1/ True, False or Uncertain? Justify your response to the following statements. a) Consider the new...

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1/ True, False or Uncertain? Justify your response to the following statements. a) Consider the new residential development in north Toronto. A 1300 sq. ft. house was recently sold for $600,000. The houses are designed to not depreciate, their regular maintenance expenses are only $5,000 per year and property taxes in this part of the city are 1 percent. Investors are renting these places to tenants at $50,000 per year. With an interest rate of 7.5 percent and a 50 percent downpayment, the rate of return on the investment would be acceptable if the expected growth rate in prices is high enough. If both the ownership and rental markets are in equilibrium, then we can infer that investors must expect the growth rate in home prices to be more than 2.5 percent per year. b) If the government builds a lot of new houses then the owners of lower-quality existing homes would reduce the level of maintenance. c) Financialization of the housing sector contributes to rising housing prices, particularly in urban areas. Investors want to earn a higher rate of return and, especially when interest rates rise, the arithmetic of accounting would lead investors to charge higher prices for homes or to lower the level of maintenance or both. Therefore, in equilibrium, the price of homes would be higher and their quality would be lower, which would make it more difficult for individuals and families to buy homes at an affordable price. 1/ True, False or Uncertain? Justify your response to the following statements. a) Consider the new residential development in north Toronto. A 1300 sq. ft. house was recently sold for $600,000. The houses are designed to not depreciate, their regular maintenance expenses are only $5,000 per year and property taxes in this part of the city are 1 percent. Investors are renting these places to tenants at $50,000 per year. With an interest rate of 7.5 percent and a 50 percent downpayment, the rate of return on the investment would be acceptable if the expected growth rate in prices is high enough. If both the ownership and rental markets are in equilibrium, then we can infer that investors must expect the growth rate in home prices to be more than 2.5 percent per year. b) If the government builds a lot of new houses then the owners of lower-quality existing homes would reduce the level of maintenance. c) Financialization of the housing sector contributes to rising housing prices, particularly in urban areas. Investors want to earn a higher rate of return and, especially when interest rates rise, the arithmetic of accounting would lead investors to charge higher prices for homes or to lower the level of maintenance or both. Therefore, in equilibrium, the price of homes would be higher and their quality would be lower, which would make it more difficult for individuals and families to buy homes at an affordable price.

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Answer a Uncertain While the statement provides information about the investment scenario and market ... View the full answer