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 poeple 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 (mainly the UDI ones but some are only GVHBA members) 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 development areas. That is when the big developers with the lead of Progressive Construction 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. Progressive Construction (also operating as Townline and the majority partner in BFW) is the leader in doing the allocations and usually greedily claims the choicest parcels and more than their fair share for themselves. This is also done with infill areas (like Whalley, Langley City, Guilford) and some developers like Weststone and Century Group agree to only go into infill areas and not new NCP areas and in fact its pretty much you agree as a developer to do one or the other (infill or new NCP but not both but there is the odd exception).
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 (such as Adera gets to "claim" first on arterial 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 UDI 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 alot 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 (the UDI "Georgie 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).
- Progressive/BFW tries to get land for dirt cheap on option that has no business being in development (until the rest of the better suited non-ALR land is developed. A recent example in Surrey being trying to get Hazelmere (the area just south of Campbell Heights close to the United States border) in development ahead of areas like Grandview Heights NCP #3,4,5, Clayton, etc. where they don't own land as its not almost "free" in price the way they like it. Luckily Surrey rejected this latest ploy but had no choice as it was too blatant and would have woke up the public and too much opposition if it proceeded any further into the public arena. People need to speak out and use political pressure if they see this kind of scam happening in future. A very ethical former director of planning with the City of Surrey up until the mid-90s, Lehman Walker, publicly spoke out against Progressive trying this constantly back then (it made major headlines in the local papers back then with the specific case being North Grandview in South Surrey). This negative publicity stopped them for a while but it looks like they are back to the same tricks again.
- The cartel 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. It was really bad when Jorgen Johansen was the manager of engineering there as he was in the pocket of these guys (mainly under the control of Progressive) and luckily he was forced to resign (it was all done quietly). 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.
- They even influence who is hired into the top planning and engineering positions. One example being in Surrey about 15 years ago they got How Yin an incompetent and incoherent (in the english language) planner put second in charge of planning and he then would just rubber stamp everything the cartel wanted. He even went so far as to protect his own job as he was rightly insecure by hiring people under him as planners who like him were of a similar ethnic background and poor communicators even though they only made up a small percentage of planning school grads (his thinking which was clever was that Surrey could not get rid of him if there were a lot of Asians in the department as one of them would have to be in a senior position). The real problem with this was Surrey ended up with the worst urban planners anywhere (because he restricted hiring as much as he could to be based on race and chose the worst communicators and least competent out of them – the best ones of that race, who are as good as anyone, were purposely not hired at the City of Surrey) and has and still is really hurting the planning and development of Surrey - this is why Surrey is still a joke compared to other municipalities in terms of how it has developed. The cartel loves these weak planners as they are too incompetent and afraid to challenge them on anything and just go along with their wishes on pretty much anything.
Let staff who are not part of the corruption, members of council and the local media know whenever an issue comes up that effects you and is underhanded by any cartel developer. After this email, for purchasing of properties some of the cartel may try to come under different names than they would have but check the director information and always try to sell to non-UDI or non-cartel developers if you can (a list of most of the ones not to sell to are at the end of this email - its all kept secret so even someone like me can't figure out every one of the members in it). If any of you have been negatively effected by this cartel, you may want to make a formal complaint to the Competition Bureau of Canada for illegal anti-competitive collusion by the cartel whose mandate it is to prosecute price fixing, monopolies and other anti-competitive business practices.
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.
Current list of definite (this is most but not all of them) cartel members doing development in Surrey/Langley (go to www.udi.bc.ca/udi_links.htm to find UDI members):
Adera, BFW, Century Group, Intracorp, Isle of Mann, Lakewood, Ledingham McAllister, Marcon, Nordel, Pacific Rim, Parklane, Penny Farthing, Polygon, Progressive Construction, Qualico (Foxridge and Porte), Rempel, Solterra, Tien Sher, Townline, Weststone
I have added 3 of my own specific recent examples for the City of Vancouver as this is where my development experience mainly is from.
1. The South East False Creek Village plan (where the Olympic athletes village is) was set up so that the densities were variable with the most densities given to the parcels that developed first. This trick was done by the UDI developers so there was incentive for property owners to sell quickly as holding out for later would actually get them less density and therefore less value.
2. Sam Sullivan and Larry Beasley were just pawns of the UDI developers. They were very cozy with the big developers. Beasley was rewarded with a hi-rise tower in his honour after.
3. No planning was done along the Canada Line route in Vancouver because the UDI developers wanted the land cheaply by being able to buy it up in advance first before the planning was done and then get favourable densities for themselves - get the highest and best use on the parcels they own. They delayed all this because they didn't want to hold land and tie up their money until after they were finished with downtown and South East False Creek.
Some of the smart developers took advantage of this land cartel by moving in without telling anyone and paying a bit more than what the developer who had his claim on it like it was his God given right and assumed he was going to get it at a low price. This is where guys like Will Lin of Rize Alliance came out of nowhere and "stole" the best sites and all of a sudden is a big player in development. Others like Concord Pacific take advantage of this cartel by just taking the best sites regardless and as a result make more profits and grow faster.
I also worked for one of these large developers who have been around for a long time until recently (hence I am not giving the name of the developer as I was high up and it could be figured out who I am). Yes, everything on your site is true. I just wanted to add they try to keep a lid on the price any member of this cartel pays for land in each area and that is usually done with a bigger established developer in this cartel overseeing it. This suppresses the land prices paid to the land owners but the savings are never passed on to the consumer, in the least. The odd cleverer and more intelligent developer exploits this and acquires the more desirable development parcels by paying more than artificially set one. As a result they are more successful. This is the best strategy for a smart developer.
