Foreign buyers tax on trial — but B.C. claims crisis called for action

A landmark civil trial kicked off Monday testing the legality of a foreign buyers tax enacted by the province of British Columbia in response to a housing affordability crisis.

The legal battle pits the government against a proposed class of foreign nationals who claim they've been discriminated against in violation of the Canadian Constitution.

A lawyer for the province told B.C. Supreme Court Justice Gregory Bowden that the volumes of arguments, affidavits and authorities on display in his courtroom belied the very simple set of circumstances that gave birth to the law.

"There was an affordability crisis in the Greater Vancouver real estate market," Karen Horsman said as she laid out the justification for the tax.

"Local residents were in effect being priced out of the market."

Is the tax legal?

Introduced in July 2016 under the previous Liberal government, the tax initially required foreign entities (including foreign nationals) to pay an additional 15 per cent on the purchase of residential property in Greater Vancouver.

The current NDP government increased the amount to 20 per cent in February and expanded its reach to include the Fraser Valley, Capital Regional District, Nanaimo Regional District and the Central Okanagan.

The province has asked Bowden to determine whether or not the tax is legal in a summary trial — as opposed to beginning with a certification hearing on the class action.

The province will argue that the tax is not in breach of the Charter of Rights and Freedoms.

And that even if it were, the infringement is the kind of reasonable limit allowed given the pressing need for political action in the face of the housing crisis.

'Those are condensed?'

The plaintiff, Jing Li, is a Chinese student who moved to Canada in 2013 to complete a master's degree in public administration.

Weeks prior to the introduction of the tax, she claims she signed a contract for the purchase of a $559,000 home in Langley.

She says the foreign buyers tax added an additional $83,850 to her bill.

Li wants the tax declared illegal and is looking for the restitution of hundreds of millions of dollars collected by the province from foreign nationals in the past two years.

Li's legal team consists of five lawyers, including Joseph Arvay, a noted constitutional expert who is currently assisting the province as external counsel in its battle over the Trans Mountain pipeline.

Horsman is one of three lawyers arguing on behalf of the province. She began by calling Bowden's attention to the mountain of "condensed" legal volumes laid out in front of him.

"Those are condensed?" he asked.

'A smokescreen and not a theory'

But Horsman said the issue at hand was actually fairly straightforward: "The big picture can tend to get lost when the court is asked to get down in the weeds."

She said the court should consider the situation preceding the introduction of the tax.

By July 2016, the benchmark price of a single-family home in Greater Vancouver had risen to $1.2 million. The annual rate of house price inflation had reached nearly 30 per cent, an amount that far outpaced the growth in local income.

As a result, young families couldn't afford to buy homes. The future looked uncertain and while there was undeniably more than one factor, public commentary increasingly pointed to foreign demand as a significant part of the problem.

"By 2016, Vancouver was not only the most unaffordable real estate market in Canada," Horsman said. "Vancouver had become one of the most unaffordable real estate markets in the world."

Horsman noted that markets around the world — Sydney, Melbourne, Hong Kong and London — saw prices rise as housing came to be seen more as an investment than a place to live.

She claimed all those factors contributed to the legitimacy of the government's concern and the need to act.

She accused Li of clouding the issue by referring to historic discriminatory acts like the Chinese head tax as a way to suggest the foreign buyers tax is motivated by racism.

"That ... is a smokescreen and not a theory," Horsman told the judge. "There is nothing nefarious or racist in a government enacting measures that apply to all foreign buyers."

Duelling experts

Both sides came armed with affidavits from a slew of economists and professors to buttress their arguments.

Two of the most widely quoted academics on the subject — both attached to the University of B.C.'s Sauder School of Business — were cited in the day's proceedings.

Tsur Somerville was retained by the province and Thomas Davidoff by Li.

Horsman sought to use Davidoff's words from media interviews against him in order to undermine doubts the plaintiffs have raised about effectiveness of the tax.

Her written arguments include a quote from an interview in July 2016 in which Davidoff called the tax "a win" for the Liberals.

Analysis from one of the province's experts concluded the tax has had its desired impact, cooling the residential market.

Horsman will spend the next two days outlining B.C.'s case. Li's lawyers are expected to begin their arguments on Thursday.