovery measures still dominate discussions. But he is encouraged to see so many disparate advocates uniting behind the cause.
“It’s been great to see the coalition of housing activists and climate advocates,” Eldridge said. “It makes it more likely that it will pass.”
This Week's Top Stories: Canadian Real Estate Slowdown Is Just Getting Started & “This Time Is Different” – Better Dwelling – Better Dwelling
BC real estate: 40% of Cullen Commission focuses on sector – Pique Newsmagazine
Despite being unable to determine the exact impact money laundering has on home prices, the real estate sector is of top concern to the Commission of Inquiry into Money Laundering in B.C.
Of the 101 recommendations Commissioner Austin Cullen made in his June 15 final report, 40 are directly related to real estate, and several others are ancillary, such as proposals to strengthen anti-money laundering (AML) policies within financial institutions and the asset forfeiture legal regime, as well as greater controls on notaries and lawyers, who process transactions.
Despite the apparent problems in the industry, Cullen poured cold water on prior attempts to peg a precise price increase on homes due to money laundering.
While his executive summary states, “money laundering is not the cause of housing unaffordability,” he clarifies within the report that he examined whether it is “the” cause or “a main” cause — as it may be perceived publicly. Cullen found no such proof but nevertheless concluded the real estate sector is vulnerable.
Cullen said the reasons for increases in housing costs “are many, and they are complicated.” He cites housing supply and demand and interest rates as more proven factors.
Cullen examined the 2019 expert panel report of professors Maureen Maloney, Tsur Somerville, and Brigitte Unger titled Combatting Money Laundering in BC Real Estate, which did prescribe a figure for money laundering in real estate — about a 3.7% to 7.5% increase in prices. But Cullen noted that the estimate came with caveats and uncertainties. The model the panel used was “an exercise in speculation and, ultimately, guesswork,” said Cullen.
Cullen took time to separate what he perceives as a common mistake in the public discourse — that foreign investment and money laundering go hand in hand.
Cullen relied on the Canada Mortgage Housing Corporation’s conclusion foreign investment was not a significant driver of real estate prices in Vancouver, based on home ownership data from 2010-2016.
He noted, however, that defining foreign investment can be difficult and “witnesses disagreed about whether foreign investment plays a significant role in Vancouver’s housing prices.”
Simon Fraser University professor Joshua Gordon and University of B.C. professor emeritus David Ley testified how foreign capital can explain the decoupling of local incomes to home prices in B.C. However, such capital may not show up as direct foreign investment in home ownership data; instead, it is foreign money transferred into homes owned by newly established residents or via beneficial ownership structures that can obscure the real picture.
“It became clear as the evidence developed before me that there is disagreement in the academic community about what should be considered ‘foreign ownership.’ Is it limited to beneficial ownership by persons or entities based or resident outside Canada? Or does it extend to purchases made largely with funds earned outside of Canada?” asked Cullen, to which he replied to his questions that “resolving these complex issues is somewhat outside the ambit of my mandate.”
Cullen noted Gordon’s position that it is difficult to determine the origins of foreign capital and, with respect to China, the money being transferred is often escaping capital export controls set by the Chinese government.
He dispelled the notion that foreign investment, particularly from China, is money laundering. And Cullen expressed concern that, in his view, public discourse had reached such a conclusion.
Cullen noted racist stereotyping of investments in real estate originating from China, as University of B.C. professor Henry Yu testified to, must be weeded out from “legitimate policy questions relating to foreign ownership of real estate in the province.”
Cullen concluded that he could make no conclusive finding on money laundering or foreign investment, however defined, is a “primary cause” of home price increases in B.C. and steps to address money laundering should not be viewed as a “panacea for housing unaffordability.”
Ultimately, more study is required on the matter, concluded Cullen.
Ron Usher, general counsel for the Society of Notaries Public, said the conclusions may frustrate some members of the public, however they are not surprising given it is difficult to track money laundering.
“I think people were understandably very interested in that. But I think it’s appropriate for him to say, ‘We just don’t have information.’ Well, of course, we don’t because, you know, people don’t tick a box on a form saying, ‘I got this money from money laundering or a predicate crime,'” said Usher, who followed the daily testimony over two years as an intervenor.
Recommendations run deep into real estate sector
Despite not finding answers to such a significant question in the public discourse over the past 10 years, Cullen lays bare 40 recommendations for the real estate industry, now regulated by the 2021-established B.C. Financial Services Authority (BCFSA).
His recommendations suggest that real estate licensees are largely uneducated on AML measures and that both managing brokers and sub-brokers require education “focusing on the detection and reporting of fraud and money laundering in the industry.”
Cullen also recommends the BCFSA, a government regulator, put in place measures for better data collection and that it implores real estate licensees and notaries to record source of funds information should the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) not do so on a federal level. He also wants BCFSA to mandate AML programs at each brokerage as a licensing condition.
Seventeen recommendations directly relate to mortgage brokers, who are overseen by the Registrar of Mortgage Brokers within the BCFSA.
Cullen wants brokers to have extended criminal record checks and more clearly defined responsibilities, including new reporting mandates under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
Cullen also recommends all legal owners of mortgage charges are reported and that this information be available through the public land titles registry of the Land Title and Survey Authority. Presently, one is unable to conclusively determine, from flings, all of the owners of a registered mortgage charge.
