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I thought people would comment on this: >Such a share of transactions is “sufficiently large to have an observable impact on real estate prices,” the report sa

I thought people would comment on this: >Such a share of transactions is “sufficiently large to have an observable impact on real estate prices,” the report said. It estimated that dirty money pushed B.C. home prices 3.7% to 7.5% higher than they would be in the absence of laundering. So yes it has an effect, but it is a tiny proportion of the price, something on the order of 5%. You can read it here: https://news.gov.bc.ca/files/Combatting_Money_Laundering_Report.pdf https://news.gov.bc.ca/files/Combatting_Money_Laundering_Rep...

nasalgoat 7y ago
5% of $1M is $50,000. Not exactly pocket change.
- graeme 7y ago
  As I commented here, vancouver prices did more than 4x in the past 20 years. So 5% is indeed tiny in that context. https://news.ycombinator.com/item?id=19878721 https://news.ycombinator.com/item?id=19878721
vraivroo 7y ago
The value of all homes in BC goes up 5%, and you consider that tiny? I suggest that your definition of tiny needs recalibration, friend.
- graeme 7y ago
  Vancouver home prices have soared since 2000. Detached homes cost $400,000 then, and $1,800,000 now. So yes, in that context, a 5% increase is indeed tiny. The popular conception is that "substantially all" of the rise in price has been due to foreign speculation. https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/2018/01/Screen-Shot-2018-01-26-at-5.14.23-PM-1024x623.jpg https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/201...
  - vlovich123 7y ago
    I'm curious if the underlying analysis considered the compounding effect this has. Someone sells their place for 1 million for laundering, someone with a comparable property who thought it was only worth the 998k now sells it for 1 million, and all the way down. Now next year you've set the baseline 2% higher and so next year everyone adds on 2% of land appreciation cost. But now the next wave of dirty money pushes it another 2%. So net effect over time is much larger than what happens just because of a reduction in supply/increase in demand which I suspect is all that was analyzed.
    - projectramo 7y ago
      980k would be 2%. But more importantly, why would the person buy a property for more than it was worth just because they're laundering money? They would buy a million dollar house at fair value to launder their money.
      - pacaro 7y ago
        Because if you’re laundering money you don’t mind a loss. How much depends of course on your risk exposure and how “dirty” the money is. Essentially it’s worth it (to some people) to pay a “fee” to decontaminate the money. There’s a reason why loss making businesses are traditionally associated with money laundering.
        projectramo 7y ago
        I am not sure what you mean: why take a loss if you don't need to? You don't mind a loss if that is the only way to launder money but if you can launder money without the loss, then why should you take the loss?
        graeme 7y ago
        Because you would expect to lose 40-100% of money you don't launder, either through taxes or confiscation. So a nominal loss is acceptable. The main thing is to get it laundered, and there is usually some price to pay to do so. Tony Montana's downfall in scarface happened because he didn't understand this. Here's a scene where his banker explains to him difficulties in laundering as volume rises: https://youtu.be/xyrAwWc9tU0 https://youtu.be/xyrAwWc9tU0
- kolbe 7y ago
  The comment is in reference to how much it can explain the growth in house prices. Vancouver has seen >60% growth in the past five years. So, 5% is tiny in explaining the growth. https://www.rebgv.org/market-watch/MLS-HPI-home-price-comparison.hpi.all.all.2018-12-1.html https://www.rebgv.org/market-watch/MLS-HPI-home-price-compar...
mistermann 7y ago
>> It is ESTIMATED that dirty money pushed B.C. home prices 3.7% to 7.5% higher than they would be in the absence of laundering." > So yes it has an effect, but it IS a tiny proportion of the price, something on the order of 5%." "...it is a tiny proportion of the price..." Technically, the degree to which it affected prices is unknown. Our understanding of market pricing is far from sufficient to make any confident and specific (to one decimal place no less!) assertions about how much of price increases were "caused" by money laundering. Market behaviors (price & volume) can bleed over into the realm of human psychology, setting off a self-reinforcing feedback loop of greed. When this happens, setting of another x% of price increases, is it correct or incorrect to say that particular portion was caused by the demand from money laundering? Once again, the correct answer is: we do not know. Any claims by anyone on this specific subset (the degree to which is certain things caused particular price increases) of the topic is inherently speculative, for more reasons than just the one outlined above (another obvious reason is, several of our input variables into the price increase model are themselves estimates).

