A series of accusations that developers in Vancouver and the lower mainland manipulate land transactions to their own advantage has been posted anonymously, and undated, on a website ‘landtricks.tripod.com’ under the heading ‘Metro Vancouver Land Cartel’. For the record, we archive part of it below, with specifics edited out. We found out about the post after ‘tabin’ linked it at RE Talks [30 Jul 2010, 4:43 pm]. The author claims to be somebody who “worked for a large developer until recently”, and quotes from an e-mail sent to him/her by “a colleague and friend”, so this is 2 or 3 degrees of separation stuff. We have no way of verifying whether there is any truth to these accusations, but we’ll be following with interest any public dialogue that results.
In every bubble, insiders and vested interests make hay during the boom period, and we’d expect the Vancouver RE bubble to be no different. We have previously noted the unholy triad of ‘uncritical media’, ‘vested interests’ and ‘government compliance’ that definitely helped fuel our bubble. “Everybody’s hustling for a buck and a dime”, after all.
Vested interests and insiders making as much money as possible during boom times, is not, however, the same as possible price-fixing and other nefarious practices, so we’ll have to see if there ever emerges any actual evidence of this. It sounds to us like the kind of issue that could becomes a focus of attention in a serious downturn, when a significant number of people holding over-leveraged RE cans will be looking for scapegoats.
Speaking of downturns, we’d not expect this issue to make any difference to the inevitability of a bubble implosion. Even if there was a ‘cartel’ attempting to continually manipulate prices upwards, the size of the market, and the forces that come into play when a bubble runs out of oxygen, will completely overwhelm their attempts. If anything, upward manipulation of prices during the boom will simply ensure that the bubble is that much greater, and that the subsequent fall will be that much greater, too. -vreaa
“I received a very interesting and informative email from a colleague and friend of mine. I thought it important enough that it should be shared with all the people who might be affected by this. I worked for a large developer until recently and was sent this email and even I wasn’t aware of all the tricks because only the owners of the largest development companies know them.
The author refers to the suburban situation. I can attest it holds across Metro Vancouver and the tricks may vary to suit the different conditions in the various municipalities.
The email is as follows:
I know quite a few people have an idea or suspicion about the collusion in price fixing (like the oil companies do with gas prices) that goes on with the main established developers … but not the details of how its carried out – even I only know some of it because its clever and kept secret. This is also carried out elsewhere in the Lower Mainland and parts of BC but I don’t think to the extent and success it has been in Surrey/Langley. In Richmond it has not really been successful in the city centre because too many Asian developers jumped in. Also it doesn’t work with smaller projects as the smaller developers can do them so its not possible to control those.
It all really started in 1991 when Surrey had its “Suburban Lands Review” identifying all the new future NCP [Neighbourhood Concept Plan -ed.] development areas. That is when the big developers … got together and divided all the areas up for joint ventures and options and staked their claims to purchase land so as not to compete with each other as there was such a surplus of land all at once available for future development. This was a smart move (though it was illegal) as there was enough of a pie for everyone. They also sold the idea to the City of Surrey that NCPs should be self funded so that this way the large developers could control development and shut out the smaller and midsized developers – who would be left with the scraps and had no control over the timing of development.
Now with the number of new NCP areas that are developable at any one time much more limited in Surrey and Langley (currently only South Newton, Grandview Heights and Yorkson are), they have to compete within the same NCPs. So what they do is divide up the NCP parcel by parcel so each of them get their share of the major parcels and this way they do not compete with each other. …
If any one of the cartel members purchases a parcel, they then get first dibs on any adjoining parcel (unless it is already “assigned”). Some developers get first dibs on property on certain types of roads. Its all mapped out in detail. This is why landowners rarely get competing bids from cartel members and prices are suppressed but the savings are never passed on to home buyers and simply goes to extra large “bonus” profits.
Some of the specific tricks are:
– Lesser members get the less desirable sites allocated to them and are expected to pay less for their land in order to maximally suppress land values to benefit the cartel (the more established ones reap the greatest benefit out of this). So unknowing to them, the lesser ones do the “dirty work” and are used to sacrifice for the greater benefit of the others in the cartel.
– Up and coming developers are often told of the benefits and are tricked to join (but don’t really get the benefits) the cartel but often later leave it when they realize its not to their benefit and they are being used and controlled (but some still get suckered in to stay as they feel important in that they belong in the company of these bigger developers and they feel they have “arrived”). What a few smart developers have done in the past is just play along and still steal whatever land they want once they learn of the exact competition for whatever land they want and then end up being out of the cartel.