Cullen is also calling for greater penalties and repayment of profits from proven unscrupulous brokers.
As for real estate licensees, Cullen has recommended employees of developers be brought within the licensing scheme. Today, many developer representatives effectively sell homes (“pre-sale” units) without any regulatory oversight.
Cullen also identified some legal matters to resolve, such as how courts cannot refuse to enforce debts made with funds of suspicious origin. As such, he recommends a source of funds declaration in foreclosure proceedings, at the judge’s discretion. This recommendation stems from Cullen’s examination of numerous foreclosure filings by alleged money launderer and casino cash provider Paul Jin.
Meanwhile, sunshine policies are a prominent set of recommendation for Cullen, namely by populating the B.C.’s Land Owner Transparency Registry with historic data within three years. He also recommends the Land Title and Survey Authority have a clear and enduring AML mandate, including the ability to “more readily” share data with other agencies.
Finally, with all such measures, Cullen recommends the Ministry of Finance analyze how such changes may impact housing prices.
Cullen thirsty for more data
Cullen emphasizes in his report the need for a beneficial ownership registry for both real estate and corporations, with the latter requiring a pan-Canadian approach. Contrary to some witnesses he heard from, such as journalists and Transparency International Canada, Cullen says a small search fee ($5) for beneficial ownership land titles is acceptable if government deems it so for operational purposes. However, Cullen suggests no such fees exist for a beneficial ownership registry of corporations. No fees should apply to law enforcement and regulators, noted Cullen.
With respect to data, Usher said tools such as land title registries, which are “secure and reliable,” are increasingly being used by government agencies. He said Canada Revenue Agency could more easily track land purchases these days to weed out tax evasion and money laundering.
“It’s easy to come up with lots of rules,” said Usher.
“What we really need is a formal process of a notice of acquisition of real estate for CRA and a notice of disposition of real estate for CRA for every transaction.
“We need to get the right information from the right people at the right time,” said Usher.
MiB: Jonathan Miller on Residential Real Estate – The Big Picture – Barry Ritholtz
This week, we speak with Jonathan Miller, who is CEO and co-founder of the real estate appraisal and consulting firm Miller Samuel. He is an adjunct associate professor at Columbia University’s graduate school of architecture and planning. he also serves on the Mayor’s Economic Advisory panel and the New York State Budget Division Economic Advisory Board. His research and analytics powers the back end of some of the larger real estate brokerage firms.
We discuss the pullback in real estate demand due to rates almost doubling; contact volume is down, and has been trending that way since March. The collapse in inventory is also to blame, as has the fall in affordability.
During most real estate slowdowns, sales activity slows immediately, as inventory rises. But prices tend to take a few years to reflect the new market, awaiting seller capitulation. Miller hopes we might see a faster adjustment given the recent big runup in home equity.
He also explains why it is so challenging to convert urban office towers into residential buildings. Big cities like New York and San Francisco find themselves with a surplus of office buildings that are running about 2/3rds empty, while there are acute shortages of residences at most price points.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
Be sure to check out our Masters in Business next week Perth Tolle with founder of Life + Liberty Indexes, index provider and sponsor of the Freedom 100 Emerging Markets ETF. The first-of-its-kind strategy uses personal and economic freedom metrics as the primary factors in its investment process. Prior to forming Life + Liberty Indexes, Perth was a private wealth advisor at Fidelity Investments in Los Angeles and Houston and had lived and worked in Beijing and Hong Kong, where her observations led her to explore the relationship between freedom and markets.
Jonathan Miller Favorite Books
Fins: Harley Earl, the Rise of General Motors, and the Glory Days of Detroit by William Knoedelseder
The Reckoning by David Halberstam
See A Jaw-Dropping Crescent Moon, 50 Meteors And Hour And Our Billion-Star Milky Way: What You Can See In The Night Sky This Week – Forbes
Astronomers Found a Crater From The Mystery Rocket That Smashed Into The Moon – ScienceAlert
Don"t let investment goals be blinded by interest rate rise – Proactive Investors Australia
Silver investment demand jumped 12% in 2019
Europe kicks off vaccination programs | All media content | DW | 27.12.2020 – Deutsche Welle
Global Media Markets, 2015-2020, 2020-2025F, 2030F – TV and Radio Broadcasting, Film and Music, Information Services, Web Content, Search Portals And Social Media, Print Media, & Cable – GlobeNewswire
Economy19 hours ago
America Wasted Its Chance to Push the Economy Forward – The Atlantic
Science15 hours ago
Esteemed Australian Kit Home Expert Informs On Using Eco-Friendly Materials – Digital Journal
Sports4 hours ago
Lightning’s Brayden Point remains out of lineup for Game 6 – Sportsnet.ca
News18 hours ago
‘In a crisis’: Deaths of Indigenous women in Winnipeg spark calls for safe housing
News17 hours ago
Ahead of planned Canada Day protests, federal minister says he hopes lessons have been learned – CBC News
Health17 hours ago
People with COVID-19 can infect and sicken cats and dogs by cuddling them: study – CTV News
Art17 hours ago
Tycoon Dimitris Daskalopoulos gives away huge haul of modern art – The Guardian
Economy7 hours ago
India's Economy Shows Spark on Pent-Up Demand After Reopenings – BNN