2. Housing market impacts economy

Concentration of jobs and population in a big city caused social problems and unbalanced in housing markets.

1.      Why big city is overcrowded

Many companies have located in big cities with abundant of graduates from universities around, thus they could pick top candidates. This caused big cities like Montreal [4 universities and 20 colleges] and Toronto [4 universities and 4 colleges] over crowded.

Many people are relocating to Montreal and Toronto for jobs. Montreal is different, because companies had requested bilingual work forces, thus most of workers have moved to Toronto, where English is the only requirement.

Currently Toronto is on the top list of worry for housing market bubble. The average house price is around $1M, which is out of reach for many residents. The house price kept going up due to shortage of listing or lands for new development. As history proved, housing market did collapse, i.e. impossible to go up forever. The later the crash happened as in USA, the worst we would get for the economy and people’s mental health and personal wealth.

2.      Solution proposal

We could try to divert job’s concentration in big cities such as Toronto and Vancouver. The housing price’s issue with Toronto also existed in surrounding areas, i.e. Greater of Toronto Area (GTA). Governments used to give tax breaks to companies to relocate or open an office in a city, thus governments could give higher tax breaks around 2% higher than normally to companies willing to settle or relocate outsides of GTA.

Currently, technology allows workers to communicate with each other by phone, video conferences, and discussion over the Internet. We could review and discuss issues remotely. Therefore housing the whole company under a roof is no longer a mandatory. Having spread to other cities around 1 hour drive from GTA would be a better option as workers may go to Toronto’s airport once a while for travel. Workers could visit Toronto during the weekend without any issues.

Current traffic in Toronto makes daily communication horrible. Living in a Gold Hawk area of Scarborough of Toronto with a job in Toronto downtown would require too much time to commute daily.

-         If we drove to downtown, it would take around 2 hours 30 minutes each day plus bumper to bumper in Don Valley Parkway and downtown streets. Gasoline price was not cheap around $1/L. Parking fee was around $25/day. This is not an interesting option with costs and frustration with pressing brake and then gas pedal continuously.

-         Travelling by bus-subway-street car would require 2 hours 45 minutes each working day. We didn’t have many hours left for other daily activities.

-         The issue was job concentration in Toronto downtown.

3.      Taking a look at the affordability of housing market in Toronto.

a.      For $1M houses in Toronto areas, figure out down payment:

* Family income must be at least $230,000
- Property tax $7,000
- Monthly heating $500
- Minimum monthly loan/credit payment: $3,500
- Monthly Secondary Financing Payment: $0
- Interest rate: 3.2%

Maximum mortgage: $716,894.69
Monthly payment: $3,466.67

Source: http://mortgagecalculatorcanada.com/en/calculators/maximum-mortgage-calculator/

b.      For $500,000 houses in Toronto areas, figure out down payment

* Family income must be at least $130,000
- Property tax $3,500
- Monthly heating $350
- Minimum monthly loan/credit payment: $2,000
- Monthly Secondary Financing Payment: $0
- Interest rate: 3.2%

Maximum mortgage: $394,636.74
Monthly payment: $1,908.33

4.      2008 housing crisis in USA
Canada's housing market is like US housing market before 2008 crash. Currently Canadians were stretching their budgets to buy a house in hope that the house prices would go up forever.
-> Earlier than 2008, US households would only pay interest [not down on capital] in hope for selling their houses at higher prices later. This market was crashed in 2008.

* Over the long run, house prices would go up. However it won't go up more than 10% annually and for many years in a row. It did fluctuate a little bit, too. In the current situation, the housing market would collapse.

5.      Some house price’s figures provided by newspaper

Average Canadian house price of $503,301 in June 2016 up 11.2% from year ago

>>> The average price for a Canadian home was $503,301 last month, a figure that has increased by 11.2 per cent in the past year.<<<

>>> "We would normally insert the standard disclaimer that the national figures should be treated with caution due to the wildly differing performance at the regional level," BMO economist Doug Porter said. "But, the double-digit increases are spreading: Of the 26 major regions covered, eight saw double-digit average price gains in June."<<<

* Look at the charts in the article below, you would see crazy numbers for house prices in GTA. Detached houses has gone up 78% within 5 years, i.e. better than stock investment OR fucked up.

Source: https://ca.finance.yahoo.com/news/average-canadian-house-price-503-131848422.html

6.      Best scenario for home buyers and apartment renters

The interest rate higher and house prices lower, this would allow us to pay off the house completely if we had some savings. Note that our salary is fixed, thus higher house price purchased would make harder to pay off.

First entry of home buyer would be easier, too, as they could afford a house within budget.

As house prices lower, landlords would be able to lower rents to compete with each other. If they paid a house at higher prices, they would likely raise rents to pay off their own costly mortgage faster.