7. Limit on residential house

How to keep house prices reasonable for local residents

Currently Canada is facing over the roof house prices that are unaffordable for youngster and first time home buyers.

In Toronto, people cannot afford a detached or semi-detached house, thus they are forced to buy a condo house. This also drives condo houses going off the roof. This is definitely not good for anyone.

Canada is having this problem first due to Chinese, who are used to sky rocket house prices in their homeland, jump into the housing market and beat them upward. Second is due to negative interest rate in European Union that flood cheap money in Canadian housing market. Third is due to low interest rate set below 1% by Bank of Canada for a long period of time.

To resolve this issue would be introducing new laws and rules

·        Bank of Canada cannot set rate below 1%, which could be used as low variable rate in housing mortgage. In case of economy slow down, they could do stimulus by letting local banks to perform lending with BoC rate + 1% as discussed in other notes.

·        Each permanent resident family is limited to own a house.

·        Each citizen older than 18 years of age could own a maximum of 2 houses, i.e. one as a vacation house.

·        Temporary workers cannot own a house except senior managers, because senior managers may hold meeting in their own house settings.

·        International students cannot own a house.

·        Foreigner cannot buy a house

·        Incorporate business could invest in commercial real estates as usual.

·        Incorporate business could invest or own residential houses in normal time. If house prices appreciated more than 3% in a year, they must reduce or release some of their properties to market in order to lower house prices.

·        Stress test could be done as currently, but many of house owners are on variable rates. Therefore the real stress to their budgets would show up with increase rate by Bank of Canada. Many people said that there are many buyers faked their annual incomes reported to bankers. Bankers don’t have access to Canada Revenue Agency’s (CRA) database, but Canada Mortgage and Housing Corporation (CMHC) is a government agency. CMHC should be able to verify data submitted by banks or lenders if down payment is less than 20% with CRA.

·        If a property is above a limit, e.g. 1 million Canadian dollars, bankers may apply to CMHC to verify applications for them even buyers paid 20% down payment.

This is a proposal as usual.

* January 5, 2019: Residential housing market is related to consumer budgets, therefore it's critical to an economy performance.

The last time, US housing market crashed in 2008. US economy and US banks have been in trouble until approx. 2015, i.e. 7 years. Banks are backbone of an economy.

If a company was in trouble, it's likely that it couldn't compete with a competitor. Therefore a company filed bankruptcy, we have another replacement, i.e. it's not a disaster.