nasalgoat 7y ago

5% of $1M is $50,000. Not exactly pocket change.

graeme 7y ago
As I commented here, vancouver prices did more than 4x in the past 20 years. So 5% is indeed tiny in that context. https://news.ycombinator.com/item?id=19878721 https://news.ycombinator.com/item?id=19878721

vraivroo 7y ago

The value of all homes in BC goes up 5%, and you consider that tiny? I suggest that your definition of tiny needs recalibration, friend.

graeme 7y ago
Vancouver home prices have soared since 2000. Detached homes cost $400,000 then, and $1,800,000 now. So yes, in that context, a 5% increase is indeed tiny. The popular conception is that "substantially all" of the rise in price has been due to foreign speculation. https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/2018/01/Screen-Shot-2018-01-26-at-5.14.23-PM-1024x623.jpg https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/201...
- vlovich123 7y ago
  I'm curious if the underlying analysis considered the compounding effect this has. Someone sells their place for 1 million for laundering, someone with a comparable property who thought it was only worth the 998k now sells it for 1 million, and all the way down. Now next year you've set the baseline 2% higher and so next year everyone adds on 2% of land appreciation cost. But now the next wave of dirty money pushes it another 2%. So net effect over time is much larger than what happens just because of a reduction in supply/increase in demand which I suspect is all that was analyzed.
  - projectramo 7y ago
    980k would be 2%. But more importantly, why would the person buy a property for more than it was worth just because they're laundering money? They would buy a million dollar house at fair value to launder their money.
    - pacaro 7y ago
      Because if you’re laundering money you don’t mind a loss. How much depends of course on your risk exposure and how “dirty” the money is. Essentially it’s worth it (to some people) to pay a “fee” to decontaminate the money. There’s a reason why loss making businesses are traditionally associated with money laundering.
      - projectramo 7y ago
        I am not sure what you mean: why take a loss if you don't need to? You don't mind a loss if that is the only way to launder money but if you can launder money without the loss, then why should you take the loss?
        graeme 7y ago
        Because you would expect to lose 40-100% of money you don't launder, either through taxes or confiscation. So a nominal loss is acceptable. The main thing is to get it laundered, and there is usually some price to pay to do so. Tony Montana's downfall in scarface happened because he didn't understand this. Here's a scene where his banker explains to him difficulties in laundering as volume rises: https://youtu.be/xyrAwWc9tU0 https://youtu.be/xyrAwWc9tU0
kolbe 7y ago
The comment is in reference to how much it can explain the growth in house prices. Vancouver has seen >60% growth in the past five years. So, 5% is tiny in explaining the growth. https://www.rebgv.org/market-watch/MLS-HPI-home-price-comparison.hpi.all.all.2018-12-1.html https://www.rebgv.org/market-watch/MLS-HPI-home-price-compar...

mistermann 7y ago

>> It is ESTIMATED that dirty money pushed B.C. home prices 3.7% to 7.5% higher than they would be in the absence of laundering." > So yes it has an effect, but it IS a tiny proportion of the price, something on the order of 5%." "...it is a tiny proportion of the price..." Technically, the degree to which it affected prices is unknown. Our understanding of market pricing is far from sufficient to make any confident and specific (to one decimal place no less!) assertions about how much of price increases were "caused" by money laundering. Market behaviors (price & volume) can bleed over into the realm of human psychology, setting off a self-reinforcing feedback loop of greed. When this happens, setting of another x% of price increases, is it correct or incorrect to say that particular portion was caused by the demand from money laundering? Once again, the correct answer is: we do not know. Any claims by anyone on this specific subset (the degree to which is certain things caused particular price increases) of the topic is inherently speculative, for more reasons than just the one outlined above (another obvious reason is, several of our input variables into the price increase model are themselves estimates).