The only reason this land cartel has held up (though it is significantly weaker than it was a couple years ago and is on the decline despite desperate attempts by the UDI heavy weights to salvage it), is because most of the developers aren't that bright and get manipulated by the big guys. Though it still won' t hold up as people find out about this well hidden secret manipulation from sites like this. Further, the non-UDI mid-sized developers are paying a bit more and getting the best parcels and are growing the most and make the most profits as a result.
This cartel will not hold over the next couple of years and will fall apart as there are too many developers and too little land to keep the price fixing going. The cartel participants will be the
ones who are going to be pushed aside and lose out over time.
If we had people like Bill Gates of Microsoft fame in this development market, he would just go out and initially pretend to co-operate with this land cartel but just go out and buy up all the prime sites he could and end up with somewhat of a monopoly on development.
We as taxpayers have gotten short-changed because when these cartel members “assign” land parcels amongst themselves, taxpayer land parcels that are for sale are included. Therefore, we get less for all government and crown lands - municipal, crown, provincial, utility, and even the university development sites that are sold off.
The reason the local media doesn’t investigate this is not just because they probably don’t know about it but because the big developers advertise extensively in it. However, the media has not realized that the developers would have to advertise even more if they covered this – because to keep the media outlet from continuing to pursue this, the developers would have to buy more ads to hush the media outlet and also to counteract the negative impact among the public.
The inept Competition Bureau should do an undercover investigation. It is politically feasible to do so also because these local developers have little political clout at the federal level as is evident by the fact they have never managed to do much to mitigate the GST and HST ( by obtaining increasing rebates or thresholds for it applying) hurting their bottom line.
My comment is that governments should always divide up their land for sale into small parcels to maximize competition and revenue or even develop the land into the final parcels (lots, smaller multi-family sites) themselves.
I have an interest in urban design and have a career in real estate and thanks so much for the information and getting it out there for all to become educated on the nature of the local big development industry. I have a real interest in fee simple rowhousing and the lack thereof in Metro Vancouver, especially in the City of Vancouver. This is a predominant housing form in Eastern Canada and the USA and certainly Europe and would go a long way to addressing our housing needs locally. Yet it is perplexing why it is not allowed to take foot. I have been investigating why this is so over the past several years and this is some of what I have determined:
1) The main reason is because the UDI developers have influenced senior municipal staff, especially at the City of Vancouver, to not consider rowhousing as suitable housing form locally. This has been done because the big developers are in no position to go out and benefit from infill housing redevelopment when it involves a couple of house to be knocked down in Vancouver and replaced with a few rowhouses – the projects would just be too small and not in the domain of the big developer – they are only suitable for small developers and builders. These big developers wish to control and monopolize infill development and stand to benefit greatly financially from doing so and have been very successful in achieving this. They have, in effect, sabotaged the eco-density that most of us want here.
2) Now if rowhousing was allowed, it would take off and would be very popular as it suits the needs and price point of home buyers who do not wish to relocate to the suburbs – especially young families and couples starting out. This would detract from the apartment (towers mainly but also low-rise apartments blocks) housing that the big developers wish to get approved and exclusively control the building of due to the capital required and expertise. It would be harder to get these hi-rise towers approved and therefore the big developers would be giving away market share to the smaller players. Rowhousing works very well as infill housing with the existing street networks and communities. Little or no infrastructure upgrades are required. It is easily brought to market by the small developer and builder. On a single 66 foot lot or 2x33 foot lots in the City of Vancouver, four or five, 2 or 3 level rowhouses with a parking garage for 6 vehicles off the lane can be easily accommodated.
3) Therefore, they manipulate planners, architects and municipal politicians into going against rowhousing with ridiculous arguments such as potential conflicts because of adjoin party walls between units – of course this is not a problem elsewhere in the civilized world and, even so, each unit commonly has its own external walls in other jurisdictions such as San Francisco.
4) They divert the need for affordable infill housing in the City of Vancouver to that of laneway housing. This is an expensive housing form per square foot and comes with other problems such as being often hard to service with sewer and other utilities and is only providing additional rental suites but not affordable ownership.
5) They have been so successful in this agenda that they even got passage of zoning allowing rental suites within condo suites, as hard as that is to believe. This is so as to “warehouse” families in these towers they will build and allow rental of a portion of the suite until they have children or the kids get older and then they can occupy the rented portion also. They have actually fooled us into thinking this is how families should live.
6) The UDI have even got big architectural firms helping them in their agenda such as Bing Thom Architects who push for housing forms like laneway housing but go against rowhousing. These firms stand to gain financially from designing towers for the big developers but rowhousing will gain them little or no (in the long term) work.
7) The big developers have pulled this agenda off and that is why we see so many towers being built and proposed in Greater Vancouver. This is only suitable in the obvious areas such as downtown Vancouver or Metrotown. But where it has hurt Metro Vancouver most is in the City of Vancouver and Burnaby where rowhousing is the best suited infill housing form along with some low-rise apartments. It really is silly to see a single family home or an apartment as the only two housing forms built – it is really a case of two extremes and not a proper urban landscape and certainly not a model to be emulated elsewhere. Vancouver is no “miracle” in its urban form, only a victim of a manipulated urban planning.
My own comment to this is that this is very good information and this corruption of the planning process is what has kept many middle class families from being able to live in rowhouses in the City of Vancouver and resulted in more of a flight to the suburbs as a second choice for many. If this were not the case, we would be able to keep more schools open which are presently facing closures. Also, duplexes should be allowed on any lot that is at least 40 foot wide and 4000 square feet.
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