– The cartel uses its own realtors – each developer has its own agent for each area. This way listing agents (and buying agents) have no control and the developers control buying and selling. That is why they don’t even respond to listing agents trying to sell their clients development properties. For realtors, there is no point in contacting any of these developers as they already know which parcels are “theirs”.
– For new NCPs they purposely have the engineering consulting firm (with whom they are very friendly and give a lot of business to) leave property that is serviceable just outside the boundary of a new NCP and later purchase it from the owner cheap and get the NCP boundary moved so it is “in” and serviceable.
-The cartel’s new trick is in new NCP areas to force consolidation of parcels (put in servicing and planning constraints) so they only can do development because they are big enough to purchase multiple properties and overcome these hurdles. This way they also get the land cheaper. They also get the planners to run future roads in funny ways and not shared along property lines to further do this (force consolidation of parcels for development to be feasible).
– They buy up the parcels which can hold up development (like where key future road access and servicing points are) so as to control development.
– To suppress pricing of land further, cartel members do not buy optioned land from speculators even if it is a good deal and only if they really have to. This keeps speculators out and cartel members artificially control prices downwards.
– They collude and fix selling prices of their housing units also so as not to compete with each other and get the maximum selling price possible.
– They encourage all their members to spend the least they have to on exterior finishing so as to keep the standard low and not raise expectations of consumers. Yet they still sell their housing units for “full” price. This is done to maximize profits for the long term.
– Even when making 10 million profit on a 5 million dollar project investment (of their own money), they will fight city planners for every inch for even small concessions. This is because they are so damn cheap and greedy and also they do not want to set precedents for the municipality to make it easier to change policies that will later effect their profits, especially in leaner times.
– There wouldn’t be a problem with this land price fixing if say they were going to take a fixed 20% profit on the product and if the land were cheap, the selling price was reduced to keep the same 20% profit. Instead, even if they get the land for free, they sell for the maximum price they can get and maximum profit. I have seen this when they get the land for “dirt cheap”, they never give a break to the home buyer. Of course they do not have 100% control over the land values as supply and demand, scarcity, migration, the economy and other factors largely control this but they still have a large enough influence with their monopolistic collusion tactics which are in fact illegal.
– The biggest mistake this cartel made is that they were short-sighted and cheap and not really very smart in not buying up all the developable land parcels they could in order to control development permanently and block all future competition. They foolishly thought (and still do to an extent) that they can buy the land they need when it suits them at their price. They underestimated other smaller developers (like the Indo community ones) who then came in and got a big enough chunk of the development pie and have become much bigger and will be more dominant in the future and have taken a lot of the cartels market share. Smart business people would have seen this potential problem and bought up the land for their future development dominance. In fact any smart developers can just go out there and snap up as much development land as possible and then they will be the main builders in the years to come as they would control much of what can be developed and just laugh all the way to the bank and the rest would be left on the sidelines as there is only very limited developable land and without it you are no longer a player. It is easy to do this but to tell you the truth, these guys aren’t too bright and are just a bunch of circus monkeys ordered around by the ring masters (the big developers who run the cartel for their benefit).
– They give themselves awards they just divvy up among the cartel members which are a farce and are simply a marketing tool and a way of getting new developers to join them. They also function as a way to keep cartel members obedient to the cartel – if members don’t follow the rules, they don’t get any candy (awards).
– The cartel’s developers has really strong political influence at every municipality they are active in but the real control is in ownership of the land and they failed to realize this simple and obvious fact and missing this important fact, allowed a lot of smaller developers to become bigger thereby “stealing” the cartel developer land and the smaller developers made a lot of money and therefore are now real future competition for the cartel developers. As a result of this threat, the cartel developers are trying even more corrupt tactics at the municipalities. The worst municipality for this is the City of Surrey (which is surprising since it is so large and not some small town where it is easy to buy off a few people and control it). They especially buy off or influence city staff. … The corruption and influence is still there and in a way its worse because the cartel is losing its control and is getting more desperate and has been done to a greater extent including a new (since about last year) special greater focus more to the implementation (application and servicing) stages. In actual fact, Surrey needs a full-time or part-time engineer and a planner to act as auditors or ombudsman to oversee all decisions and respond to any complaints who are independent and do not know staff. It really is that bad in Surrey.
All I am going to tell about myself is that I have been developing in the Surrey Langley area for over 25 years and have done very well financially and have recently retired from it and have let the next generation carry on with it and thats why I have not given my name here. I just wanted to give back by letting people know so that the illegal racket will end sooner rather than later and I did my part in exposing it so I can clear my conscience as I benefited from it because I was able to buy land cheaper and sell my housing for greater prices and profits due to the price fixing and non-competing of the cartel.”