Housing Affordability In Canada Essay

The article talks about the problem of housing affordability in Canada, particularly in Toronto and Vancouver, as the price of houses have increased by almost 50% since 2011 (Murphy, "Canada is taking aim at its overheated housing market", 2016). The economic concepts that could be applied to this article are the laws of demand and supply. The law of demand and supply is a basic economic principle that explains the relationship between supply and demand for goods or services and how the interaction affects the price (Investopedia, "How Does the Law of Supply and Demand Affect Prices?", 2017). In general, house prices are determined by the relationship of the supply and demand in the housing market (Investopedia, "How Does the Law of Supply and Demand Affect Prices?", 2017).

According to the article, demand of housing in Toronto and Vancouver is increasing due to low interest rates and growing demand from foreign investors. Low interest rates signals the buyers in the market that housing is becoming more affordable and acts as an incentive for people to purchase more properties. Moreover, due to the growing demand from foreign investors, the overall demand in the housing market has greatly increased, as illustrated in Figure 1. As shown in Figure 1, the demand curve shifts to the right from D1 to D2.

Figure 2 illustrates the impact of the additional 15% tax for housing on foreign home buyers. Due to the additional direct tax, the total cost needed to purchase a house increases from P1 to P2. As per law of demand, the demand from foreign buyers will decrease or slow down significantly due to increased price, thus there is a movement on the demand curve from point A to B indicating a decrease in the quantity of houses demanded. As a result, property sellers may have to decrease the price of houses or make special offers to buyers. This is an advantage for Canadian buyers as houses would be more